South Africa: Budget slammed for leaving poor ‘out in the cold’

By Xolisa Phillip
Posted on Friday, 4 March 2022 11:28

South Africa's finance minister presents 2022 budget
The role of South African finance ministers in ITAC decisions is unclear. Enoch Godongwana here presents his 2022 budget. REUTERS/Shelley Christians

Civil society groups advocating for a universal basic income are criticising South Africa’s latest budget as a "missed opportunity", terming it a "classic case of excessive fiscal prudence".

Finance Minister Enoch Godongwana outlined his inaugural budget last week. Its focus is on narrowing the budget deficit and stabilising public debt. “Our debt burden remains a matter of serious concern,” he said.

Policy pronouncements on a universal basic income grant were however left out of his budget speech, to the dismay of civil society activists.

“We are disappointed that there hasn’t been much said about it. It is important now, and [in] the next few months, to bed that down, and to ensure that civil society’s voice is heard,” says Cheryl-Lyn Selman, a researcher and special projects lead at the Institute for Economic Justice (IEJ), a self-described progressive economics think-tank in Johannesburg.

“It was certainly a pro-business budget,” Selman says. “A pro-wealthy budget and a pro-bankers’ budget. The poor have been, sadly, left out in the cold – again.”

Rachel Bukasa, the national director of Black Sash, a human rights nonprofit that advocates for a universal basic income, also denounced the budget. “I think what we see here is a classic case of the economists going way on the other side,” she tells The Africa Report. “We see this [as] excessive fiscal prudence.”

To somebody who has nothing, R350 ($22.85) is an important anchor.

Meanwhile, Investec chief economist Annabel Bishop describes the budget as “solid and pleasing”, while also cautioning that “there are still multiple risks which could derail it, including political [risks] in SA”.

Fiscal projections

A commodities boom for the mining sector has resulted in an unexpected R182bn ($12bn) revenue windfall for the government. The additional funds will go toward paying down the public debt – a move decried by several civil society organisations.

The budget deficit is projected to drop to 5.7% of GDP in 2021/22, and 4.2% by 2024/25 (the annual budget runs from 1 April through to 31 March the following year). In 2023/24, South Africa expects a primary budget surplus, which is defined as revenue exceeding non-interest expenditures.

The country’s debt-to-GDP ratio is forecast to go down to 75.1% by 2024/25. In the medium term, public debt is expected to reach R5.4trn ($360bn).

Missed opportunity

The IEJ and Black Sash are part of a collective of civil society organisations that met with President Cyril Ramaphosa in mid-January to make a case for the introduction of the universal basic income grant. They want poor people to be eligible for a monthly cash transfer of up to R1,335 ($88).

They also want to extend the social relief of distress grant, a monthly stipend of R350 ($23) introduced in 2020 to cope with the Covid-19 pandemic. The grant is intended for South African adults of working age who are unemployed and have no sources of income. Some 10.5 million people are currently eligible.

A basic income grant has been repeatedly demonstrated to be something that is doable.

In his budget speech, Godongwana announced that the social relief of distress grant would be extended for another 12 months at the current rate. He said R44bn ($2.9bn) has been allocated for this purpose, but warned against “calls for a permanent increase in social protection that exceed available resources.” He also pointed out that South Africa now pays grants to more than 46% of the population.

Selman terms the budget as a “missed opportunity.” According to him, “a basic income grant has been repeatedly demonstrated to be something that is doable.” and that “there are multiple plans and pathways that have been presented to the presidency by civil society partners”.

The IEJ argues that R350 for the social relief of distress grant is below the poverty line and proposes R624 ($41) as a better alternative. The organisation also notes that the new budget actually decreases the value of the grants because of inflation.

“To somebody who has nothing, R350 is an important anchor. The R624 is a more objective measure of food poverty that allows a person to purchase a basic basket of goods to feed themselves,” Selman says. “But even that isn’t enough in the long run. We are pushing for that to be moved to the upper bound of the poverty line.”

Unexpected windfall

Selman says the IEJ believes that the R182bn revenue windfall has created room for the government to do more. “We could have used that money to bolster the social relief of distress grant,” he says, but instead, “[the] Treasury has chosen to pay down debt. It’s a continuation of austerity”.

Undeterred by the latest budget pronouncements, Selman is adamant that “there are more solutions available to us. We are putting out a paper […] next week about that”.

What was painfully obvious, was that some of his advisers and ministers looking after the economy have a rigid approach to this.

The Treasury opting to go on a cost-saving drive carries a high social price for the people on the ground, according to Bukasa – a price “more excessive than any money you can look to save by not putting a universal basic income grant in place.”

She says advocates would have preferred to increase the social relief of distress grant to the minimum of the food poverty line, which is around R624 “because that ensures people have the bare minimum.” Still, she says, “we are glad that it’s been extended, as meagre as it is, for another year.”

The civil society collective has also proposed setting up a panel of experts, comprising economists and community groups, to engage on the universal basic income grant. Bukasa says hearing from more people with a mix of skills and viewpoints could counter the National Treasury’s current top-down approach.

The budget review, which gives a detailed account of the National Treasury’s rationale for decision-making and spending allocations, notes that “the presidency, the National Treasury, the department of social development and interested parties are working on a sustainable long‐term approach to social protection consistent with government’s broad development mandate and the need to ensure affordability”.

Bukasa indicates that President Ramaphosa was receptive “to what we were saying” when civil society groups met with him in January, including on the topic of a universal basic income grant. “He listened. He had engaging questions around it,” she says. “Also, what was painfully obvious, was that some of his advisers and ministers looking after the economy have a rigid approach to this.”

Despite that, Bukasa insists that “we [civil society groups] are a long way from the end of this. We want to work with [the] government to make something that will benefit the South African people at large”.

Rating the budget

In her budget update, Investec’s Bishop drew attention to the fact that the finance minister “spoke against permanent social welfare increases, pressure from the public services wage bill and further bailouts for SOEs [state-owned enterprises]”.

Bishop also highlighted the reduction of South Africa’s corporate income tax rate to 27% from 28%. “However, this on its own will not stimulate economic growth and employment in the private sector without a gamut of structural reforms,” she says.

Moody’s Investors Service and S&P Global Ratings have both South Africa’s rated sovereign credit as sub-investment grade – also known as junk status. S&P is scheduled to review the country on 20 May.

The budget’s focus “remained on reducing debt projection and this was positive for the bond market as borrowing[…] ease compared to projections, but on balance the budget is like[ly] to be viewed as credit neutral by the rating agencies,” Bishop says. “Government remains committed to restoring South Africa’s investment-grade rating by stabilising the debt-to-GDP ratio, narrowing the budget deficit and accelerating long-term economic growth.”

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