SA walks line between debt and stable society

SOUTH Africa is facing a conundrum of expanding the budget deficit to finance the growing demands for social grants, but analysts across the spectrum agree that Finance Minister Pravin Gordhan has little option but to allow the welfare system to grow.


Development Bank of Southern Africa lead economist for research and information Neva Makgetla said just about everyone in the government agreed that ‘from the standpoint of social cohesion, it would be better to ensure that every household has enough income to not need the grants’.However, the global downturn, domestic recession and job losses have placed greater pressure on the social security system – with 600 000 joining in the last year and more than 13 million on the system.
Makgetla said the old age grant provided income that was barely over the poverty line of a dollar a day. ‘It is only just enough to hold people out of poverty,’ she said.Finance Minister Pravin Gordhan reported in the medium-term budget policy statement last week that during the first half of the 2009/10 financial year, social grants drew in 475 000 more child support beneficiaries and the older persons grant drew in an extra 86 000. The extension of the child support grant to children aged 14 at the beginning of this year and changes to the means test had resulted in ‘a structural change in the number of social grant beneficiaries’.
Grants will extend to 18-year-olds in the medium term.
Nedbank group chief economist Dennis Dykes said the problem was that South Africa’s fiscus ‘got a lot more generous during the good times, when revenue growth was very strong’.In the phase ahead revenue growth was not likely to be very strong ‘and debt will be growing as a result’. This was ‘not really’ the right mix as one was paying for expenditure from debt. Interest on debt was also expected to rise strongly in the next few years, he warned.Asked what this meant to the layperson, he said it was rather like buying groceries from debt financing rather than paying for a house.He said the consumption side of last week’s budget was disappointing. Both grants and salaries for public servants were rising strongly.
Responding to the suggestion that the social grant bill was moving in an unsustainable direction, Cosatu Western Cape general secretary Tony Ehrenreich said society could not afford to cut benefits. ‘The conditions in which poor people live is unsustainable.’ To cut or remove grants would lead, he believed, ‘to an explosion in society. It is a small cost to pay to keep a lid on that.’ – Business Report