Budget Response: A grants cut to pay for more bailouts

The Finance Minister’s commitments to getting debt under control by 2025 and cutting the wage bill by a massive R300 billion are welcome. These are not new pledges, they were contained in the October 2020 MTBPS. Nevertheless, we are pleased Minister Tito Mboweni stuck to these targets. However, the credibility of these targets is questionable. The targets are based purely on the government’s ability to actually deliver the wage cuts they have now budgeted for. This sets up a major conflict between the ANC and public sector unions, which if lost, will result in a major fiscal and debt blowout.

But this was not the story of today’s Budget.

This was a Budget that will raise the cost of living for those South Africans who face the hardest times. It is a budget that kicks South Africans while they’re down.

As unemployment has spiked to above 42.6%, South Africans who have lost their jobs, as well as the elderly and those living on social grants, will wonder what they have done to deserve this.

It isn’t hard to spot what was wrong with the Budget Speech today.

  1. Minister Mboweni said he wouldn’t increase taxes. Then he increased petrol tax by 27 cents a litre. This was a tax con. This will increase the cost of living for every South African. Taxi and bus fares will go up, as will food prices, as goods will cost more to move around the country. This is a regressive move that burdens the poor (who spend more of their income on food and transport) unfairly.
  2. The Minister has actually cut allocations to social grants for the first time. Grant recipients will receive increases of around 1%, far below low-income inflation of around 4%. As hard as this is to even believe, it is there on pages 61 and 62 of the Budget Book. The foster care grant, the child support grant, and the disability grant, all see allocations cut. In this year alone, social grants are cut by R5.8 billion. This shows the extent to which interest on debt is eating into other critical expenditure. This is an indefensible choice to make. As the DA did in our Alternative Budget, the government should have protected social spending and prioritised other cuts.
  3. The Minister announced yet another immoral bailout for SAA of R4.3 billion, an enormous R31.7 billion for Eskom, and R7 billion for the Land Bank. Each year these bailouts are repeated, and each year the government promises they will end. The truth is that there is no plan to end them, and they will not end until these zombie state companies are broken up, sold off, or shut down. Every year the DA has warned that these endless bailouts will mean cuts to essential spending. That time of reckoning is now here, as the ANC is now cutting social grants by R5.8 billion to bail out SAA again with R4.3 billion. The trade off is direct, and is paid for by the poorest and most vulnerable in our society.
  4. Despite the Minister’s strong words, the funding for the vaccine rollout is totally inadequate. This is the most obvious and basic thing the Minister had to get right today – provide enough money for a vaccine for every person. This is not just the right thing to do to save lives, but is the best economic recovery strategy the government could hope for. It is clear the government is planning on a 3 year vaccine rollout. This is too slow, too little, too late. The DA’s Alternative Budget included a full R35 billion allocation for vaccines for everyone.

Finally, despite all of these commitments, government will still borrow R541 billion more this year. Over the next 3 years, the government will spend nearly R1 trillion just on paying interest on debt. This means that this year government will pay roughly the same in interest on debt (R278.3 billion) as it spends on all the other goods and services (R279.5 billion).  The state now spends 2.6 times more on interest payments than on policing, and interest now even outstrips the healthcare budget, and the social welfare budget.

This was not a budget to be proud of. It placed the burden on the poor.

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