MercoPress. South Atlantic News Agency

South Africa becoming a welfare state, finance minister tells Congress

Godongwana does not feel comfortable having to bail out inefficient state-owned companies

South Africa’s new Finance Minister Enoch Godongwana has told Congress the country was becoming a welfare state fast and he sought Parliamentarian approval for his first budget.

Godongwana’s plan carefully balances his desire to stimulate economic growth and reduce borrowing with the need to assist welfare grants to the growing number of poor, it was explained.

The Minister also said South Africa was becoming a welfare state fast, with 46% of its citizens receiving some form of government-sponsored assistance, which he insisted was not tantamount to economic growth. Around 190 million euros will be handed out to vulnerable households, it was reported.

South Africa has cut down corporate taxation by 1%, to 27%, in addition to setting a 4.5% cap on personal tax increases to keep pace with inflation. It also raised the threshold for South Africans under 65 to start paying taxes.

“This is not the time to reduce the post-Covid recovery,” Godongwana said. “So we have kept money in the people’s pockets,” he went on.

The Minister also said he was not raising the Value Added Tax (VAT) or increasing the fuel levy, which has contributed to record hikes in petrol and diesel prices this past year.

He has also avoided increases in Third Party Insurance premiums to the Road Accident Fund.

However, Godongwana did agree on increases of between 4.5 and 6% on tobacco and alcohol, which will nevertheless vex the liquor industry reeling from the ban on sales imposed during the coronavirus lockdown. Also as a part of the health-oriented taxation, South Africans will pay a levy in the shape of a tax on sugar in addition to a carbon tax scheduled for next year and not before the law mandating it is passed.

Godongwana has set out to recover revenues lost to the illegal cigarette trade during the lockdown. Government borrowing has also been capped for the first time in seven years to 75.1% of GDP. The Minister does not feel comfortable having to bail out inefficient state-owned companies, particularly those behind the supply of electricity.

The official also pointed out 175 of the country’s 257 municipalities were seriously in arrears on water and electricity payments and urged ratepayers and residents to cancel their debts.

Godongwana also said the government would tackle money laundering and fraud, which were undermining economic growth. But Opposition financial commentators say the minister has not been bold enough to lay out measures that would effectively curb youth unemployment, which exceeds 50%. A GDP growth of 2.3% is forecast for next year with an average of 1.8% over the next three years.