South Africa Buckles on Welfare Grants, Stands Firm on Wages
(Bloomberg) -- South Africa’s government bowed to public pressure to extend a welfare grant that was introduced in 2020 to cushion the poor against the fallout from the coronavirus pandemic, while it held the line in its efforts to contain the state’s wage bill.
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The medium-term budget policy statement, presented by Finance Minister Enoch Godongwana to parliament in Cape Town on Wednesday, increased the projected spending for social grants by 36 billion rand ($2 billion), which will enable the welfare department to extend the 350 rand monthly grant until March 2024. The stipend, which is being paid to 7.4 million people, has been touted as a possible precursor to the introduction of a permanent basic income grant, but the National Treasury has warned that such a program could undermine the sustainability of public finances and draw funds away from other priorities unless the required funding is sourced.
Read: South Africa Torn Over Multibillion Cost of Fighting Inequality
“Assuming the current grant value and take-up rate remain constant and it is extended indefinitely, the cost of the grant could grow at an average of 8.8% a year to reach 64.9 billion rand in 2030-31,” the Treasury said.
The budget update provides for state personnel costs to rise by an average 3.3% over the next three fiscal years, less than half the projected inflation rate for this year, and identifies higher wage settlements as an ongoing risk to the fiscal outlook. The wage bill accounts for 31% of total government expenditure and keeping it in check is key to the Treasury’s plans to rein in the budget deficit and bring runaway state debt under control.
Read: South African Government Seeks Urgent Mediation in State Pay Row
Pay talks between the government and unions representing its 1.3 million workers have currently deadlocked, and about 235,000 of them are set to go on strike from Nov. 3. The government has offered to pay 3% raises and a 1,000 rand monthly cash allowance, while unions are demanding increases of between 6.5 and 10%.
A final settlement at about 10%, would push the government wage bill toward 695 billion rand or 10% of GDP, making it the second-largest item in the budget, Michael Kafe, an analyst at Barclays Bank Plc, said in a research note.
--With assistance from Paul Richardson, Prinesha Naidoo and Rene Vollgraaff.
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