Source: AFP
South Africa plans to raise taxes and increase spending on social grants ahead of May’s general election amid sluggish growth and high debt, the government said on Wednesday.
The finance ministry announced increases in income tax as well as alcohol and cigarette duties as part of the national budget unveiled a day after President Cyril Ramaphosa announced the May 29 general election.
“South Africa’s economic performance has been weak and difficult decisions are needed to ensure the economy grows and jobs are created,” Finance Minister Enoch Godongwana said.
The tax hikes come as the ruling African National Congress (ANC) struggles at the polls and risks losing its parliamentary majority for the first time since the advent of democracy in 1994.
But the budget also provides more money for welfare payments — a staple of the ANC’s policies and popularity.
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That spending will increase by 42 billion rand ($2.2 billion) over the next three years to keep pace with inflation and increase access for the eligible population, the finance ministry said.
Almost 20 million people – about a third of the population – will receive social benefits by March 2027, it said.
The government was sensitive to the rising cost of living for the millions of South Africans who rely on these grants to make ends meet, Godongwana told parliament.
Excluding interest, about 60 percent of the budget was allocated to fund social services, including civil servant salaries, he said.
Three decades after the end of apartheid, South Africa suffers from high levels of poverty and unemployment, currently over 32%.
South Africans will vote for provincial and national legislatures on May 29. The national legislatures in turn elect a president.
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Ramaphosa, 71, is seeking a second term at the helm of what is often described as Africa’s most industrialized nation.
Tarnished by allegations of corruption and mismanagement, the ANC is widely expected to fall below 50 percent for the first time in a national election.
This would require him to seek coalition partners to form a government.
Aleix Montana, an analyst at risk intelligence firm Verisk Maplecroft, said Godongwana’s speech “made it clear that the ANC is prioritizing its political survival over the sustainability of public finances”.
“Public sector pay rises will prevent another round of painful union negotiations that would overshadow the election campaign,” he said.
Debt and slow growth
Slow economic growth estimated at 0.6% in 2023 and averaging just 0.8% over the past decade has entrenched poverty and unemployment, while rising debt is choking public finances.
Problems at public utilities that operate railways, ports and the power system in recent years have led to catastrophic blackouts and transport delays.
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Debt servicing is expected to cost the government 382 billion rand this year, three times what the crime-ridden nation spends on the police.
To reduce borrowing, the finance ministry said it would draw 150 billion rand over three years from an emergency account managed by the central bank that holds earnings from foreign reserves.
The move is projected to help reduce the deficit from 4.9 percent of GDP this fiscal year to 3.3 percent in 2026-2027 — but has been criticized by the opposition.
“The liquidation of reserves for short-term profit will increase inflationary pressures, undermine the credibility of monetary policy and signal fiscal irresponsibility in international markets,” argued the liberal Democratic Alliance party.
The debt is expected to peak at 75.3 percent of GDP in two years, Godongwana said.
“The government is making the most of very limited resources,” he said, announcing tax increases of 15 billion rand.
Personal income tax will rise by not adjusting tax brackets for inflation, pushing the relatively wealthier into higher payments.
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By contrast, duties on alcohol and tobacco products will rise by up to 7.2% and 8.2% respectively.
In Cape Town, hundreds of people demonstrated against expected budget cuts ahead of Godongwana’s speech.
“Put on Ramaphosa, not us!” read a sign held by a protester.
Yaziwe Kwebulana, 31, an unemployed mother, said she had to live on just 510 rand a month, also complaining that the public health system was broken.
“There are no medicines and we cannot afford to go… privately,” he told AFP.
Source: AFP