South Africa was gripped by a renewed sense of national pride after the election of Cyril Ramaphosa as the country's new president. However, less than a week later, the 2018 Budget Speech has brought many South Africans back to earth. Russell Pollitt takes a first glance at the budget and asks if the poor are really being cared for.
On 17 November 2017, Pope Francis celebrated the first World Day of the Poor. At a Mass he presided over on that day he said that the poor were our “passport to paradise” and that it was our “evangelical duty to care for them”. While Finance Minister Malusi Gigaba may envisage paradise, one has to ask whether this budget really takes care of the poor.
The main talking point after Finance Minister Malusi Gigaba’s Budget Speech on Wednesday was his announcement that VAT will increase by 1% point to 15% from 1 April 2018. This is the first rise in VAT in South Africa’s democratic era – in fact the first rise in twenty-five years – and it will affect all South Africans, but none more so than the poor. The huge cost of maladministration and poor governance of the country, it seems, gave the finance minister very little space to manoeuvre.
The minister said the budget “required us to make difficult but necessary trade-offs, important to ensure that this budget is a platform for renewal, inclusive growth and job creation”. It is difficult to fathom how he thinks raising VAT – a regressive tax that does not discriminate based on wealth or income – can be a platform for “renewal, inclusive growth and job creation”.
Gigaba said that poor households would be compensated through above-average increases in social grants. He also said that the current zero rating on basic food items such as maize meal, brown bread, dried beans and rice will remain and will help limit the impact on the poorest households. This, however, does not seem to be much of a reprieve for the poor. There is no tax on very limited number of items and the poor do not live on these few items alone.
Furthermore, Gigaba announced a 52c increase in the fuel levy (22c in the general fuel levy and a 30c rise in the Road Accident Fund). This too will have significant effect on the poor who use public transport to get to work.
The minister tried to offset these increases by increasing spending on the government’s social development programme. He announced that old-age, disability and care dependency grants will go from R1,600 to R1,690 on 1 April. He added another R10 to that in October, increasing them to R1,700. He said that child support grants will go from R380 to R400 in April and in October to R410 – a 7.9% increase in total. Gigaba reiterated the president’s promise that there will be no interruption in the delivery of social grants.
Despite any good intentions he and his team have, these two moves will have a detrimental effect on millions of poor South Africans. A basic moral test and key principle of Catholic Social Teaching (CST) is a society’s ability to take care of its most vulnerable members. By deciding to hike VAT and fuel, the interests of the poor have not been advanced.
An extra R4.2-billion was allocated to the National Health Insurance (NHI) fund, but the problem is that many of South Africa’s hospitals and clinics do not operate optimally and so, in order for this to be effective, government has to make sure that efficient service delivery is a priority.
Gigaba said that the major budget reallocation was in order to implement free higher education for first-year students who come from households that collectively earn less than R350,000 per year. This will be phased in over the next three years and will amount to R57 billion. Former president Jacob Zuma announced free higher education unexpectedly on 16 December 2017. While South Africans should welcome this move as it does address a real need in the country – giving opportunities to millions of people who would not have had accessibility to education because of immobilising poverty – how this is implemented and what checks and balances are in place to ensure money is not squandered will be crucial to its success.
Gigaba said that basic education remains a priority. Besides announcing money to replace unsafe schools, provide water to 325 schools and sanitation to 286 schools, he also announced that meals would be provided at 19,800 schools for 9 million learners through the National School Nutrition Grant, which has been allocated R21.7 billion.
The minister also announced an increase in estate taxes from 20% to 25% for estates worth R30 million or more. This is not a surprise move. It is in fact a very necessary move in order to halt the ever-deepening divide between the rich and the poor and remind those with resources that they do, from a CST perspective, have a responsibility towards the poor. Solidarity is another pillar of CST and at the core of this virtue is the very command of Jesus to “love neighbour as yourself” (Mark 12:31). Pope Paul VI, in his message for the World Day of Peace on 1 January 1972, taught us that if you want peace you need to work for justice.
The minister gave no indication of how the country will deal with unemployment. This remains a fundamental problem in the country. The budget could be described as one that tried to maintain the status quo – even if barely – and did not appear to stimulate the economy in such a way that it would be able to overcome some of the most fundamental challenges that the country faces including youth unemployment.
Last week the country’s new president stirred the country up and offered a new upbeat vision, there was a remarkable and palpable sense of hope. The 2018 budget did the opposite. It showed little vision and no real strategy to move South Africa forward. Gigaba said that the budget was “an opportunity to reflect on the state of our nation’s finances, and the economy more broadly, but most importantly, to understand how these support our social and economic objectives”. But there seemed to be little evidence of how, exactly, this budget supported social and economic objectives.
Gigaba said that it was a “tough, but hopeful budget”. However, it seems to me to be a less hopeful and a tougher budget for all, especially the poor.