Johannesburg - With babies strapped to their backs, women wait for hours at the crowded social security office in Gugulethu, Cape Town, for the tiny child support grants that often make the difference between subsistence survival and starvation. But their pleas for higher payouts are unlikely to sway Finance Minister Pravin Gordhan when he announces his medium-term budget today.
With revenue under pressure as economic growth remains subdued, he is expected to keep a rein on spending to pacify ratings agencies worried about profligacy ahead of elections next year.
Gordhan will probably also widen his budget deficit forecast for fiscal 2013/14 to 4.9 percent of gross domestic product (GDP) from the 4.6 percent he predicted in February, according to a Reuters poll of 15 economists.
That means poor South Africans such as Anna Mara, a 43-year-old who gets R300 a month for each of her three children, will have to keep a close eye on their outlays to stretch their meagre government grants as far as possible.
“It is better than nothing, but we are struggling to cope,” Mara says.
“Bread costs R10 a loaf, electricity is expensive, and R50 doesn’t even last a week. Transport to school for the children is also high,” she says above the din of crying infants in the social security office.
After two decades in power, the ANC government is extending grants to the most vulnerable, including children, the elderly and the disabled.
But with growth in GDP expected to be an anaemic 2 percent this year, pouring billions of rand into social welfare is costing the country dearly as it grapples with chronic budget gaps.
“On the basis of how much is being borrowed at the moment to fund, among other things, social grants, one could call it bordering on the unsustainable unless we start to generate more tax revenues,” ETM economist George Glynos says.
More than a quarter of South Africa’s 52 million people receive grants. Payouts amounted to R113 billion in the 2012/13 financial year.
This is likely to rise to R130bn in three years’ time, when the government is expected to disburse an estimated 17.2 million grants, up from 15.2 million last year.
However, Gordhan dare not cut social spending, especially as the ANC prepares for elections next year that might deliver a knock to its overwhelming parliamentary majority.
“Once you have offered grants to the poor and they are expecting it and have structured their lives around it, it becomes very difficult for the government to scale back,” Glynos says.
Tensions are already high in townships and the overt materialism of the ruling elite further stokes the anger.
But yielding to internal pressure to fund social largesse would only antagonise investors and ratings agencies spooked by often violent strikes in the mining sector. The country’s credit rating has already been downgraded over the past year.
“South Africa is still at risk of a rating downgrade and as such needs to exert great caution in fiscal expenditure,” says Investec economist Annabel Bishop, adding that Gordhan needs to find some way of cutting costs.
“This is difficult in a pre-election year. But the rapid escalation in public sector salaries and wages would be a good place to start.”
Gordhan can draw some reassurance from history, which shows that while tightening spending may cost the ANC votes, the party faces little danger of outright defeat at the polls.
“We’ve never seen much in the way of a pre-election burst of spending on the part of the government,” says Peter Worthington, an economist at Absa Capital.
“This is partly because everybody knows the ANC is going to win the elections regardless.” – Reuters