Government buckles on welfare grants, stands firm on wages

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 R36 billion, which will enable the welfare department to extend the R350 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.

“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 R64.9 billion 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.

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 November 3. The government has offered to pay 3% raises and a R1 000 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 R695 billion 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.

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