South Africa is becoming a welfare state, finance minister tells Congress
South Africa’s new finance minister, Enoch Godongwana, told Congress that the country was rapidly becoming a welfare state and he sought parliamentary approval for his first budget.
Godongwana’s plan carefully balances its desire to boost economic growth and reduce borrowing with the need to help social benefits for the growing number of poor people, it was explained.
The Minister also said that South Africa was rapidly becoming a welfare state, with 46% of its citizens receiving some form of government-sponsored aid, which he insisted did not equate to Economic Growth. About 190 million euros will be distributed to vulnerable households, we learned.
South Africa cut corporation tax by 1% to 27%, in addition to setting a 4.5% cap on personal tax increases to keep pace with the inflation. It also raised the threshold for South Africans under 65 to start paying taxes.
“Now is not the time to scale back post-Covid recovery,” Godongwana said. “So we kept money in people’s pockets,” he continued.
The minister also said he would not raise value added tax (VAT) or fuel tax, which contributed to record rises in petrol and diesel prices last year.
He also avoided increases in liability insurance premiums to the Road Accident Fund.
However, Godongwana agreed to increases of between 4.5 and 6 percent on tobacco and alcohol, which will nonetheless upset the liquor industry reeling from the sales ban imposed during the coronavirus lockdown. Also under health-focused taxation, South Africans will pay a levy in the form of a sugar tax on top of a carbon tax scheduled for next year and not until after adoption. of the law which imposes it.
Godongwana set out to recoup revenue lost in the illegal cigarette trade during the lockdown. Government borrowing was also capped for the first time in seven years at 75.1% of GDP. The minister does not feel comfortable having to bail out inefficient public companies, especially those that are behind the supply of electricity.
The official also pointed out that 175 of the country’s 257 municipalities are in serious arrears for water and electricity payments and urged taxpayers and residents to cancel their debts.
Godongwana also said the government would tackle money laundering and fraud, which were undermining economic growth. But opposition financial commentators say the minister was not bold enough to introduce measures that would effectively reduce youth unemployment, which exceeds 50%. GDP growth of 2.3% is forecast for next year with an average of 1.8% over the next three years.