The problem is actually too few dependants

It is difficult to criticise Pravin Gordhan's medium-term budget policy statement. Isn't it nice to have a finance minister who is so on top of his game while the rest of us grope for answers?

The only murmurs heard were, “We are borrowing again, watch out!” and, “Providing handouts to 15.2 million South Africans is not sustainable.”

Let us put them in context.

The fear of state borrowing comes from the economic disaster that was apartheid when the annual deficit used to exceed 10% of GDP. Then Trevor Manuel and Maria Ramos, in the best of economic times, showed South Africa how to generate a small surplus. In hindsight, they could well be criticised for being a bit Scottish and delaying delivery.

The deficit for 2011/12 will be R165-billion or 5.5% of GDP – exceptional by world standards! This is a healthy level of debt at a time when costs of borrowing are low.

But what if world markets turn against South Africa? If interest rates rise and Europe falls into economic chaos, will this leave South Africa in its own debt crisis?

The answer is in the enormous caveat attached to the medium-term statement: everything is based on an orderly recovery of the European situation. If Europe falls, we are all eating Epol. But we can”t put South Africa on hold in the meantime.

The 15-millionth dependant out of a population of 50 million South Africans was always going to be a milestone. South Africa has been gaining dependants by more than 100000 a month for many years and yes, a proportion of 30% made up of dependants is frightening. But the grant is only R260 a month for 11 million children and R1140 a month for pensioners, war veterans and disabled.

The problem is more that we are abandoning dependants. online pokies The 18th birthday present for more than half of all South Africans is a lousy education, no job and no future. The public works programme only makes a small dent in the numbers.

Perhaps we should extend the child grant age to 21. A rough estimate would be that two million would qualify. And at R260 a month that would be an additional cost of R6.2-billion (make it R10 billion with administration costs). In the context of R979 billion total state expenditure for 2012, it won”t make much difference.

The R10-billion could be made back if the National Treasury abandoned or postponed the conversion from secondary tax on companies to dividend tax, effective April 1 2012.

“But they will blow it all on smokes and booze!” comes the answer. That”s fine, then SARS makes half of it back in sin tax and VAT.

Originally published in the Sunday Times Tax Talk column.

No Comments »

No comments yet.

RSS feed for comments on this post. TrackBack URL

Leave a comment