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SA boosts social spending and taxes before vote

A woman holds up a placard reading 'Tax Ramaphosa (South African President) not us' as hundreds of people protest against proposed budget and social funding cuts and South Africa's overall economic performance

RODGER BOSCH AFP


South Africa plans to hike taxes and increase spending on social grants as it heads towards general elections in May amid sluggish growth and high debt, the government said Wednesday.

The treasury announced increases in income tax as well as alcohol and cigarette duties as part of a national budget unveiled a day after President Cyril Ramaphosa announced general elections on May 29.

"South Africa's economic performance has been weak, and difficult decisions are needed to make sure the economy grows and creates jobs," Finance Minister Enoch Godongwana said.

The tax hikes come as the ruling African National Congress (ANC) is struggling in the polls and risks losing its parliamentary majority for the first time since the advent of democracy in 1994.

But the budget also provides more money for social handouts -- a key component of the ANC's policies and popularity.

This expenditure will increase by 42 billion rand ($2.2 billion) over the next three years to keep pace with inflation and increase access for the eligible population, the treasury said.

Almost 20 million people -– about a third of the population –- will receive social grants by March 2027, it said.

The government was sensitive to the increase in the cost of living for the millions of South Africans who rely on these grants to make ends meet, Godongwana told parliament.

Excluding interest payments, about 60% of the budget went to fund social services, including public employees' salaries, he said.

Three decades after the end of apartheid, South Africa suffers from high levels of poverty and unemployment, which currently stands at more than 32%.

The World Bank describes the nation as the world's most unequal.

Slow growth 

South Africans will vote for provincial and national legislatures on May 29. National lawmakers in turn elect a president.

Ramaphosa, 71, is seeking a second term at the helm of what is often described as Africa's most industrialised nation.

Tainted by allegations of graft and mismanagement, the ANC is widely expected to drop below 50 percent for the first time in a national election.

This would require it to seek coalition partners to form a government.

Slow economic growth estimated at 0.6 per cent in 2023 and averaging at only 0.8 per cent over the past decade has entrenched poverty and unemployment while ballooning debt is choking public finances.

Servicing debt is expected to cost the government 382 billion rand this year, more than three times what the crime-ridden nation spends on police.

Problems at public firms running railways, ports and the power system in recent years have resulted in damaging blackouts and transport delays.

"Government is making the most out of very limited resources," said Godongwana, announcing tax hikes for 15 billion rand.

Personal income tax will be increased by not adjusting the tax brackets for inflation.

Duties on alcohol and tobacco products are instead to rise by up to 7.2% and 8.2% respectively.

South Africa is also to implement a "global minimum corporate tax" targeting multinational corporations with a 15% levy regardless of where their profits are located.

Along with other cost-cutting measures and reforms on the use of valuation gains from foreign exchange reserves, the hikes are projected to help bring down the deficit from 4.9% of GDP this fiscal year to 3.3% in 2026-27.

Government spending over the same period is to increase by almost 10% to R2.6 trillion.

Debt is expected to peak at 75.3% of GDP in two years, Godongwana said.

South Africa is to achieve a primary budget surplus, meaning revenue will exceed non-interest expenses, for the first time in 15 years by the end of March, the treasury said.