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ANC plan will need an extra R90billion

By unknown | Dec 02, 2008 | COMMENTS [ 0 ]

Ido Lekota

Economists have poured cold water on the ANC's ambitious plan - included in its election manifesto - to create a social welfare net for the poor and unemployed.

The plan includes the extension of the child support grant to 18 year-olds; providing a grant to people between 18 and 25 to help them get into the labour market; and a basic income grant to all South Africans - which can then be recouped via taxes.

It is estimated that the plan will cost the government an extra R90billion.

Yesterday ANC head of policy and Transport Minister Jeff Radebe said everything contained in the manifesto would be costed and budgeted for.

But Pan African Capital Holding economist Bongani Motsa dismissed the plan as part of "the ANC's election posturing".

"The government will not implement such a plan and it is a disaster because it will raise expectations," he said.

He and Econometrix director Tony Twine agreed that the government would have to raise the extra money by either cutting its spending on infrastructure development or by increasing taxes, or by borrowing either locally or abroad.

"I think the government is going to collect about R620billion in taxes this financial year. To get the additional R90billion it will have to increase taxes by 15 percent. That is a very significant increase," Twine said.

Motsa said introducing high personal income tax would inhibit the country's ability to import skills.

He said investors would avoid coming to South Africa because "they have a wide choice among other developing countries, including Brazil and India".

Motsa said cutting down on infrastructure development would undermine job creation and economic growth.

Twine warned against embarking on a deliberate deficit, saying this could lead to a debt spiral.

Both economists said while it made sense to help the poor and unemployed, it was unwise to spend money on projects "not accompanied by production".

But Brait economist Colen Garrow believes that South Africa can afford to borrow more heavily, which could enhance social and political stability.


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