Dependency on social grant threatens infrastructural spend

While Wednesday’s budget by Finance Minister gave the overriding sense that government is now starting to show a real commitment to infrastructural spending, after more than two years of policy paralysis, increasing spending on social grants threatens this ambition.

This is according to independent economist Sandra Gordon, who was the guest speaker at a budget briefing this morning held by global audit, tax and advisory firm Mazars in Cape Town.

“The country’s transition in 1994 was political rather than economic with the result that the subsequent robust growth rates have not generated enough employment. The current youth unemployment rate, which stands at about 50%, means that most young people – who should be contributing to our economy – are lying outside of the economic system.”

As last year was called ‘the year of job creation’, Gordon contended that the announcement during the State of the Nation Address of a drop in the country’s unemployment rate from 25% to 23.9% overstated the progress made as it did not include job-seekers who had stopped looking for a job, as those are no longer regarded as job hunters. “The rate may easily rise up to 35% if discouraged workers – those who are no longer employed and had stopped looking – were included,” she said.

With the economy generating few employment opportunities, many South African citizens are increasingly reliant on government social spending – which is budgeted to rise to 58% of government spending.

“With almost a third of the country’s population receiving social grants and with the public sector wage bill rising rapidly, government has limited scope to increase spending on infrastructure.

However, it is estimated that infrastructure development funds of R4.5 trillion are available over the next three years within government, state-owned enterprises and development finance institutions. Gordon said this will achieve two main objectives – to lower the costs of doing business in the country and help create employment opportunities, especially for semi-skilled and unskilled labour.

With growth in the world economy likely to remain subdued for the foreseeable future, it is hoped that government’s planned infrastructure drive will provide the necessary impetus to lift the local economy onto a higher growth path.

 

 

 

 

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