Will our system of social grants survive the effect of this virus?

[Stonemason]

If South Africa stays in lockdown for two or three months, tax revenue for the year can drop by as much as 30 percent, with ripple effects over the next financial years.

Social grants consume more than 10 % of government tax income and has to compete with health, education and spending on the police and military. It also has to compete with the planned deficit of 6.8% (which obviously will be much more now). This year health, police and the Defence Force are clearly going to require much more money than was budgeted for and one wonders where the government will get the R202 billion it planned to spend on social grants.

With the downgrade of South Africa's economy to junk status the government will not be in a position to borrow money in the immediate future and one wonders if the International Monetary Fund will be in a position to help - probably not.

Does this mean we will see the end of our social grant system or at least a serious reduction in grants being allocated?

 

[3WA]

Doubt it. Government will destroy the middle class and economy before touching the poor. In fact, that’s what they've been doing.

 

[Stonemason]

Doubt it. Government will destroy the middle class and economy before touching the poor. In fact, that’s what they've been doing.

True, but most of the middle class is one salary cheque away from being poor and that salary cheque will not be there for many by the end of April. The economy is already destroyed which is why tax revenue will drop so drastically.

The market already has a suspicion that the government will try to print money to get out of the mess and this causes the Rand to lose its value at an unprecedented scale. We are well on our way to becoming a second Zimbabwe and there is no form of social grant left in that country. I believe the same will happen here.

 

[krycor]

I think people who think the unskilled labour of this country don't belong or do not have impact on the country don't really understand how economics work.. i.e. simply going the US route of cutting off as it's not their problem lol.. yea,, good luck with that.

I suspect it will be more of the same of the last decade.. the middle class gets poorer, the poor remain the same and the wealthy become exceedingly more so. Unfortunately for the wealthier entrepreneurs, there will be more complaints of useless locals when the reality is that the price point pushed is too cheap by global standards so expect more brain drain coming as soon as this crises clears and it becomes very clear its not turning around economically in SA. EU will be going through a massive hiring process in the coming years as their social responsibilities have lightened (morbid but true).

A lot of people, myself included have been waiting for the global recession to happen prior to leaving because you can't take that risk with a family.. so expect more 'educated' families to leave. <-- it's not politics... its economics. political issues exists everywhere.. Trump wasn't elected by exceptionally bright people..

PS. SA will come right.. but not this decade lol

 

[noxibox]

The economy is already destroyed which is why tax revenue will drop so drastically.

The market already has a suspicion that the government will try to print money to get out of the mess and this causes the Rand to lose its value at an unprecedented scale.

The economy is clearly not destroyed. That's a ridiculous claim.

Does not look unprecedented to me. I don't know that it necessarily the market suspecting the government will print money. There happens to be a confluence of problems and panic selling by some people.

 

[noxibox]

With the downgrade of South Africa's economy to junk status the government will not be in a position to borrow money in the immediate future and one wonders if the International Monetary Fund will be in a position to help - probably not.

They can certainly still borrow money. They probably shouldn't borrow more.

 

[pinball wizard]

panic selling by some people.

Sure makes a pleasant change from all the recent panic buying.

 

[Stonemason]

They can certainly still borrow money. They probably shouldn't borrow more.

They can borrow money but at unaffordable interest rates which means that they can actually not borrow money .

 

[Stonemason]

The economy is clearly not destroyed. That's a ridiculous claim.

Does not look unprecedented to me. I don't know that it necessarily the market suspecting the government will print money. There happens to be a confluence of problems and panic selling by some people.

The economy will take years to recover. It is destroyed, like the economies of many other countries as a result of the lockdowns. That is a fact whether you regard it as ridiculous or not.

I can assure you that the Rand dropping 28 percent in value in three days is unprecedented - whether you like it on not. Also, why do you think there is panic selling.

 

[Gordon_R]

They can certainly still borrow money. They probably shouldn't borrow more.

Too late. The SARB is already printing money via doing something equivalent to Quantitative Easing:

Trainspotter: Radical Economic Transformation is upon us — but it is not what you thought it would be

At first glance, it would seem that the Covid-19 crisis has won some major concessions for ANC Secretary-General Ace Magashule and his Radical Economic Transformers — policy changes that just a month ago would have taken place over the Establishment’s mass grave. And yet, there has been no...

www.dailymaverick.co.za

 

[pinball wizard]

Too late. The SARB is already printing money via Quantitative Easing:

Trainspotter: Radical Economic Transformation is upon us — but it is not what you thought it would be

At first glance, it would seem that the Covid-19 crisis has won some major concessions for ANC Secretary-General Ace Magashule and his Radical Economic Transformers — policy changes that just a month ago would have taken place over the Establishment’s mass grave. And yet, there has been no...

www.dailymaverick.co.za

the extra cash sloshing around the economy should encourage spending, and therefore keep prices from cratering completely.

How exactly does that work in the current situation?

 

[Neuk_]

The governments policies which have created greater dependence on a shrinking tax base are sadly coming home to roost.

 

[Gnome]

My girlfriend got told that her company may not be able to pay salaries or only a portion of their salaries in the next few months. And there isn't any work here for her profession (Mechanical Engineer), the market is dry.

So even though I wasn't planning on it, I'm now forced to leave. I think many other people will be in the same boat.

If the country doesn't dramatically scale down the government work force, stop EWC and dramatically scale back social grants, there is no hope in the next ± 100 years.

And realistically they can't do those things because they are beholden to their voters. Even if they did it, the voters would simply put someone else in their place.

And the reason I suspect a 100+ years is simple, our economy doesn't have a resource, like oil, which allows the country to escape poverty. The only way to escape it at this point is to increase education and create highly skilled jobs. And that will take a number of generations. Mostly because the unskilled classes are also clashing and actively sabotaging the skilled class. That mindset will have to change for the economy to transform from an unskilled based economy to a skilled economy.

The last 10 years or so we have been dramatically decreasing the skills in our economy and that trend is set to continue for a very long time because the unskilled class want policies that do not favor skilled workers. The net effect is emigration of skills.

 

[Rkootknir]

Too late. The SARB is already printing money via Quantitative Easing:

Trainspotter: Radical Economic Transformation is upon us — but it is not what you thought it would be

At first glance, it would seem that the Covid-19 crisis has won some major concessions for ANC Secretary-General Ace Magashule and his Radical Economic Transformers — policy changes that just a month ago would have taken place over the Establishment’s mass grave. And yet, there has been no...

www.dailymaverick.co.za

Does anybody have an official statement from the SARB regarding quantitive easing? As far as I've been able to find all they're doing is buying bonds and increasing liquidity in the secondary market. Quantitive easing would be if the SARB bought back bonds from the banks and paid for them by crediting the banks' reserve holdings with the SARB without using actual money \ reserves. If the SARB is using deposits or other reserves then it is not QE but just shifting money around.

Another intervention (which they've actually published here (PDF) is to reduce the banks' required capital adequacy ratios which means that the banks will be able to lend out more due to the money multiplier effect.

 

[Gordon_R]

Does anybody have an official statement from the SARB regarding quantitive easing? As far as I've been able to find all they're doing is buying bonds and increasing liquidity in the secondary market. Quantitive easing would be if the SARB bought back bonds from the banks and paid for them by crediting the banks' reserve holdings with the SARB without using actual money \ reserves. If the SARB is using deposits or other reserves then it is not QE but just shifting money around.

Another intervention (which they've actually published here (PDF) is to reduce the banks' required capital adequacy ratios which means that the banks will be able to lend out more due to the money multiplier effect.

You won't find any such statement because the SARB denies that what they are doing is QE. That's like saying you smoked, but didn't inhale: https://www.moneyweb.co.za/news/sarb-this-is-not-quantitative-easing/

Stabilising the market by buying government bonds does not, however, come without risks. As many analysts point out, this is akin to quantitative easing (QE), which is generally a way to allow for more government spending. This is hardly something SA’s already precarious finances can afford.

The Sarb itself has tried to emphasise that this is not its aim. In a note to the market, it argued that its actions are not, in fact, quantitative easing at all.

P.S. Edited/corrected my original post.

 

[Supervan II]

The last 10 years or so we have been dramatically decreasing the skills in our economy and that trend is set to continue for a very long time because the unskilled class want policies that do not favor skilled workers. The net effect is emigration of skills.

Not forgetting the unrealistic higher-than-inflation percentage increases given to the mostly unskilled workforce without increased productivity, whilst the skilled got far less.

 

[Slootvreter]

The economy will take years to recover. It is destroyed, like the economies of many other countries as a result of the lockdowns. That is a fact whether you regard it as ridiculous or not.

I can assure you that the Rand dropping 28 percent in value in three days is unprecedented - whether you like it on not. Also, why do you think there is panic selling.

Probably can't blame all of it on the lockdown, but that's a handy excuse,

 

[Mystic Twilight]

Grants won't be affected as long as there is (depreciating in value) cash to spend for grants.