/ 20 February 2008

Government intent on reducing poverty

Keeping prices down had to remain the key objective of monetary policy, Finance Minister Trevor Manuel said in his budget speech on Wednesday.

”A policy stance that accommodates higher inflation cannot be consistent with a government that is intent on reducing poverty,” he said.

At the same time, South Africa needed a better coordinated response to the challenge of unemployment.

Manuel said food prices had increased by over 10% last year, and the price of a 12,5kg bag of mealie meal, the staple diet for most South Africans, went from about R37 to R49.

”As is always the case when inflation rises, the poor have been hardest hit,” he said.

Government recognised the hardships all South African were experiencing as a result of higher food and petrol prices.

”While we may debate the best method of fighting inflation, there can be no doubt in the minds of caring South Africans that rising prices must be countered, and that this must remain the key objective of monetary policy,” he said.

South Africa’s high unemployment rate remained the country’s greatest economic challenge.

Over the past decade, much had been done to reshape the economy, and since 2002 there had been significant progress in job creation.

”But our response to the unemployment challenge needs to be better coordinated — this is at the centre of our war on poverty,” he said.

”In particular, efforts to increase employment of young people have to be intensified and skills development better focused.”

Manuel said the ”progressive extension” of social security in the government’s anti-poverty strategy was made possible by the fiscal space created over the past decade.

Announcing extensions of the child support grant and old age pensions, he also said an interdepartmental task team had made progress over the past year in developing a framework for a contributory social security system.

At the same time, regulatory overhaul of the retirement fund industry was in progress.

These were complex reforms that would give practical content to the government’s ”social solidarity commitment” over the long term.

This year would see the start of an engagement in Nedlac on implementation.

The Budget Review tabled along with his speech said preliminary projections suggested a broad-based wage subsidy that partially offset social security contributions for employees earning less than the personal income tax threshold would cost about R25-billion.

It would increase employment by about 350 000 in the first five-year period.

The combined effect of the subsidy and social insurance would be an estimated 20% reduction in ”head-count poverty” over the same period, the review said.

Manuel also told MPs that fighting poverty required reliable monitoring and measurement tools.

Following public consultation on proposals outlined last year, Statistics SA would next month introduce an official poverty-line index.

According to the Review, the poverty line will consist of both food and non-food components.

The food component would be determined by estimating the cost of a minimum basket of food that met the daily energy requirements of an average adult. – Sapa