Your wish is granted!

There are some that argue South Africa is close to becoming a full-blown welfare state. And a quick look at finance minister Trevor Manuel’s 2008/2009 budget shows why. It reveals that almost a quarter of the country’s citizens receive some form of state

A basket of social grants

There are no less than six social grants available to South African citizens at the moment. Government lists 12 402 200 recipients – and it is costing taxpayers billions. By far the largest category is the child support grant which is extended to 8 208 334 recipients. The amount of R220 per month costs government R21.670bn per year. There have been arguments that this amount should have been increased to pull families out of poverty (say to R300 per month); but Manuel was probably reluctant to raise the amount further due to the possibility of families having children simply to benefit from the grant.

The second largest category is the old age grant. There are currently 2 225 354 recipients of the R940 per month stipend. Of course the number of recipients will increase significantly in the next three years as the retirement age for men is reduced from 65 to 60 years. This grant was increased by R70 per month in the latest budget – and amount which many pensioners claim is wholly inadequate… If one considers that food price inflation averaged 10.3% in 2007 and hit 14% in January this year it is easy to understand why pensioners are unhappy with an 8% increase in their grants. Old age grants will cost the country R25.101bn in the coming budget period.

Disability grants are paid to 1 409 434 individuals at a total cost or R15.898bn. Category four and five are foster care grants and care dependency grants. In the foster care category there are 446 994 recipients who each receive R650 per month. It costs government R3.486bn per year. This category shows the greatest increase since 2003 – with 222% more recipients. Incidentally, the number of child support grants has also soared 212% and is likely to increase further as the maximum qualifying age has been raised to the year of a child’s fifteenth birthday (previously fourteenth). The final category is the war veterans grant of R960 per month, which is only paid to 1 931 individuals.

Doing away with the means test

Many of the grants mentioned above are awarded after doing a means test. The state first determines whether the recipient qualifies based on the income available to that individual. For example, the old age grant is only paid if the pensioner earns less than R1 800 per month… A major concern with this means test is it punishes people who save for retirement. Thus, if you do nothing to prepare for old age you receive R940 per month from government; whereas if you saved your whole life to ensure a meagre R1 800 per month in retirement the state leaves you high and dry! Similarly, the child support grant only applies to families with an income of less than R800 per month (rural areas) and R1 100 per month (urban).

The problem is that a means test is difficult to administer and no doubt opens the door for many abuses. We believe a means test based on residence is even more difficult to control. What stops an urban dweller from using a rural address to claim a grant, for example?

Because of the many technical difficulties in administering the means test, we can expect some reforms to the system in coming years. The budget review concludes: “The difficulties in applying the means test fairly, the administrative costs associated with the test, and the disincentives to saving of the current system, are compelling arguments for reform…”

The argument for a basic income grant

There have been a number of calls for government to extend the social grant system to include a basic income grant. There have been no further developments on this grant in the latest budget speech – but if implemented as currently proposed it would probably be an administrative nightmare. The proposal is that individuals earning less than R50 000 per annum would receive a subsidy from their employers, who would then claim back from government.

Estimates are this would cost the state R25bn – and, with other measures, boost employment by 350 000 in the first five years. Whatever measures are implemented in the next few budgets there is little doubt government will be spending billions more on social grants… But why not simply give every South African citizen a handout? The cost of supporting every citizen (working of an estimated population of 48m) with a monthly stipend of R940 would be R541bn! And that’s almost equal to the entire budget expenditure in 2008.

Editor’s thoughts:
South Africa total expenditure on social welfare in the 2008/2009 year runs to R105bn. Despite government’s best efforts the press is full of stories of abuse and misallocation of social grants. Is the existing social grant system properly monitored and implemented? Send your comments to gareth@fanews.co.za, or respond below.