Rising social welfare cost rings alarms
March 23, 2009
By Donwald Pressly
The alarm bells are ringing for South Africa's expanding social welfare system, warn economists.
It is expected that 16.5 million people will be receiving aid within three years, compared with 13.3 million now.
The number of taxpayers is likely to grow to 6 million in that time from about 5.3 million.
This represents a 13 percent increase in taxpayers against a 26 percent growth in grant recipients, depending on whether the state raises the age threshold for childcare grants from 15 years to 18 years.
Pan African Advisory Services chief executive Iraj Abedian warned that South Africa might face a debt trap, where the country borrowed on the international markets to finance social welfare payments.
South Africa spends about R70 billion a year on welfare. The National Treasury has said that welfare payments would grow about 11 percent a year over the medium term.
Abedian said a debt trap might be a reality in as soon as five to seven years with grant payments, including administration costs of R5 billion, costing R100 billion by 2011/12 and possibly R125 billion by 2013/14.
He noted that spending on grants was the biggest fiscal item after education. It was likely to become the main item in the next few years.
T-Sec economist Mike Schussler did not want to predict a debt trap, as he preferred the term "budget imbalance", where the number of grant recipients massively outstripped taxpayers. This situation already looked unsustainable.
Schussler noted that Germany was agog about the fact that it was reaching a parity of taxpayers to social welfare recipients "and we (South Africa) are far off that". There were 2.4 people reliant on each taxpayer.
Finance Minister Trevor Manuel has warned of the cost of spiralling social grants, and DA finance spokesman Kobus Marais said his party had calculated that there were already 14 million people on grants, including the one-off social relief from distress grant, which had a R624 million budget in the 2008/09 year.
He believed it was healthier to provide a subsidy to first-time workers, focused on unemployed youth, who could gain work experience, earn an income and join the taxpayer base.
Nedcor group chief economist Dennis Dykes said the problem with grants, other than the relief from distress grant, was that they were "irreversible". A large portion of the welfare burden had built up in good economic times, when revenue growth was strong.
He said the state did not want to have to raise tax rates to pay for social welfare. "That would send an exceptionally negative signal to taxpayers."
Schussler said it was better to keep people in jobs and keep taxpayer numbers higher, by supporting the industries that were under stress.
Brait economist Colen Garrow said that Manuel had budgeted for the growth in grants. He said the grants were aimed at the portion of the population that was "least able" to cope in difficult economic times.
It was a price wealthier South Africans had to pay.
|
|
