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SA's safety net

Feb 24 2012 07:45 Sapa

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Johannesburg - Social grants have created a safety net for poor South Africans at a small cost, an economist said on Thursday.

"You establish a safety net and it costs you 3.5 cents in every one rand, what's the problem?" independent economist JP Landman said in Johannesburg.

Social grants make up less than 3.5% of gross domestic product (GDP).

This has led to improvements on various poverty measures, Landman said.

"We have rolled poverty back extensively... I think social grants are helping to stabilise the country."

He gave as an example a farmer he knows in the Eastern Cape who said crime in his area has declined since the introduction of the social grant. Landman said social grants have increased 27% since the ANC leadership change at Polokwane in 2007.

This year 15.6 million people – or almost 31% of the population - will receive social grants. This was expected to rise to 16.7 million by 2015, Finance Minister Pravin Gordhan said when delivering his 2012/13 budget on Wednesday.

"The Treasury has managed this expense extremely well."

However, Chris Hart, economist at Investment Solutions, who was debating the budget with Landman, disagreed. He said social grants alone are sustainable. Spending on health or education alone is also sustainable.

"But when you start looking at the whole lot together with national health insurance, you start to get to something unsustainable and that's the concern," Hart said.

Government should not stop spending on these, but needs to ensure this money is spent wisely.

"When you are throwing money at a situation where you've already got a huge amount of inefficiencies, you enhance those inefficiencies."

Hart said the pendulum has swung to the point where South Africa is focusing too heavily on poverty alleviation rather than poverty reduction.

He defined poverty alleviation as giving poor people things for free, such as housing. Poverty reduction involves creating jobs for people, so they no longer need handouts.

Landman saw it differently, saying money has to be thrown at the problem.

"You live in a country with the worst human skills profile in the world, probably the worst health profile in the world... you are not going to solve these things by not throwing money at them."

He added, though, that other issues such as weak management in the public sector also need to be dealt with.

Economic growth alone could not solve South Africa's unemployment problem, Landman argued.

"It's virgin-in-a-whorehouse thinking to think in our lifetimes we will ever solve the unemployment problem though growth," he said.

This was because of South Africa's demographics. There are too many unskilled people entering the labour force who will not get jobs.

Spending on social grants will grow from R105bn in 2012/13 to R122bn in 2014/15, according to the Budget Review.

The document notes that "despite limited fiscal resources, government provides a safety net for nearly one-third of the population through the social grant programme... paying for largely free services at public health facilities and no-fee schools for 60% of learners".

By the end of last year, nearly 15.3 million people were eligible for social grants, compared to 2.5 million in 1998.

According to the document, the average value of the "social wage" for a family of four in 2012/13 will be about R3 940 a month.

Despite the rapid growth in the number of beneficiaries, however, spending on social grants will decline as a percentage of GDP - from 3.5% in 2011/12 to 3.2% by 2014/15.

This is because there are no major grant increases planned for the next three years, and economic growth is expected to outpace growth in the number of recipients.

According to the document employment is the most effective route out of poverty, and boosting long-term job creation remains an overriding objective of economic policy.

 - Sapa

sa economy  |  social grants  |  budget 2012
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