Cost of welfare 'is rising faster than South Africa's ability to pay'

Economists have warned about the mounting costs of dispensing social welfare grants in South Africa after Treasury director-general Lesetja Kganyago reported that the costs had risen from just over R4 billion to R5.16bn in four years.

Economists.co.za chief economist Mike Schussler, noting that R80bn was dispensed by the SA Social Security Agency (Sassa) in 2009/10, said this meant the cost of dispensing amounted to 6.37 percent.

“I would have expected the cost to be about 3 percent to 4 percent,” Schussler said.

If the agency had saved half of its administration costs, about R2.5bn could have been spent on grants – either through providing extra grants or raising existing grants.

“That probably would have given the 14 million-odd grant recipients about R7 a month.”

That may not appear to be a lot, but it was a significant amount on top of the child care grant of R250 a month, which rose just R10 in Wednesday’s budget, Schussler pointed out.

Pan African Capital chief executive Iraj Abedian agreed that the costs of the agency were high.

The state needed to look at cutting the costs of “older style distribution”, such as running expensive regional offices, payout points “and trucks full of cash”, he said.

As much of the grant dispensing as possible should be carried out by electronic transfers, Abedian said.

Schussler said banks operated on an administrative costing system of about 3 percent, which could be a guideline for the agency.

He was also concerned by the massive growth in numbers of grant recipients, which was not matched by a similar proportion of people entering the tax system.

Fewer than 6 million taxpayers supported 13.9 million grant recipients, and this figure is expected to rise to 16 million within two or three years.

Finance Minister Pravin Gordhan on Wednesday raised the state old-age pension to R1 080, up R70.

There are currently 2.5 million recipients. The disability grant – dispensed to 1.3 million people – is also R1 080.

The foster care grant – which goes to 569 215 recipients – went up R30 to R710.

The child care grant goes to 9.4 million recipients, up from just over 7 million four years ago.

The care dependency grant, dispensed to 119 307 people, is also now R1 080 a month.

The war veterans grant went up R70 to R1 100, but there are just 1 248 recipients.

DA finance spokesman Tim Harris said his party’s primary concern was that social security and welfare expenditure had increased from 1 percent of gross domestic product to more than 4 percent in the past 20 years.

“This has resulted in a trade-off with expenditure on infrastructure, education, health and security.”

“This would be less concerning if the prioritisation of social spending had resulted in a reduction in inequality, but by almost every measure inequality has increased over the period.”

Startlingly, welfare expenditure had increased by 12 percent in the last five years.

“A serious concern is that these increases are not necessarily getting to the poor because Sassa is beset with corruption and fraud,” Harris said.

Source: www.busrep.co.za, 20100222

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