Rapid growth in expenditure on social grants is squeezing government spending on health, education and other essential services, forcing it to reconsider the way it is financing its major development programmes.
Figures released by the National Treasury this week show provincial spending on social grants doubled between 2000/01 and 2003/04. And, government spending on grants is set to grow by another 50% to R61,2-billion by 2006/07.
The extension of child support grants to children as old as 14 was expected to result in major spending increases, but the new figures show faster than anticipated growth, says Ismail Momoniat, the Treasury’s head of intergovernmental fiscal relations.
It is clear that grants are now beginning to limit spending increases in other areas of social delivery, notably health and education.
Education is still the largest single item in provincial budgets, but its share of funds declined from 39,6% in 2000/01 to 36,5% last year. It is expected to drop as low as 33,3% by 2006/07. Health will see a more limited decline from 23,5% to 21,4%.
Other welfare services provided by social development departments are also taking strain, Momoniat says. Part of the unexpected increase comes from a doubling in disability grant payments. “We think there has been a considerable amount of abuse, which we are looking into,” he adds.
Senior officials, including Minister of Finance Trevor Manuel and Director General Lesetja Kganyago, have previously expressed concern that provinces may struggle to fund education and infrastructure developments that are crucial to future economic growth if social spending requirements continue to grow.
This will to some extent be addressed by the creation of a national agency responsible for social grants, but the result of a thorough review of the intergovernmental fiscal system is expected to be evident in next year’s budget.
“No one is calling for a fundamental review of the Constitution but after 10 years we need to look at where there might be problems that need to be fixed-up,” Momoniat says.
“A case in point is something like housing — doesn’t it make sense for local government to be more involved? The Constitution doesn’t give municipalities responsibility for housing, but it doesn’t disallow it either.”
There appears to be little question of expanding the revenue raising powers for provincial and local government. The Treasury is worried about the macroeconomic effects of more decentralised revenue collection — inflation targets, the cost of doing business and the stability of the tax regime are of particular concern — so it is unlikely wide new fund-raising powers will be granted.
“The model we have of the South African Revenue Service collecting revenues is better suited to a developing country that is trying to attract investment. Municipalities already struggle with compliance, and even provinces don’t do that well,” says Momoniat.
The total backlog in uncollected municipal rates and services fees now stands at R28-billion, nearly three times the annual budget of a major metropolitan area such as Johannesburg.
Tools like the recently instituted Municipal Infrastructure Grant, which provides local governments with earmarked funds to improve roads, sewage and water are expected to play an increasingly important role in the mix.
The equitable share formula, which determines how much money provincial and local governments receive from the fiscus, is also being reviewed, and its technical provisions for the division of revenue are likely to be hotly contested particularly by provinces that feel financially squeezed by demographic changes, among others.
Provincial treasury officials said they expect changes to promote a more redistributive allocation of funds between poor and wealthy areas, but said that their efforts to generate more of their own revenue were constantly stymied at national level.
The Western Cape has long maintained that it is disadvantaged because of migration from the Eastern Cape, while members of the Northern Cape government maintain that greater allowances need to be made for the high cost of delivering services in a large, sparsely populated province.
But Momoniat insists that these issues are largely provided for under the current system. “It’s not necessarily a win-win situation. If one person gets more, someone else is going to get less.”