The government's decision to increase social spending may appease the disgruntled electorate, but it has raised the concern of global credit rating agencies.
Responding to unprecedented levels of post-apartheid social unrest in 2012, Finance Minister Pravin Gordhan announced in his budget speech on Wednesday that spending on social assistance would rise to R120-billion next year — an increase of more than 9% on last year's budget.
"The 'social wage' provided by the government is a steadily rising contribution to the living conditions of working people and their families," said Gordhan.
In a nod to that sentiment, grants of all kinds will increase this year. Old age and disability monthly grants will increase in April from R1 200 to R1 260, the foster care grant will increase from R770 to R800 and the childcare support grant will increase from a current R280 to R290 in April and R300 in October.
Close to 60% of government spending is allocated to the social wage. Gordhan's announcement has confirmed the worst suspicions of rating agency Standard & Poor's. Konrad Reuss, the company's managing director in South Africa, recently expressed concern about the pressure that social unrest could have on the government's policies.
"There is a heightened risk that social tensions and social pressures could continue to have a negative impact on South Africa's medium-term political, economic and fiscal framework," Reuss told the Business Day. Higher government spending, he said, would reduce the country's fiscal flexibility. The possibility of social unrest causing increased government spending was one of the reasons Standard & Poor's downgraded the country's sovereign credit rating in October last year.
Dismissive
When questioned on the relationship between increased social spending and a decreased credit rating, treasury officials were dismissive.
"It's a tough question," an official told the Mail & Guardian. "The answer, in my view, is that there is no direct impact. The broader concern is whether the government will stick to its policy course or bend its policy just to respond to social pressure."
The official did not feel that the government had done this, but he said that the treasury had tried to respond to social challenges in the mining sector by channelling more funds into that area.
Gordhan himself acknowledged the need to pull back: "If growth continues along the current trajectory, substantial spending commitments would require significant adjustments in revenue and reductions in other areas of spending."
He said that the government had taken "measures to control … spending", but social development budgets reflect anything but that and have increased by an average of 11% every year since 2008.
In last year's budget speech, Gordhan attributed the increased social spending to a broadened base of beneficiaries. This was, in some ways, self-created through more inclusive policies: since 2009, the child support grant age limit has increased to age 18 and eligibility for the old age grant "equalised" at 60 years of age.
Gordhan proposed to broaden policy by phasing out the old age grant means test by 2016. Abolishment of the means test, which requires that households earn a minimum amount in order to qualify for the grant, would "simplify administration and address the disincentive to save".
It is also likely to increase the number of beneficiaries to the scheme; the 16-million households that the government believes it will assist with grants in 2013 are unlikely to lessen in the medium term.
Increased social assistrance
​The increase in social assistance means that more people are being helped, not that people are receiving proportionately bigger grants. The grant increases are lower than projected inflation. The child support grant has the lowest increase — a mere 3.6% from last year — and old age, disability and care dependency grants will increase by 5%. Gordhan pitched inflation at an average of 5.5% for the next few years.
According to Dick Forslund, economist at the Alternative Information and Development Centre, inflation affects the poor more than anyone else because their cost of living has increased much more relative to their income than the cost of living for the rich. He led a call ahead of the budget speech for the treasury to increase social grants by 6%, which Statistics South Africa's December 2012 report says is the inflation rate for people in rural areas. Anything less than that, he said, would be subjecting those dependent on the grant to increasing poverty.
The government's overall spending on the social wage — housing and community amenities, health, education and social protection — shows a strong growth trend. As a percentage of gross domestic product, spending on the social wage increased from 13% to 19% over the past 10 years.
Gordhan listed some heavyweight measurables to account for this: a threefold increase in the number of people receiving social grants, a doubling in per capita health spending, construction of 1.5-million free homes and the provision of free basic education to the poorest 60% of pupils.
Deconstructing the budget
Education and related functions: R232.5-billion. The department of basic education gets R164-billion, tertiary education gets R28.7-billion, and vocational and continuing education training gets about R20-billion. Education remains the biggest item on the budget and received about R1-billion more than any other sector.
Social protection: R134-billion. Old age grants and child support grants get the majority of this allocation — more than R85-billion.
Health: In line with the National Health Insurance plan, district health services receive the largest portion of this allocation, with R48.8-billion. Provincial hospital services follow, with R26.4-billion. Health infrastructure receives a modest R10.2-billion.
Housing and community amenities: This sector received the smallest allocation out of all of the social services sectors. Local government and community development receives R72-billion in line with a new local government equitable share formula outlined by the minister. This is in line with a new local government equitable share formula which the minister expects will benefit almost 60% of households.