What the South African State Does For the Poor : I - Social Grants

This Brief is the first of a series tackling the question; what is the state doing for the poor?

Since the end of apartheid, South Africa has made significant progress alleviating the plight of the poor through social spending. The 1996 Constitution mandates the State to see to the welfare of its citizens. Chapter 2 of the Constitution of South Africa requires social provision to correspond with the spirit of a democratic society. It establishes in Section 27(1) that every citizen has the right to "health care, food, water and social security". This measure does not give a clear set of guidelines as to how the State should meet these rights. Nevertheless, it states that the State is required to fulfil these rights progressively and to the best of its ability. 

Social grants are at the heart of the debate around redistribution and building a more equitable society. Current research shows that expenditure on social grants has increased significantly since the advent of democracy, and that millions of South Africans have become dependent on these cash transfers. In keeping with the increase in State dependence, spending on social grants has increased steadily over the years. In 2014 social grants cost the state 3.4% as a proportion of GDP compared to 3.2% in 1992[1]. 

Social grants legislation in historical context

Social grants came into existence early last century for Whites and Coloureds. In the 1940s, these grants, mainly in the form of old age pensions, were extended to Blacks and Asians.  The amounts paid varied by race and gender. The value of grants for White beneficiaries was higher than that for Blacks by 26%. In terms of the age of eligibility according to gender, social pensions had a particular bias towards women beneficiaries, who qualified for benefits at 60, whereas the age of eligibility for men was 65[2].

Towards the end of apartheid, however, the social security sector started to move towards equalisation. The Social Security Act of 1992, which came into effect in 1996, committed the state to parity. All South Africans were entitled to receive the same value of grants provided they meet the citizenship requirement. 

The types of social grants 

In 1994, seven social grants were disbursed by the state. That number has not changed, even though the old state maintenance grant was replaced by the child support grant in 1998. It has been progressively extended to children under the age of eighteen born of poor parents. The current social grants system comprises the following seven grants outlined in Table 1.1 below:

Source: South African Social Security Agency (SASSA), Annual Report 2013/14

The impact of social grants on poverty and inequality

Poverty and inequality continue to be stubborn features on the South African social landscape even after more than 20 years of democracy.  At the moment, the proportion of people of living in extreme poverty, as per international standard of $1.25 (in purchasing power parity terms) per day, is 16.5%. Similarly, based on 2014 estimates, the aggregate income gap between the incomes of the poor and the international poverty line has increased by 13% when compared to 1993 levels[3]. 

On average, the economy grew by 3.1% per annum between 1994 and 2014. At the moment, it is performing poorly in relation to the average. In the 2014 financial year, the economy grew by no more than 1.4%, whereas it is forecast in the 2015 Budget to improve slightly to 2.0% in 2015. However, the number of South Africans dependent on social grants doubled from 8 million in 2004 to 16 million in 2014, principally as a result of the progressive extension of the child support grant. 

Social grants must be seen against a backdrop of unemployment and poverty. According to the 2014 Quarterly Labour Force Survey, the level of unemployment in South Africa stands at 25%. However, when considering the extended definition of unemployment, which considers the proportion of discouraged job seekers, the rate of unemployment increases markedly to 35%[4].

Hence, the latest estimates released by Statistics South Africa (STATS SA) show that the prevalence of poverty has increased from 45.5% in 2013 to 53.8% in the 2014 financial year in terms of the upper bound poverty line (UBPL) measurement[5]. The upper bound poverty line is one of the three measurements used by Stats SA to measure the incidence of poverty in South Africa. This approach calculates the minimum amount of money one needs in order to survive by taking into consideration food and non-food items. Those falling within the UBPL category can afford food and non-food purchases. However, they are still classified as poor. The upper bound poverty line stood at R 753 per capita per month in 2014.

The seven social grants dispersed by the State fill a big welfare hole, and they help reduce the level of poverty among the lower income groups at the cost of 3.8 as percentage of GDP. However, it is clear that the state grants system faces strong headwinds from deep-seated inequality in household income. The Gini coefficient for household income is 0.69, very high by international standards. 

Targeting

Spending more does not always mean that the poor always benefits from government initiatives. It begs the question; to what extent do these social grants reach the poor? The social grant that is the most progressive is the child support grant, which means it plays an effective role to reduce poverty and inequality. Among the larger cash transfers, the most progressive programme is the old age pension scheme. 69% of all social transfers go to bottom four deciles of the income distribution[6].  

Moreover, the proportion of households with school-age children and elderly is higher at the bottom of the income distribution than at the top. 66% of poor households living below the poverty headcount of $2.50 (PPP) have children under the age of 18 years, relative to 37% in the richest income groups. About 28% of poor households have a pension-age adult in it, relative to 22 percent in the richest income group. Similarly, directing social grants to families with children has proven very effective at targeting those most in need. About 40% of beneficiaries living below the national poverty line of R433 per person per month in 2011 were below the age of 15[7].  

In terms of boosting economic participation, government's social grants have improved the incomes of those at the bottom of income distribution by more than 10 fold[8]. The impact of these transfers in raising the income of the poor in South Africa is far larger than in other middle-income countries.

Conclusion

Child support grants, old age pensions, and disability do an effective job of enhancing the incomes of the poor. Without social grants, the level of poverty would be much worse. Social grants are essential for lowering economic risks for the most vulnerable in society.

Notes:

1. SAIRR, Race Relations Survey: 1992/1993, 1993 
2. SAIRR, Race Relations Survey: 1991/1992, 1992
3. World Bank, South Africa Economic Update: Fiscal Policy and Redistribution in an unequal society, 2014
4. STATS SA, Quarterly Labour Force Survey, 2014
5. STATS SA, Methodological report on rebasing of national poverty lines and development of pilot provincial poverty lines, 2014
6.  World Bank, Op. Cit, 2014
7. Ibid
8. Ibid

Elias Phaahla is a Researcher at the Helen Suzman Foundation.

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