Daylight follows a dark night? Half the national budget spent on social services!

The different “welfare terms” used in South Africa may seem confusing. Terms such as social services, welfare, social welfare, social infrastructure, social wel-fare services, social security and welwel-fare infrastructure are used interchangeably.

In this report we refer to social services, infrastructure or welfare as one and the same, i.e. housing, welfare, health, and education. We focus first and foremost on social services provided by government.

South African social security today has two components; occupational insurance and social government assistance. Few countries spend as much in total on social secu-rity as South Africa. The larger share, however, goes to occupational welfare: pen-sions, medical aid etc. In 1992, a total of R14 billion was paid out in occupational retirement benefits alone, compared to the R4.8 billion paid out as social old age pensions by the government (van der Berg 1997).

Despite the fact that the private sector provides more resources for welfare, and that government spending is only about 30 percent of GDP, government’s role as a provider of welfare is substantial. The RDP Programme states that: “The RDP … committed to a programme of restructuring public expenditure to finance the dem-ocratic government’s contribution to the RDP”. We will not evaluate the poverty profile of the national budget here. Rather, we will give some facts and figures to

7 National sample survey by IDASA.

provide a background framework for the chapters which follow on delivery in spe-cific sectors.

The South African National Budget provides for expenditure of R219.6 billion in 1999/00. A few points should be made at the offset. First, consumption spend-ing by general government after 1994 has increased considerably faster than eco-nomic growth.⁸ Second, of total government spending, expenditure on social in-frastructure has increased considerably. This is not, however, a post-apartheid phenomenon. The composition of government spending has changed dramatical-ly since 1973. In 1973, government wages accounted for 7 percent per cent of GDP and 29 percent of total spending. In 1995, they accounted for 12 percent of GDP and 35 percent of the budget. Capital spending has fallen and interest payments have risen. Spending on subsidies to industries has fallen, while spending on trans-fers to households have risen in the 1980s and early 1990s.

If the budget into five functional categories (see table 1.3), some general trends should be noted (Ministry of Finance 1999). Spending on interest payments has grown considerably since 1992 and now constitutes about 21 percent of the national budget. Spending on social services has also increased and is now estimated at around 61 percent of government non-interest spending and 47 percent, or close to half, of total national spending. Allocations to social services have also grown in both relative and absolute terms. In relative terms, spending on social services has in-creased faster than other items on the budget.

The share of total non-interest spending which goes to social services has in-creased from 43 percent in 1985 to about 60 percent in 1999. Including interest repayments, 42 percent of the budget was allocated to social services in 1995 while in 1998/99, 47 percent was allocated to social spending. Finally, spending upon defence has decreased by 2 percent and general administration by 1 percent. Per-sonnel costs increased by 12 percent altogether. Table 1.2 sets out the consolidated national and provincial spending from 1995/96 to 1998/99 as well as annual changes.

Increases in subcategories need to be seen in relation to the increase in the over-all size of the budget and inflation. The total budget has increased by about 10 percent per year up to 1998/99. An increase of 12 percent per year on social serv-ices in the same period could hardly be argued to be a substantial reprioritisation.

However, it is still an expression of the high priority given to social services. Hous-ing and health received most of the increases.

8 The growth in general government spending was 6 percent in 1996, 7 percent in 1997 and 6 percent in 1998 (first three quarters). Real economic growth in the same period was: 3.2 per cent, 1.7 per cent and 0.1 per cent respectively.

In the 1990s inflation increased at around 8 percent per year,⁹ implying that, in many areas, expenditure has in fact seen a real decrease. Measured against inflation, spend-ing on welfare has seen a limited increase of only about 1.3 percent per year. Fur-thermore, transfers to households which make up the crucial part of the Depart-ment of Welfare programme, i.e. social grants to the elderly, disabled and others have increased by only 4.8 percent from 1995/96 to 1998/99. This is lower than inflation, and therefore a real decrease.

South Africa spends a comparably high amount on social security and welfare.

In comparison, high-income countries like Japan spend 37.5 percent of their central

Table 1.2 Consolidated national and provincial spending 1995/96 to 1999/00. Rand Million

6 Source: Ministry of Finance, 1999

9 CPI inflation was 7.4 per cent in 1996, 8.6 per cent in 1997 and 6.9 per cent in 1998 (Budget Review 1999).

government expenditure upon social security and welfare and the USA spends 28.5 percent! Norway, on the other hand spends about 70 percent of its national budget on social services and welfare – about 30 percent of its GNP. About half of this is transferred straight to households. Table 1.3 provides an international comparison of public expenditure on health, and education, compared to military spending.¹⁰ Table 1.4 compares government expenditure in developing countries. South Africa compares relatively well, with considerably more spent on social services than the other countries.

Table 1.3 Public expenditure on health, education and military as percent of GDP, international comparison 1996

* 0.5 percent of GNP. The 1997/98 Budget Review quotes 3.3 percent of GDP.

Source: UNDP 1999

Table 1.4 Government expenditure in developing countries (1985–90)

r Source: Pradhan 1996

10 We find major differences also between developing countries when it comes to spending on social services as part of GDP: Sweden spends most with 35.6 percent; Denmark 34 per-cent and Holland 31.4 per per-cent while Greece spends only 19.8 perper-cent, Iceland 19 perper-cent and

However, South Africa still scores relatively low in terms of human development.¹¹ This brings us to five other relevant points that make delivery complicated and cumbersome. First, the apartheid legacy requires that South Africa build social serv-ices rather than maintaining them as in many other countries. Second, poverty rates are much higher in South Africa than in many of the other countries we have com-pared South Africa with. Third, spending on social services has limited impact as long as unemployment rates are high and growing. Fourth, the RDP had to be implemented within the constraints of a public service which had to be restructured and which had to integrate various homelands’ departments. Fifth, while social services spending may be a substantial part of the national budget, the size of the national budget, as a proportion of GDP, has to be taken into account. In Norway government expenditure is approximately 50 percent of GDP. In South Africa, the national budget is only about 21 percent of GDP.¹²

Furthermore, while expenditure on social services is substantial, questions need to be asked as to the “packaging” and organisation of delivery. Some of the most crucial issues to be addressed here are the “spheres of government” where delivery takes place and the relationship between public and private sector in delivery. While the national government has responsibility for economic services (finance, trade, labour etc) and protection services (defence, police, justice etc), the responsibilities of the provinces include education, health and welfare. Housing is a joint responsi-bility.

According to the Constitution as well as the RDP, infrastructure delivery is to take place at the lowest possible level in terms of government structures. Yet, in terms of local government revenue, there are still major problems in collecting payment in certain areas in spite of the Masekhane campaign. And in spite of aims of local delivery, there are still major capacity problems at the local level (Dept of Welfare 1998, Ministry of Finance 1999). Furthermore, while the provinces account for about 60 percent of non-interest expenditure and 70 percent of public service employment, they are able to raise on average only about 5 percent of their budg-ets. To remedy this, nationally collected revenues are distributed equally between the three spheres of government.¹³ Yet, while provincial governments have been argued to have little influence over the priorities of spending, the financial implica-tions of provincial implementation of priorities does not necessarily translate into

11 The UN Human Development Index (HDI) reflects educational attainment, GDP per capita and life expectancy. While South Africa scores relatively low on the HDI it should be mentioned that this to a large extent reflects the decreased life expectancy due to HIV/AIDS.

12 1994 figures. This figure does not take parastatals into account.

13 According to formula set out as described in Concluding Chapter in this report.

the same kind of standard, degree and quality of delivery in all areas. The value of the Rand is, in other words, not the same in every province or locality. Service pro-viders differ in their prices as well as efficiency, consumers will differ in terms of demands and capacity, and governments will also differ in terms of capacity and their degree of influence over spending. The spatial distribution of the population (for example, the proportion of people living in rural areas) has important implications for the costs of service delivery. What this means is citizenship may not necessarily translate into the same social and economic rights in the various provinces.

In terms of the relationship between the public and private sector, a so-called partnership approach has been established. Government increasingly relies upon private financiers and service providers to support the construction and maintenance of infrastructure and delivery of services. This does, according to the government and the DBSA (1998) supplement public sector capacity and introduces the disci-pline of competition, thus increasing efficiency and responsiveness.

The new government has altered the distribution of public funds and of infra-structure delivery. Furthermore, increased labour productivity has contributed to average annual increases in real wages of about 3.2 percent (Budget Review 1999).

According to the government, there has been a significant redistribution of income in favour of the working poor over the past five years (Budget review 1999). Simul-taneously, unemployment has increased drastically. Furthermore, there are indica-tions that investment in economic and social infrastructure has declined, while di-rect pay-outs and transfers as a proportion of infrastructure have increased (such as through the housing subsidy). Finally, a large portion of social services spending is allocated to administrative wages and salaries. The question arises as to what deliv-ery has actually been achieved, and to what extent high and increased spending reflects increased delivery.