For richer or for poorer …

2009-12-05 00:00

THE number of grants will increase even further in the next few years.

According to Social Development Department spokeswoman Zanele Mngadi, child grants are currently paid only up to the age of 14.

In three years’ time grants will be paid until a child turns 18.

Elderly men now qualify for a state pension from age 61, but from April next year they will qualify from the age of 60.

Social grants cost the government R11,826 billion in the 1995-96 financial year. For the current financial year, R80,38 billion was budgeted for social grants, an increase of 580%.

The inevitable question is: can South Africa afford this?

four million pay for grants for 13 million

Efficient Group chief economist Dawie Roodt says South Africa is a country with many very poor people, so money has to be taken from those who have more to help the poor.

“But it has certain unavoidable economic implications: for example, the more you take from the ‘rich’, the less they can save.

“And if the tax burden on certain groups is increased, it will lead to their rather wanting to earn less in order to decrease that burden.”

These groups include savers, entrepreneurs and job creators — all groups that play a big part in the maintenance and development of the economy, the so-called “true creators of wealth”.

Poor people don’t save, because they use all their money for basic needs.

The greater the burden on the wealth creators, the less they will be able to fulfil their respective roles maximally (and to the advantage of the total economy).

Mike Schüssler, economist and director of economists.co.za, says about 4,8 million people in South Africa pay income tax, from which the grants of 13,5 million needy people are financed.

“I know of no country in the world where so few people have to carry so many. Our problem is aggravated by foreigners pouring into the country who receive state aid due to illegal ID documents.”

Richer people pay more, get less

Roodt says the more people earn, the more tax they pay and the less they receive from the government.

Richer people pay for their own medical services and education, but through tax also cough up for the services that the poorest receive for free.

So in a sense they are “double- taxed”.

Someone earning R1 million a year receives just under five cents in the form of goods and services for every R1 tax he pays.

But if you earn R30 000 a year, you receive about R15 worth of goods and services from the government for every R1 tax you pay.

People earning R200 000 a year get about R1 worth of services for every R1 tax — in other words, they break even.

“Not everyone pays income tax, but every citizen pays tax on every product or service he or she buys.

“Some get back far more from the state than they pay in, while others get back far less.”

Big inequalities in income

Roodt says the fact that the poor cannot save anything but are “financed by the rich” and yet can buy basic goods, increases the demand for goods in the economy.

However, if the demand for goods is too high, inflation and interest rates go up. More imports are also needed then, says Roodt.

He believes it isn’t wrong that money is taken from those who are richer in order to help those who are poorer, but the problem is the big inequalities in income.

Developing countries like Brazil have similar problems, because big inequalities also exist there, while in European countries, the distribution is more equal.

Sampie Terreblanche, professor emeritus in economics at the University of Stellenbosch, estimates that the wealthy multiracial elite representing 20% of the population, represent nearly 74% of the total income generated in the country.

The poorest 50% of the population (that is, the poverty-stricken 25 million) receive just over eight percent of the total income.

According to Roodt, the government wants to decrease inequalities through job creation and poverty relief.

“But this is the wrong approach, because our problem isn’t poverty as such, but that we have too few wealthy people. We need more wealthier people in order to enlarge the pool for redistribution.

“So the government should rather be encouraging and supporting entrepreneurship by making it easier for people to do business by lowering minimum wages.

“If the government keeps focusing on poverty relief, the money pool for the redistribution financed by the wealthy will eventually become too small,” says Roodt.

Schüssler agrees. “Our welfare grant system will not be sustainable unless it leads to greater economic productivity.

“People become dependent on welfare grants and are often less motivated to add value if they receive such grants.”

Schüssler suggests that the government should set stricter requirements for people to be able to receive grants, including that children have to attend school, have to pass, and have to visit clinics in order to undergo certain tests.

Government is spendingmore than it has

Roodt says the government is already overspending.

“The state is currently forced to borrow about eight percent of the gross domestic product. This money is taken from savings in the market.”

In this way the demand for savings increases, since there is now less because the government has taken a bite out of the savings cake. This demand for savings pushes up interest rates, Roodt says.

“Another consequence of less available savings money in the country is that then there is less money available for the private sector to borrow, for example for building factories.

“By virtue of the fact that the state is, therefore, ‘squeezing’ the private sector out of the borrowing market, there is less work and the economy is shrinking because the private sector is being hampered.”

But the Social Development Department is confident that the paying of welfare grants is sustainable.

“Social assistance is a constitutional right. The increase in the number of people receiving grants since 1994 shows that the system is sustainable,” says Mngadi.

Grants improve quality of life

Grants do not only help the poorest to survive. Grants can also pay for the modelling and singing classes for a foster child; for dignified care and accommodation for the handicapped; for three meals a day and peace of mind for the aged.

These are only a few ways in which the quality of life of the needy is drastically improved.

“If it weren’t for the R1 010 we receive from the government for each of our disabled people, we could not exist,” says Alta Cronjé, manager of Epilepsy SA’s centre for the handicapped in Parys. About 82 people with different kinds of disabilities are cared for there day and night.

“It’s a fixed income on which we can depend.”

A foster care grant enables Esther du Plessis of Springs to pay for her 12-year-old foster child’s modelling classes and singing lessons.

She took the child in for foster care after her domestic worker left her at the Du Plessis’ house and disappeared when the baby was only about a week old.

Grants for needy elderly people in old age homes considerably lighten the burden for their families, says Annette Strauss, a social worker at the Anna Viljoen Old Age Home in Potchefstroom.

“The elderly people with us who receive welfare grants are also additionally financed by the state because we are a state-subsidised old- age home. The aid means that the eventual contribution by poor families to the care of the aged here is considerably lower.”

OUR PROBLEM ISN’T POVERTY AS SUCH, BUT THAT WE HAVE TOO FEW WEALTHY PEOPLE. WE NEED MORE WEALTHIER PEOPLE IN ORDER TO ENLARGE THE POOL FOR REDISTRIBUTION. SO THE GOVERNMENT SHOULD RATHER BE ENCOURAGING AND SUPPORTING ENTREPRENEURSHIP BY MAKING IT EASIER FOR PEOPLE TO DO BUSINESS BY LOWERING MINIMUM WAGES.

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