KHAYA SITHOLE: Guts needed to correct the imbalance between good intentions and affordability

SA’s complicated architecture of social and economic relations is best captured by the fragile balance between low economic growth, a plateauing taxpayer base and the social wage.

The social wage — encompassing direct transfers such as pensions and grants, and indirect assistance such as subsidised school nutrition programmes, which collectively seek to lower the cost of living for those who do not earn an economic wage through formal work — represents a significant portion of the country’s annual expenditure.

In its various forms the social wage has allowed citizens to eke out a living under trying circumstances, while also serving as the country’s most direct arsenal in the battle against abject poverty. The increase in the rate of the social wage as a percentage of GDP has steadily grown, from 13% in 2003 to almost 20% in 2022. The National Treasury says the social wage now amounts to 60% of non-interest expenditure, and projections indicate that it will remain at that level.

At the same time, the country’s poor credit profile and even poorer economic growth prospects have resulted in high debt servicing costs, which means once one accounts for the social wage and the costs of sins past there isn’t much left to share across the remaining critical services.

As the country gears for a medium-term budget policy statement (MTBPS) that is expected to be more austere than expansionary, difficult questions about the balance between the most critical expenditure items and the revenue required to support it all will once again have to be addressed.

Part of the reason the social wage makes up 60% of expenditure is that national GDP has not grown fast enough to support the national social wage demands. Connected to that stagnant economic outlook is the reality that jobs aren’t being created at any pace, which means more recipients of the social wage are now expected to support other family members who do not themselves qualify for social assistance. When contrasted with the escalating cost of living, the sad outcome is that the social wage is actually declining in value in the hands of the recipients.

The recent census results shows that the country’s population grew by more than 10-million in the decade up to 2022. When one looks at the growth in employment and tax collection over the same period, it is notable that the growth in the population has not been matched by growth in the economically active population.

The growing population increases demands for social services and social infrastructure, which are incorporated as part of the social wage calculation. This means that unless something drastic happens to grow the economy and tax revenues or more employment opportunities are created, the balance between intention and affordability will remain fragile for a long time.

For the government, this reflects a reality that is as sobering as it is politically explosive. Ahead of a general election one feature that unites both the incumbent government and pretenders to the throne will be the need to maintain the social wage due to the persistence of poverty and unemployment.

While the conversations may be dominated by the question of the permanence of the social relief of distress (SRD) grant and the introduction of the basic income grant (BIG) — conversations that are often unfortunately conflated — the current economic trajectory means all elements of the social wage are at risk of being undermined.

While the SRD grant lacked a scientific underpinning and was simply based on affordability as determined by the government at the height of the Covid-19 pandemic, the BIG needs to be more scientific than arbitrary in its design. Whatever permutations one ends up with, it is clear that whoever gets across the line first in the 2024 general election will have an extremely difficult task ahead.

One wonders if any of SA’s current political leaders actually have the stomach to implement the reforms that are required to correct the imbalance.

• Sithole (@coruscakhaya) is an accountant, academic and activist.