South Africa is well and truly a welfare state, in which at least 47% of the population rely on social grants of one kind or another. The situation is as unsustainable for our fiscus as it is dangerous. Once a population has enjoyed getting something for free, it’s often very difficult to reverse that. Take Nigeria, for example, where the government has been trying to halt a government subsidy on fuel for some time now. But, under threat of nationwide protests by labour unions, the government there extended keeping fuel prices low as it heads towards elections in February 2023 (surprise, surprise). Nigeria is Africa’s largest oil exporter but imports almost all its fuel. Similar to South Africa, many of its refineries have shut or are languishing in a state of disrepair. South Africa’s R350 social relief of distress grant is fast ingraining itself as the basic income grant by another name. Finance Minister Enoch Godongwana extended that grant until March 2024. In the piece below first published on Daily Friend, Sibusiso Ngwena gives a thorough rundown of just some of the elements in society suckling at the teat of a dwindling tax base that diminishes with each passing year. – Michael Appel
By Sibusiso Ngwena
Offering social welfare services to people who through mother nature’s vicissitudes cannot provide for themselves is a noble deed. However, for a long time now in South Africa, government coercion has enabled some groups to live on taxpayer alms.
If you were to conduct a survey amongst the country’s urbanites and asked about their feelings/attitudes towards people who rely on social grants, I bet some of the responses might include phrases like: “They are lazy”, “there are too many of them”, etc. In a presentation to parliament earlier this year, the social development department showed that at least 31% of South Africans rely on social grants, but the number shoots up to 47% of the population when the R350 “distress grant’ – resulting from the ill-fated 2020 lockdowns – is included.
A lot of ink has been spilt about how unsustainable this transferism is over the long term, and how dwindling coffers might force the already gluttonous government to resort to extreme revenue collection measures to keep the welfare spigot running. In fact, the government and its allies in the media, academia and other institutions are starting to flirt with failed policies such as wealth taxes – which have been tried and failed elsewhere – to shore up its revenues. The predictable result is that the tax base is shrinking at a rapid rate.
Not heading the “take your hands off my pocket” message the government, through the South African Revenue Service, has signalled its intention to hound the productive class to fill the bottomless pit with an “unexplained wealth” smoke screen.
Welfare trees and forest
South Africa in its various configurations since its establishment in 1910 has been a citadel for dolling out social transfers to certain favoured groups. The feeding frenzy has always been explained away by a quest to ameliorate a certain societal ailment e.g. poverty. Some of the rationalisations include the “poor white” problem in the 19 teens until today’s “triple challenges” which now include inequality. All these ailments ostensibly compel the government to intervene by introducing social assistance programmes such as “free” housing and health care, social grants, old-age pensions etc. The familiar shpiel about the source of funding for these schemes would be by increasing tax rates, decreasing government wastage, borrowing etc.
While these social transfers “trees” receive the most attention – and rightly so as they consume a large chunk of the government’s budget – the fixation on them entirely misses the welfare forest. There are many other favoured groups hiding in plain sight that rely on taxpayer largesse. Some of these groups can afford a life of luxury. I will focus on three of them and what is also on the horizon.
In his honorary doctorate acceptance speech at the University of Zulu-Land in 2018, the late Zulu King Zwelithini sneered at people receiving social grants. His point was that the over-reliance on them made people lazy. Ironically In the same year, the government increased his social grant (sorry, royal budget) from R58.8m to R65m without a whiff of complaint from him. This social grant is sitting at just over R67m in 2022, which makes the Zulu King one of the largest recipients of social grants in South Africa by far.
South Africa’s multi-layered and complex governance system maintains an extractive class who through heredity alone rely on taxpayer largesse. This group of “traditional leaders” – as they are often referred to – has no clearly defined responsibilities, except being “custodians” of (certain?) local customs, norms, and values. There is scant Information about how many they are, however, in 2018 Business-Tech quoted the then COGTA Minister Des Van Rooyen as saying that there were 844 senior traditional leaders, excluding the Western Cape. Keep in mind that this number also excludes an army of “head men/women” who help the traditional leaders maintain their fiefdoms.
The infinitesimal information provided by the government about their sheer numbers does enable one to deduce that they number in the thousands, but also makes it hard to know exactly how much they extract from the fiscus anually. The government has the incentive to conceal actual numbers from the public, as might be politically unpalatable if divulged.
The number of state-owned zombies (companies) would make Karl Marx beam with pride. The cadres “deployed” by the ANC in various state-owned and operated companies have inadvertently written a “How to Ruin a Company for Dummies” book. Take Eskom’s example: it previously powered the country to double-digit economic growth while now doing its utmost best to de-industrialise it. With an average salary of over R 700,000 most of the company’s employees are part of South Africa’s top 10% club. The company enjoys a government-granted monopoly of electricity provision, but still lives on coerced taxpayer alms.
And it gets worse
Some SOEs can quietly shut their doors today and nobody will notice. The continued existence of the likes of the Post Office, SAA and PRASA can only be justified by some non-economic reasoning even though their raison d’être is profit-seeking. These state-owned zombies have been usurped by more agile and responsive private institutions.
The mendicant class in these zombies “earn” a living through the ANC’s control of the country’s gunpowder, as it were. The party has through the cadre deployment policy and appeasement of alliance partners reserved “jobs” for certain categories of people and their fates are tied to the regime’s continuance.
It is estimated that more than R1trn has been wasted on SOEs in the last 10 to 15 years alone, and some of the waste is attributable to keeping government-backed extractionists on welfare.
If there is one group that possesses disproportionate power in the country is the taxi industry. It wields such power as it does with unrestricted impulsiveness not only to effectively keep above the law, but also to collude with the government to keep a welfare spigot scheme going, namely, the Taxi Recapitalisation Programme (TRP). Instead of implementing the law by impounding low-flying death traps (mini-buses) to keep them off the roads, the government – in its infinite wisdom – in the early 2000s chose to plead with the industry to get rid of their unroadworthy vehicles by enticing them with cash grants (R 91,100) to offset the cost of purchasing new ones.
In a tacit acknowledgement of the government’s powerlessness to act against the industry’s brutish road behaviour, and the often brandished and sometimes used ability to use violence to protect its unearned monopoly (transportation of approximately 15 million commuters daily), the latest rationalisation of this feeding frenzy is the need to professionalise the industry and recognise the country’s lack of an adequate mass transit system.
What the scheme has done over time is to create a constituency of welfare beneficiaries and a moral hazard. The one-time TRP has now morphed into the Revised Taxi Recapitalisation Programme (RTRP) with not only a larger cash grant (R124,000), but now one which includes aiding the industry with other “payments-in-kind” welfare services such as insurance, spare parts, repairs etc.
The programme’s prolongation has been fortified with the founding of a new bureaucracy called Taxi Recapitalisation SA (TRSA), but bizarrely the government thinks they will wean the industry off this largesse over time. This welfare programme will not be repealed anytime soon as it affords mini-bus owners snug lifestyles at R4.4bn and counting.
On the horizon
What lurks on the horizon will send the economy straight into a coma. Instead of implementing excruciating, but necessary labour market reforms to address the country’s cataclysmic unemployment rate, the ANC is digging in its heels to stay in power. Consequential labour reforms will also bode ill for other members in the ruling alliance, and consequently the party itself at the polls.
The ANC government and its ideological ilk in the ivory towers of academia, the media and other bellyache industries, hold the asinine belief that somehow people can flourish through redistribution schemes. The Covid-19 pandemic presented the perfect opportunity to implement what they always wanted; the universal basic income grant. To circumvent the legislative process and drum-up public support, they named the policy the “social relief distress grant” and sold it as a temporary measure to weather the covid storm.
The storm is long over, but the programme remains. As Milton Friedman once quipped, “nothing is so permanent as a temporary government program”. The ANC and its allies knew that as soon as the first rand was paid, a dependent constituency would be established, and repealing the policy would be a non-starter in today’s political milieu. The public’s acquiescence to the policy has also emboldened some in the government to dream of other welfare schemes such as “free” basic data to every “household” and rest assured that other “free” redistribution schemes are in the works.
I have barely scratched the surface when it comes to groups living on welfare. There are plenty more groups than can be added to the list. And it seems as if the ANC-led government is committed to adding more dependent groups to shore up its waning electoral support. This means that the long-established tradition of feeding at the trough at taxpayer expense is here to stay in the short to medium terms. The question is how do we begin to arrest the legalised plunder in the long term?
- The views of the writer are not necessarily the views of the Daily Friend or the IRR.