Calls to increase social grants to help poorer households cope with the mounting challenges of the now extended lockdown may prove difficult to match due to a decade of economic stagnation, IRR analysts warn.
The call by theUniversity of Cape Town Children’s Institute for such an increase underscores the importance of social grants in providing a critical lifeline to a large number of South African households living in poverty, and battling under lockdown conditions that have sharply reduced sources of income.
But IRR analysts warn that South Africa’s gradual socio-economic decline has rendered the country’s social grant system increasingly unsustainable.
Many already depend on social grants. In 2019/20, the number of beneficiaries stood at 17 966 000, with estimated annual grant expenditure for 2019/20 of R175.2 billion. As many more people lose their jobs due to the economic fallout from the lockdown, demand for social grants can be expected to grow in the coming months. South Africa’s expanded unemployment rate before the Covid-19 crisis was already nearly 40%.
Yet, South Africa has had dismal economic growth over the past five years, with real GDP growth averaging around 1% since 2014. The recent sovereign ratings downgrades by Moody’s and by Fitch will lead to a further decline in investments, which in turn will hurt economic growth.
Analysts point out that a low economic growth rate has a direct impact on government revenue. SARS announced earlier this month that it had missed its revenue collection target set in February last year by R66 billion. Furthermore, South Africa has a very high tax burden, with fewer than 5 million individual tax payers assessed in 2018. VAT was increased by a percentage point in 2018, but this, too, added to the burden on poorer consumers. Another increase would place consumers under significant pressure.
In view of this, IRR analysts urge the government to do more to mitigate the impact of the Covid-19 pandemic by identifying sectors or pockets of the economy that can continue to function without posing a significant risk to public health.