Do welfare transfers in South Africa target the poor and redistribute income? This paper from the International Poverty Centre evaluates the experience of the South African economy with respect to growth, poverty and inequality trends since the advent of democracy in 1994. There is little doubt that the significant growth spurt in welfare transfer expenditure has made important inroads into poverty. The impact on inequality is less clear. However, further increases in welfare transfers well above the inflation rate are unlikely to be sustainable.
More than a decade after the first democratic elections in 1994, the South African government still faces many of the same challenges encountered when the African National Congress (ANC) took power. Poverty is still widespread and the socio-economic problems associated with unemployment persist. It remains unclear to what extent the South African government has been successful in uplifting the poor. Evidence from various data sources (household surveys, national accounts and so on) produce conflicting evidence on the matter. This paper attempts to shed light on this debate by drawing on recent South African data and literature.
There is a general consensus that income has declined and that poverty and inequality in the distribution of income have increased between 1994 and 2000. However, since 2000, means-tested welfare transfer payments have been stepped up significantly. While this has resulted in a large proportion of the population becoming reliant on welfare transfers – including pensions, disability grants and child maintenance and support grants – early evidence suggests that it has impacted significantly on poverty. Inequality in the distribution of income, however, appears to have worsened further during this latter half of the last decade.
- Welfare transfer expenditure makes up 30 per cent of the social services budget, which in turn accounts for 60 per cent of the overall non-interest budget of the government.
- The uptake of welfare transfers is increasing due to increased awareness, the prevalence of HIV/AIDS related illness and an ageing population.
- Many of the poor are unemployable because they lack certain basic skills demanded by the labour market.
- The structural changes in the labour market that have taken place – and are likely to continue – have benefited highly skilled workers at the expense of low-skilled workers.
- Underfunding, poor management and economic and geographical isolation have had a negative impact on welfare levels of households living in particular areas.
Growth has been well below expected levels and well below the levels required to make inroads into poverty through job creation. As households become smaller and more fragmented, the share of households relying on welfare transfer may become even larger. Yet, further increases to the welfare transfer expenditure well above the inflation rate are not sustainable.
- More low-skilled jobs are needed to absorb more of the unskilled workforce – education and training policies are inherently longer-term policies.
- A reliance on economic growth alone is overly ambitious. The economy will never be able to generate enough jobs through growth alone to halve unemployment.
- The government needs to consider if it is sensible to divert funds from health and education in a society plagued by a high mortality rate associated with HIV/AIDS and by exceptionally poor schooling outcomes.
