PECH00G

SOCIAL DEMANDS OF THE SOUTH AFRICAN PUBLIC

46089667

Contents Question 1 ..................................................................................................................................................... 2

Question 2 ..................................................................................................................................................... 3

Introduction ................................................................................................................................................... 3

Social Security in the USA. .......................................................................................................................... 3

Social Security .............................................................................................................................................. 4

Figure 1-1 Illustrating the average S.A household income for 2005 ............................................................ 5

Medical Care ............................................................................................................................................. 5

Education ...................................................................................................................................................... 5

Conclusion .................................................................................................................................................... 6

Question 3 ..................................................................................................................................................... 7

Introduction ................................................................................................................................................... 7

Supply of Goods and Services ...................................................................................................................... 7

Advantages of a Federal System ................................................................................................................... 7

Conclusion .................................................................................................................................................... 7

Bibliography ................................................................................................................................................. 9

Question 1

a) A poll tax was never an ideal way of dealing with efficiency and equity issues. A tax which looks at

an individual’s personal income is actually the best way according to Hyman (2010:450). We see

that in Britain when a head or poll tax was imposed it affected the lower income brackets the

most. In Hyman (2010:450) we see that there is a trade-off between equity and efficiency when

a poll tax is implemented. Quite a number of people chose efficiency as the government only

managed to collect just over 50% of the money they had anticipated they would receive.

b) South Africa does have a skew distribution of income however no tax will promote efficiency and

equity as there is a loss individuals suffer as a result of paying the tax. According to Hyman (2010)

a dead loss weight will occur which ultimately will impede economic efficiency

Question 2

Introduction

In 2007 the number of people who received social grants / security amounted to about 11,800,000

according to the National Treasury Report (2007). Today about 15 million plus people receive a social

grant of some sort based on the National Treasury Budget Review (2014). In this question I will cover 3

fundamental aspects to achieving efficiency and equality and how the South African government (SA

government) has fared in the last 10 years. At the end of this question I will suggest a way forward

based on my own personal opinion and the reasons as to why our current system of things is highly

unsustainable.

Social Security in the USA.

In the United States Social security plays an important role, if we look at the table below we see the

magnitude social security grants have.

Table 1-1 Showing the Importance of Social Security in the United States from 2003 - 2008

Year GDP Federal Government

State & Local Govt

Total Government

Percentage of GDP

Federal State & Local

Total

2003 10960.8 2317.5 1275.9 3593.4 21.14% 11.64% 32.78%

2004 11685.9 2450.4 1342.8 3793.2 20.97% 11.49% 32.46%

2005 12421.9 2635.4 1419.9 4055.3 21.22% 11.43% 32.65%

2006 13178.4 2783.2 1508.6 4291.8 21.12% 11.45% 32.57%

2007 13807.5 2973.1 1635.6 4608.7 21.53% 11.85% 33.38%

2008 14264.6 3247.2 1747.2 4994.4 22.76% 12.25% 35.01%

Source. Hyman (2010: 13)

This table shows the social care Americans receive in terms of Grants and Medi-Care from Federal

Government. We see that it accounts for about 60% of the federal government’s expenses. The

rest consists of Education and Medicare of the Local and States expenditure.

The Social Security system affects the distribution of income by transferring income from workers

to retirees, irrespective of their social and economic status, Hyman (2010).

If we look at the above information in terms of South Africa we will see that the contrast percentage

wise is basically not much different.

The South African Budget Benchmark

The government spends most of the Budget in 3 areas; Medical Care, Education and Training and

Social Grants with more money going to the former 2 areas.

According to the National Treasury Budget Review (2014) we see that in education alone the

government spends so much money that in the past 10 years more than 15,000 jobs have been

created in this sector.

The governmental intervention in Medical care has brought about an increase in life expectancy

in the past 10 years from 52 years old on average to 60 years old in 2014, National Treasury Budget

Review (2014). In fact the government has decided to introduce a National Health Insurance which

is a very basic idea of Medi-Care in the U.S.

According to National Treasury Budget Review (2014) analysis of the Consolidated Government

Consumption Function shows that Education and Training (Related) has a budget of R

253,000,000 in 2013 an increase of almost 14 million Rand from last year. Furthermore 43.4 % of

the Provincial Government expenditure goes to Education, Health and Social Welfare. For an

emerging market that is quite a significant amount of money to transfer to those areas, especially

due to the fact that there is a delay between businesses and individuals paying tax to the Tax

Authority – SARS, what is even more disturbing is the fact that taxation is the main source of

government income, Tanzi (2000).

Tanzi (2000) further shows that even when governments expect a certain amount of income from

taxation the number may be heavily skewed due to non-payment and deductible income

individuals may choose to utilize.

Social Security

According to the National Budget Review (2007) the government provided social aid in the form

of grants and RDP housing, to date the government has provided over 1 million homes to the less

fortunate/poor. This system is unsustainable and the National Budget Review (2007) points out

that people develop a culture of dependence being unable to rely on themselves.

If you look at the stats of 11 million plus people making use of government grants in 2007 to the

15, 8 million today you will see that the number just keeps growing each year at ridiculously high

speeds.

People are being trapped in poverty and there is no hope of ending this current vicious cycle. If

we look at the need for recognition we see that people living in poverty conditions do not possess

this desire. In a 2006 study conducted for the National Budget Review (2007) we see that people

did not possess the incentive to work for themselves, even though they were living below the

poverty line. The study conductors noted that in general the people of South Africa need motivation

in terms of incentives to work for themselves. This has yet to happen because the number of those

depending on grants keep growing.

According to the National Budget Review (2007) over 12.9% of the population received some sort

of Social Grant, today if we take the population to equal 52 million and the number of people on

social grants to be 15.8 million we see that the number of people benefiting from grants is 30% of

the population.

Figure 1-1 Illustrating the average S.A household income for 2005

Source. National Budget Review (2007), Statistics SA General Household Survey

Figure 1-1 above shows that in 2005 less than 5% of the population earned above R 10,000 per

month. Internationally this is unacceptable especially for a country like South Africa where there

is a significant amount of money.

Medical Care

According to Hyman (2010) medical care forms part of social security and I tend to agree. Although for

the purposes of our country we will not necessarily associate medical care as forming part of social

security as there is a separate allocated budget for it.

Since 2004 a significant amount of money has been invested into healthcare. I choose to use the word

investment because so far it has been one of the aspects that has paid off the most. We see that the

median age has risen from 52 to 60 according to the National Budget Review (2014).

In fact the slower wage bill growth and hearty expansion of capital budgets will further result in an above

average improvement in the arrangement of spending by 2016. The National Budget Review (2014) will keep a good control of good and services budgets. In the past there has always been a significantly high amount of expenditure of government medical supplies but we have seen province after province go bankrupt in this regard and not have access to the necessary medical supplies and materials.

Education

In 2007 a significant amount of money went to education and a portion went to adult based education

in particular. Today the budget is split according to school, pre-schools, adult education and tertiary or

further education. The government has recognized the need to develop the countries human capital the

large number of people on social grants has shown that it is completely unsustainable.

Furthermore according to the figures shown for crèche development expenditure in the National Budget

Review (2014) we see that the government wants to develop individuals from a young age. This will

ultimately set the foundation for better performance in the later and more important years, so that in

the future individuals are better educated and will have a sense of improving themselves and the

country.

This leads us into our next and final topic, medical care. People who are better educated generally will

make better choices and improve their communities. A social awakening and re-education of sorts is

needed, when in doubt start from the beginning.

Conclusion

In the past the government provided for people in terms of housing, income, education and medical care. However the effects were inefficient and not far reaching. Today, the government has developed a system whereby there is efficiency in the departments and there is a significantly higher level of service delivery. The government is trying by all means to ensure that there is better efficiency and equality for all.

Imposing of taxes is based on income level. The availability and eligibility of grants is also based on social

standing and income, the list of the better way government is attempting to deliver services has

generally improved.

The rate however of which people are benefiting from grants and social services is disturbing. If the birth

rate continues to grow over the next decade the government is bound to suffer a terrible loss if people

are continuing to look to them for support and security in each aspect of life.

I would suggest a phasing out of the grant system. While each individual pays a general tax based on

spending further actions need to be taken to improve the individuals need to promote themselves and

their families on a much larger scale, this can be done through skills development which will inevitably

lead to job creation and an improved standard of living.

Question 3

Introduction

I do not believe that government needs a federal system to determine what the society needs. I believe

that a simple census could determine what the average individual has issues with. For example in

Hyman (2010:711) “government-supplied services require central coordination and can be costly or

impossible to provide in a decentralized way by local governments.” Basically what Hyman (2010) is

saying is that a Federal government does not have the power to determine what individuals need at a

grass root level. Instead it’s basically impossible to expect that a federal government could even achieve

that.

The basic structure of a federal government is to dictate the law to its citizens. Hyman (2010) shows that

a Federal government can demand and take tax by force. Even if they are incorrect in their assessment

whereas a central government stabilizes the economy by improving the lives of its citizens. .

Supply of Goods and Services

According to Hyman (2010) local government will supply goods and services as is the case with South

Africa. The local goods and services are supplied by local and municipal government.

The reason why goods and services come through our local governments is so that a needs assessment

can be done based on the general concerns of the local public. Take for example the issue of E-Tolls in

the province of Gauteng. This issue affects only the people residing and living between Johannesburg,

Roodepoort, Ekurhuleni and Pretoria (and the areas in between). Vaal residents, while forming part of

Gauteng is not affected by the issue, thus E-Tolls are not even a real Local government issue they are

more a municipal government issue at most.

Advantages of a Federal System

According to Hyman (2010:714) federal systems have the advantage of conducting research effectively

and efficiently as to the needs of the general public based on their geographical location. However a

STATS SA income survey can yield the exact results of a Federal system study. This to me is not incentive

enough to want a federal system.

Conclusion

To me a centralized system of government is a smaller part of Federal government, the main difference

being the name, otherwise the powers; goods and services as well as responsibility is basically the same

thing.

Question 4

a) Yes it did, I see how we could improve the areas where we are wasting money and the

importance of re-distribution. I also have a compassion for the governments and their efforts to

compete on a higher economic and social level

b) The sections on taxation whereby most countries go through a stage where they impose

unnecessarily high taxes on their residents before they finally get the efficiency and affordability

model correct. I see where South Africa is lacking and where they can improve

c) I didn’t particularly find anything boring however I found it challenging to apply the USA system

to the South African system in terms of Government taxes and systems.

d) It did help in terms of practical knowledge as I was able to understand the trends and market

restrictions and capabilities better

e) I would like more interaction with students and lecturers. I believe that classes would greatly

benefit all BCom Economics Honours students

Bibliography

Hyman, DN (2010): Public finance: a contemporary application of theory to policy. 10th edition. South-

Western Cengage Learning

National Treasury. 2014. National Budget Review 2014 . [ONLINE] Available at:

http://www.treasury.gov.za/documents/national%20budget/2014/review/. [Accessed 01 October

2014].

National Treasury. 2007. Social security, in Budget review 2007. Pretoria: National Treasury:

99-116.

Tanzi, V. & Zee, H.H. 2000. Tax policy for emerging markets: developing countries. National

Tax Journal 53(2): 299-322.