Is South Africa’s social expenditure pattern sustainable?

Alex Constantinou and Stephen Chisadza


Despite South Africa’s notable accomplishments in the last 20 years of democracy, a number of significant challenges remain. Notably, the unemployment rate stood at 25.5 percent in the second quarter of 2014, 13 million children are reportedly living in households that are below the poverty line and 32% of all children live in households where no adult is employed. As is often stated by Government, the country still faces the triple threat of poverty, inequality and unemployment.

In response to these problemsthe government has been implementing a number of poverty alleviation programmes since the late 1990s, of which the social assistance programme foremost. There has been a sharp expansion of social grant coverage, with the number of children receiving child support grants increasing from 22 000 in 1999 to 11 million in 2014.[i] In addition, by May 2014, there were 2.9 million old age grants and 1.1 million disability grants being paid out monthly.[ii]

Research suggests that the expansion of the social grant programme has contributed to a significant decline in the poverty rate: in 2000, 50.8% of the population lived on less than approximately $2 a day (in constant 2009 ZAR); by 2000, this was down to 34.5%.[iii] According to the National Treasury (2014 Budget Review), expenditure on social protection accounted for 15% of the government’s total budget expenditure of R1.08 trillion in 2013/14.[iv]

Source: National Treasury 2014 Budget Review, Annexure B Table 6, collated by Authors.

In principle, the roll out of social programmes is a noble expense, especially given SA’s history. However, a growing cause for concern lies in the long-term economic and fiscal sustainability of South Africa’s social protection expenditure.

The graph below shows the growth in the main expenditure categories of the consolidated government budget, up to 2013/14, along with the growth of actual consolidated tax revenue. From the figure it is clear that the growth of social protection expenditure has far out stripped all other expenditure categories, including spending on public order and safety. Between 1990 and 2012, the nominal value of tax revenue grew by 1028%, from R63.9 billion to R720.8 billion. During the same period, the nominal value of social protection expenditure grew by 2458%, from R5.5 billion to R140.7 billion.

Source: SARB Historical Macroeconomic data and National Treasury National Budget data, collated by authors.

Given the rapid pace at which social protection expenditure has grown, it is likely that other national budget categories are increasingly being crowded out. Two easily detectable options are available to finance the national budget, namely, tax revenue or debt. A third less detectable method is to print money to finance such programs, but this can lead to runaway inflation and a dilution in general purchasing power for citizens; Zimbabwe is a prime example.

Regarding taxes, it is well known that the number of tax payers in South Africa is relatively small compared to the national population, which limits the ability to extract additional tax on an already over-burdened tax payer. Likewise, South Africa’s ability to finance this growing expenditure through increased borrowing is limited; the country is already spending 9.3% of it’s consolidated government expenditure on debt servicing costs (i.e. interest). This was up from 7.9% in the previous fiscal year.[v]Additionally, the debt-to-GDP ratio has risen sharply since the 2008 financial crisis (shown below).

Source: National Treasury, collated by authors.

Thus, at a time when the National Treasury is looking to reign-in expenditure, it is not only Government salaries that may come under pressure. It also seems likely that recent increases in social expedniture may also have to be moderated. This will be difficult in current times, when jobs are scarce and the need for social protection is particularly high.

Looking forward, serious attention will need to be given to the long-term trajectory and sustainability of the country’s social protection system. Whereas such support is needed in the short-term, the country must find ways to wean its citizens away from long-term dependency on the state. This can only be achieved through improvements in other government programmes, such as public education; as well as more rapid economic growth and employment.

[i] Children’s Institute “Income and social grants” [Viewed 22/10/2014 and available from:]

[ii] SASSA (2014) “Statistical reports” [Viewed 15/10/2014 and available from:]

[iii] World Bank (2014) “South Africa Overview” [Viewed 22/10/2014 and available from:]

[iv] National Treasury (2014) “2014 Budget Review”

[v] National Treasury (2014) “2014 Budget Review”