SOCIAL DEMANDS OF THE SOUTH AFRICAN

PUBLIC
46089667

PECH00G

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 individuals 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
State &
Government Local
Govt

Total
Percentage
of
Government
Federal State &
Local

GDP
Total

2003
2004
2005
2006
2007
2008

10960.8
11685.9
12421.9
13178.4
13807.5
14264.6

2317.5
2450.4
2635.4
2783.2
2973.1
3247.2

3593.4
3793.2
4055.3
4291.8
4608.7
4994.4

32.78%
32.46%
32.65%
32.57%
33.38%
35.01%

1275.9
1342.8
1419.9
1508.6
1635.6
1747.2

21.14%
20.97%
21.22%
21.12%
21.53%
22.76%

11.64%
11.49%
11.43%
11.45%
11.85%
12.25%

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 governments 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 crche 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 its 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 didnt 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. SouthWestern 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.