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Efficiency could boost social grants

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Efficiency could boost social grants

People on grants could be receiving R233 more per month if management of the fund was more efficiently run, says KPMG.

Deborah Tickle, tax advisor at KPMG in South Africa, says: “In this year’s Budget speech, former Minister of Finance Pravin Gordhan advised us of the increases to the various grants that are paid by government to help the elderly, the disabled and to help support children – the most vulnerable of our society. These grants, we are told, go to over 17 million people and now amount to R1,600 per month for those disabled or over 60 years old, R1,620 a month for those over 75, R920 a month for foster parents looking after children and R380 a month for child support. The increases, per the 2017 Budget speech, were R90 for old age and disability, R30 for foster care and R20 for child support.

“We believe that if there was not as much irregular, fruitless and unauthorised expenditure within certain departments, these people could each have received up to R233 a month more – that’s a 15% increase on the old age and disability grants and a 60% increase on the child support grant,” says Tickle.

One may ask where these figures come from, she adds. The following is a quote from the Government’s Auditor General’s 2015/2016 report:

“Irregular expenditure has increased by nearly 40% since 2013-14 to R46,36-billion – the increase from the previous year was nearly 80%. The main reason for the increase in irregular expenditure was the continued non-compliance with supply chain management legislation. Irregular expenditure represents expenditure incurred towards procurement of goods and services without following prescribed processes. The controls that should be put in place in the procurement process are from the constitutional requirements of supply chain management, as set out in section 217 of the Constitution. When we audit procurement, we test the application of existing procurement processes as approved by the entity, subject to the audit.”

Add this to the “fruitless and wasteful expenditure” of R1,32bn and “unauthorised expenditure” of just under R1bn (in the same report) and you get R48,68bn. Divide that by Sassa’s statistic of 17 229 386 people on social grants and you get around R2,800 a year i.e. R233 per month more for every person currently accessing grant money.

“Ironically, the figures are likely to be understated because the R48bn is only what the Auditor General could identify,” says Tickle. “In addition, were it not to have gone to irregular expenditure, it might not have all been paid towards the social grants. It might have been spent on better schools or hospitals and service delivery as an example.”

People talk about corruption, Tickle adds, but do we really know what it is? KPMG recently issued a report entitled The Impact of Corruption, which indicates that the World Bank defines it as “The abuse of public power for private benefit”. The report gives examples of the types of direct costs (“Inflated procurement contracts and stolen public assets”) and Indirect costs (“Inefficiencies – deteriorating institutions and criminal activities”). Sound familiar in relation to the ‘irregular expenditure” in the Auditor General’s report?

The KPMG document further indicates that the implications of corruption affect the distribution of income and assets; unemployment; environment; and health, as it weakens the rule of law. Negative, not positive outcomes. It also decreases the amount of foreign direct investment in a country (i.e. the amount of money foreigners are putting in to create jobs) and competitiveness. It is stated that 1% increase in corruption results in an 11% decrease in foreign direct investment per person in the country, meaning less for everyone. Thus, everyone is worse off.

“The next question we have to ask is how are the grants as well as the ‘irregular expenditure’ going to be paid for next year?” Tickle says. “The government currently owes R2,2 trillion with around 54 million people in South Africa that is the equivalent of each and every person owing debt of around R40,000. The interest bill is R169bn, or R3,129 a year for each and every person.”

The government can look to the wealthy and corporates for more taxes but, according to the official tax statistics, there are only around 6,6 million individuals who actually earn enough to pay any income tax in South Africa, with most paying very little: of the 4,8 million people assessed to tax for the 2015 tax year by November 2016; 3,7 million had taxable income less than R350,000 for the year. Only a few thousand qualify as wealthy (+-38000 per the latest Wealth Report have assets more than US$1mn).

There are only around 90,000 companies that submit tax returns of which about half are making losses resulting in no tax. Less than 300 have taxable income more than R100m. So, there are very few people and companies in a position to pay for the public goods (the social grants, public schools, public hospitals, the police force, the roads, the interest on the government debt and the rest has to be borrowed, with a cost).

“South Africans hear daily about ‘radical economic transformation’. What does that really mean?” Tickle asks. “More ‘irregular expenditure’ for the benefit of a few, and less benefit for the rest of the South African people? Looking at the social grants picture, that’s what it sounds like.”