SOCIAL PROTECTION FINANCING IN THE WAKE OF COVID-19: SOUTH AFRICA - 4 June 2020 Webinar: Social security Russia
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SOCIAL PROTECTION FINANCING IN
THE WAKE OF COVID-19: SOUTH
AFRICA
4 June 2020 Webinar: Social security Russia
INTRODUCTION • Infectious disease crisis has become debt crisis • Shutting down economy for 2 months reduced tax revenue by 25% • Many businesses cannot survive more than 2-3 months • Informal sector immediate casualty • Job losses exceed 1 million …could reach 3,5 mil in different scenarios • Hunger, food queues for kms, food riots • Social protection measures put in place….but very difficult to sustain for large numbers for long periods • Have had to end hard lockdown and find more refined response– even though epidemic is growing – to protect against economic crisis
BACKGROUND • Nationwide lockdown 27th March 2020, huge outcries for food and other support as hunger set-in, especially in households in the informal sector. • Government had to respond to cushion poor households against the harsh impact of the lockdown
BACKGROUND TO FINANCING SOCIAL
PROTECTION
• SA has a strong social assistance, but a very limited contributory social security
system i.e strong pillar 1 and 3, but weak pillar 2
• Weak fiscal position, deficit (6.8% of GDP) and interest levels (rising to 13% then
15% of expenditure), low economic growth and ratings below investment grade
• However COVID pandemic seen as a black swan, once-in-lifetime event, need to
protect population especially through lockdown
• With pandemic not only does GDP slow down greatly (eg -10%), but tax stance
shifts to protect businesses from going under, so unprecedented revenue
shortfalls (e.g 11%-27% decline); but higher expenditure needs
• Large fiscal deficits (e.g surpassing 10% of GDP)
• Response can be managed if lockdown of relatively short duration, but if extends
for lengthy period major risks to employment, poverty ; GDP, revenue and will
become difficult to sustain
4SA LABOUR FORCE (PRE-COVID) • High unemployment (6.7 mil; 29%) • Informal sector: 3-5 mil • Small formal sector employed (16.4m; 42% absorption)
INCREASE EXISTING SOCIAL
ASSISTANCE
• South Africa (SA) very unequal society post-apartheid
• 30% population on social grants: Unconditional cash transfers to those earning
below determined income thresholds
• Needed to reach 3-5 million informal sector – but SA did not have social
assistance for working adults
• Decided to start with existing social assistance to households esp Child Support
grant which reaches 60% of households
Baseline per
month SA
Social grant Rand Recipients Top-up Top-up %
Child support grant# 445 12 811 209 300 67.4%
Old age grant 1860 3 672 552 250 13.4%
Disability grant 1860 1 045 388 250 13.4%
Foster care 1 040 339 959 250 24.0%
Care dependency 1 860 155 094 250 13.4%
$:Rand 15 pre-COVID, 17 post COVID
# CSG reaches largest number of hosueholds; after month one changed to caregiver grantINCREASE EXISTING SOCIAL GRANTS (2)
• Measures temporary - 6 months.
• Total cost R33 billion
• Build on existing programmes and infrastructure to enable
timely support.
• Aim largely to replace the income lost during lockdown.
• Top-up to all of the existing grants, almost double for the child
support grant.
• Easy to do as the system already has beneficiary details.
• Adding to the individual monthly amounts.
• From month 2 Child top-up switched to R500 per care-giverNEW SOCIAL ASSISTANCE
• Care-giver grant: eg Mother of child 7.1m gets into many
households of 5 mil informal sector workers; Mothers were already
registered
• Social Relief of Distress (Cash via banks or cash-send vs food): R350
per month;
• New registration, verification
• Electronic given shutdown of SASSA Offices
• Time-consuming given new beneficiaries
• Difficulty agreeing on criteria (informal sector vs unemployed vs not in labour force)
New social assistance grants
Amount per
month SA
Social grant Rand Recipients
700,000 -
Social Relief of Distress 350 15 million
Caregiver# 500 7 167 022
$:Rand 15 pre-COVID, 17 post COVID
#Caregiver grant replaces CSG top-up from month 2NEW SRD GRANT (2)
• Adaptation of social relief of distress programme, which is usually a food
parcel over 3 months for households in financial distress.
• Recipients usually queue at the offices of the state’s social security agency (SASSA)
for application and receipt of the food parcels.
• Recognising that this could not be allowed in pandemic where social distancing
should be strictly exercised, had to shift to online and mobile applications.
• For social distancing and managing volumes, had to shift to cash rather than food
parcels
• Cash is paid out through banks and mobile money transfer to individuals who have
lost their income.
• These should be individuals that are not receiving any form of social grant.
• They should not be receiving or qualifying for UIF, unemployment insurance funding.
• They should have household income of less than the national minimum wage/no income
• These restriction are meant to deal with the volume of applicants given the limited
resources.
• The challenge has been that we have no database of the targeted individuals and thus
have no mechanism of verifying them among the many who are likely to apply. Therefore,
allowing for an influx of between 3 to 15 million if the qualification criteria is not stuck to
by SASSA, increasing payments and making benefit highly unaffordableSOCIAL ASSISTANCE BUDGET • This has increased budgets for existing social grants by 26% R50 billion from the R187 billion budgeted for the financial year, and • For social relief of distress specifically, the budget will increase from R500 million p.a covering around 500k applications to between R3.4 billion -R13 billion for between 2.7 million and 8 million people Child Support May June July August September October Total Beneficiary/ Recipient 12 811 209 7 167 022 7 176 958 7 186 908 7 196 871 7 206 848 Top-up value 300.0 500.0 500.0 500.0 500.0 500.0 Total Cost 3 843 362 735 3 583 511 058 3 588 478 961 3 593 453 752 3 598 435 439 3 603 424 032 21 810 665 977 Old Age incl War vets Beneficiary 3 672 552 3 681 962 3 691 398 3 700 862 3 710 353 3 719 871 Top-up value 250 250 250 250 250 250 Total Cost 918 137 987 920 490 431 922 849 602 925 215 519 927 588 204 929 967 677 5 544 249 421 Disability Beneficiary 1 045 388 1 044 814 1 044 241 1 070 170 1 069 610 1 069 052 Top-up value 250 250 250 250 250 250 Total Cost 261 346 972 261 203 545 261 060 328 267 542 388 267 402 572 267 262 971 1 585 818 777 Foster Care Beneficiary 339 959 346 452 353 070 342 476 346 739 351 055 Top-up value 250 250 250 250 250 250 Total Cost 84 989 718 86 613 089 88 267 468 85 618 911 86 684 682 87 763 719 519 937 587 Care Dependency Beneficiary 155 094 155 332 155 571 156 577 156 818 157 058 Top-up value 250 250 250 250 250 250 Total Cost 38 773 491 38 833 038 38 892 677 39 144 282 39 204 399 39 264 607 234 112 494 Social Relief of Distress No. of households 743 427 1 143 427 1 543 427 1 943 427 2 343 427 2 743 427 SRD value 350 350 350 350 350 350 Total Cost less baseline 226 282 783 366 282 783 506 282 783 646 282 783 786 282 783 926 282 783 3 457 696 700 TOTAL 5 372 893 686.6 5 256 933 944.8 5 405 831 819.6 5 557 257 636.2 5 705 598 078.8 5 853 965 789.4 33 152 480 955.5
UNEMPLOYMENT INSURANCE • Special Temporary Employee/Employer Relief Scheme (TERS) and administered by the Unemployment Insurance Fund • Sliding scale 38% (highest earner) -60% (lowest earner) of wage • Minimum payment: Minimum wage (R3500 pm); Maximum R6730 pm • R40 billion …R15 billion paid so far • UIF Fund was unable to cope with large volumes of claims, long delays….considerable distress; process perceived very bureaucratic
OTHER INTERVENTIONS INCLUDE
• Employment tax incentive: increase and broaden
• Support to small business – various
• Credit guarantee scheme for business (R200 bil
contingent liability) via banks
• Price gouging: actions
• Monetary policy: lower interest rates
12FINANCING RESPONSE
• Overall around 10% of GDP
• Deficit financing – deficit could breach 10% of GDP
• R130 billion through reprioritisation
• R95 billion through DFI loans (eg NDB, WB, ?IMF, ADB)
• R40 billion: UIF surpluses
• Social grant timing issues (R15 bil)
• Weekly bond auctions
• Accommodative monetary stance: Reserve Bank lowered
interest rates
13RESPONSE PACKAGE
FUNDING SOURCES PRELIMINARY
TAX POLICY RESPONSE The measures already implemented included: • Introduction of a tax subsidy to employers of up to R500 per month for the next four months for those private sector employees earning below R6,500 under the Employment Tax Incentive. This will help over 4 million workers (R15 billion) • SARS to accelerate the payment of employment tax incentive reimbursements from twice a year to monthly to get cash into the hands of compliant employers as soon as possible • Tax compliant businesses with a turnover of R50 million or less will be allowed to delay 20% of their employees’ tax liabilities over the next four months and a portion of their provisional corporate income tax payments without penalties or interest over the next six months Going forward: • Review the current interventions and the impact on the economy • Additional deferral of some taxes (or some other new interventions) in order to assist employees and households, as well as firms to help them continue operating and allow for a stronger recovery when the crisis ends
COVID TAX MEASURES
FISCAL POLICY
• SARB projects significant GDP growth decline
• Feeds through into substantial revenue reductions
• Larger deficits …maybe as large as previously seen in
wartime
• Wartime budget, significant reprioritisation and areas for
savings
• Issuing more bonds and loans from International Finance
Institutions (IFIs)
• But also need to start thinking of post lockdown, post
epidemic recovery plan, how to restart economy and
unblock previous obstacles to growth
18PFM
• First thought:
Unforseen and Unavoidable
Adjustment budget
• Had to move faster:
• Virements
• Disaster funds
• Ministerial letter
• S16 pfma Emergency funds
• Possibly recraft budget (war budget), early adjustment
• Reprioritisation
• At all levels of govt and multiple sectors
19CURRENT SME SUPPORT
Public sector Private sector
Business growth/resilience Products addressing health and SA future Trust Interest free loans
facility medical neds for Covid-19 paid to employees but
companies will pay
back
SMME Relief Finance Soft loan funding Sukuma relief programme R25k grants for formal
Scheme sole prop supported
with loans and grants
for cc, companies and
trusts
Sefa Debt restructuring Moratorium on loan repayments Commercial banks Payment holidays –
mostly for 90 days
Spaza shop support Package of measures including seed Gaps identified:
scheme funding and support (loan based but • Eligibility – Business must be registered, tax
could convert to grant) and UIF compliant and provide bank
COVID-19 TERS Pay employees temporarily not statements and financial projections.
receiving salaries via employers • Asymmetric and misleading information:
Where to find assistance as well as funding
Tourism relief fund
requirements that are ambiguous – Many
Agriculture small farmer Voucher scheme for inputs
options that look like grants are in actual fact
support
loans
Tax system relief Tax subsidies for employees, • Exclusion of foreign owned businesses that
reimbursements accelerated and employ South Africans
deferral of specific tax payments • Time lag of support pay-outs
20LONG TERM LESSONS • Under-estimated rapidity and scale of income protection crisis • Resilience: Weaknesses in SASSA and UIF • First grants for unemployed adults (special 6 month cash grant): Targeting informal sector, care-givers • Electronic linkages between systems e.g SASSA, SARS, UIF, NSFAS • New payment mechanisms for unbanked (e.g e-wallets, cash send). Electronic alternates to food parcels. • Effectively bring Child Support grant above food poverty line • Need to make progress with Pillar 2 contributory social security system • Needed more refined response to pandemic; damaged economy and debt crisis risks various social interventions
CONCLUSION
• Income protection has emerged as major challenge on
lockdown
• Multiple financial management instruments needed to
redirect funds rapidly
• Serious challenge to growth and fiscal position, but needs
to be seen as black swan/once in lifetime event
• Financing instruments include virements, reprioritisation,
deficit financing, DFI loans, tax deferment and subsidies
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