Analysing the impact of state services on the poor V2 May 2017
The NDP: • "Inequality and poverty can be addressed by raising incomes through productivity growth and reducing the cost of living. • "A commitment to a minimum living standard will ensure that all households can meaningfully participate in the economy. • "The costs of food, commuter transport and housing must be reduced, while raising the quality of free or low-cost education and health care."
Paper therefore • Analyses key cost drivers for marginalised households and the formal labour force ➢ Marginalised households are typically in poorest 40%, with incomes up to R30 000 in 2015 - much lower levels of employment and income, and disproportionately in former so-called "homeland" areas ➢ Formal workers predominantly in next 40% of households, with incomes from R30 000 to R132 000 ➢ Significant differences in consumption patterns and cost drivers • Indicates where the current structure of service provision and/or pricing reproduces inequality or tends to impose excessive burdens on poor households • Explores debates on ways to set standards for and fund state services given profound inequalities in South Africa
Context: Highly unequal incomes • South Africa remains one of the most unequal countries in the world • The richest 10% of households account for over half of household consumption and 95% of financial assets • Just over one household in two had any employed people in poorest 40% • Consumption patterns and cost drivers vary sharply by income level
Main findings • Rapid price increases: • Distinguish ➢ Food prices between ➢ Electricity and water ➢ Rapid price ➢ Tertiary education increases that affect poorest ➢ Health insurance (affects cost of employment in formal 80% sector) ➢ Services • Prices falling for clothing and furnishings; health provided for services and equipment free but with • Poor quality inadequate quality to ➢ General education permit social ➢ Healthcare and economic ➢ Housing agency ➢ Electricity and water ➢ Transport (high level of cost but follow energy)
Cost drivers • Tertiary education • Food ➢ High sticker price • Electricity and water ➢ Prices rising faster for poor, although than CPI from ➢ Marginalised households cheap by standards 1990s mostly don't pay, but working of global North class does ➢ Causes include: ➢ Limited bursaries or • Concentrated food ➢ Electricity price more than discounts for poor chains doubled from 2008 ➢ Instead provide • Tariffs and ➢ Water up by 30% loans international ➢ Draconian shut off policies – parity prices ➢ Contributes to 4% a month, largely due NMB replication of ➢ Requires a ➢ Factors: privilege (nearly profound reform • Essential to metro budgets 60% of university of production and (rather than rates) students from distribution • Principle of user pays without richest 20% of systems rigorous assessment of households) affordability
Housing and municipal services • Housing • Transport ➢ 75% in formal ➢ Depend on • Electricity and ➢ Average with four rooms public transport water including facilities ➢ High cost in ➢ 10% of poorest ➢ Average informal with one room terms of time; 40% have no around 12% of ➢ Distant from economic centres electricity expenditure for ➢ Owned, but no market value poorest 40% ➢ A third of ➢ Causes: ➢ Many walk half poorest 80% • Mass in-migration on top of an hour or so have no apartheid ➢ Lack running water • Cost of land combined with short- appropriate on site term funding models technologies for ➢ Often poor • Standards and affordability final kilometre quality
Poor quality social services • Education • Health ➢ No-fee schools inadequate for ➢ Vast majority do not pay, although employment especially for language, can be pushed into deeper poverty numeracy, computer and design by loss of earnings and cost of transport ➢ In 2015, the 15% of schools with the best facilities in rich communities ➢ Data finds worse health outcomes (the DBE's top "quintile") accounted for poor households – poorer for 30% of university passes overall health, more disabilities, higher mortality ➢ The poorest 25% of schools got just 15% of university passes ➢ Poor outcomes compared to more equitable systems ➢ Learner-teacher ratio in top 15% was 22 to 1, compared to over 30 to 1 in other schools; similar disparities for infrastructure and materials
Social grants • Second largest coverage in the world (after • Linked to Iran) individuals • A key buffer for poor households against the • Leave out able- higher costs of state services bodied adults • Poorest decile is ➢ Accounted for around half the income of the poorest 40%, and over a quarter for the next 40% small young ➢ Disability and old-age pension equal to poverty line families for two people; child grant, for around half a person • Problems of power ➢ One of largest transfer programmes in the world and continuity • Average grant has risen more or less in step with inflation
State services and inclusive growth • Given deep inequality, how to • Most services agree on standards and funding ➢ Do not set explicit standards at all, or sources for state services? ➢ Set high standards with no ➢ Apartheid left major backlogs in both timetable to implement them, infrastructure and institutions for and/or poor communities ➢ Turn to user fees, which have risen ➢ In itself makes it harder for poor 50% above CPI since 2002 households to earn a living or engage • Rich opt out through own with society ➢ But poor households cannot afford spending (security, education, to pay for the services they need housing) ➢ Therefore require a high level of • Strategies to exempt the poor state support – but how much? By from fees have led to worse when? services and continued anger
Political equality, economic inequality • Inequality and the tax system: • The power trade off: ➢ Most state services go to the poorest 80% of ➢ Taxpayers can withhold households payments or emigrate or ➢ The richest 15% of taxpayers account for reduce investment almost half of personal income tax ➢ Majority can vote – and payments don't see why they should ➢ Around 600 companies (out of a total accept lower standards than registered for tax of 700 000) paid two rich people already enjoy thirds of company tax. ➢ VAT is regressive, but even so the bulk is paid by the richest households, since they account for over half of all household consumption.
Decisionmaking • Constrained by: • Improvements… ➢ Expectations and delivery systems ➢ Require impact assessments shaped by rich especially for bottom 20% ➢ Top-down decision making – the ➢ Require full review of options "service delivery" paradigm ➢ Set up resourced forums for • Often no idea of impact on the ground consultation with organised either before or during delivery stakeholders • Protect centres of excellence both to • National maintain income and because of quality • Local • Limited space for innovation locally or ➢ Set quotas for access to centres of functionally excellence (schools, healthcare, ➢ Lobbying and economic threats by the housing) based on income and race rich
Big decisions/research • Fixing food systems to moderate prices • Urban planning: Densification, assessing the influx, and transport innovations • Water especially in the Eastern Cape – what is going wrong? • Fixing no-fee schools and tertiary fees • Decision-making systems for fees and standard setting • Improved access for low-income majority to centres of excellence
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