Social grants and unemployment insurance during the lockdown

29 October 2020

INTRODUCTION

Special government cash transfers to households in order to help them through the lockdown have had three components:

A temporary augmentation of social grants, paid from the government’s main budget expenditure account.

A temporary social relief of distress grant available to people age 18 and above, who are (a) not employed (b) not receiving any income, (c) not receiving any social grant, (d) not an Unemployment Insurance Fund (“UIF”) contributor or recipient, (e) not receiving a stipend from the National Student Financial Aid Scheme, (f) not receiving any other government support responding to the epidemic and (g) not resident in a government funded or subsidized institution. Payments are made from the government’s main budget expenditure

Temporary payments to employees contributing to the UIF whose employers have closed their operations, or parts of their operations as a direct result of the COVID-19. The employee must suffer a loss of income as a result of the closure.

This brief summarizes available information on disbursement of these grants.

SOCIAL GRANT AUGMENTATIONS

Table 1 sets out the monthly augmentation of social grants, along with grants made in April and July (the last month for which statistics have been published:

Table 1

Sources: National Treasury, Supplementary Budget Review, 2020 and Department of Social Development

The monthly cost of these augmentations given the number of recipients in July is R 4.9 billion. The augmentation is payable from April to October 2020. The 2020/21 expenditure over the six month period (May to October)[1] for which is estimated at R 29.4 billion, assuming that the July grant recipients represent an average over the six month period.

THE SOCIAL RELIEF OF DISTRESS GRANT

Table 2 sets out approved applications for the social relief of distress grant from May to August, with projection of costs until January 2021

Table 2

Source: Department of Social Development presentation to the National Assembly’s Social Development Portfolio Committee, 14 October 2020

The grant was originally intended to run from May to October, costing an estimated R 11.6 billion. To this must be added the augmentation of social grants, to get a total estimated expenditure to the end of October of R 41.0 billion, compared with a budgeted expenditure of R 40.9 billion allocated in the June supplementary budget. However, the President announced a three month extension of the grant in his speech to Parliament on 14 October, at an estimated cost of R 6.3 billion which will require an additional supplementation in the second adjustment budget.

THE TEMPORARY EMPLOYER/EMPLOYEE RELIEF SCHEME (“TERS”)

In a media statement on 30 September, the UIF announced that it had so far disbursed R 45.2 billion. This covers the period from the start of the lockdown until 15 August. TERS was initially intended to run for three months, but it has been extended until 15 October. BL Premium reported on 18 October that

the National Economic Development and Labour Council was considering extending the scheme until 15 November, after the state of disaster was extended for another month.

There are three main problems with TERS:

The Auditor-General has found no fewer than 29 control weaknesses in TERS disbursements[2]. So severe were they that disbursements were suspended for a time to enable the UIF to deal with them.

UIF reporting on TERS disbursements is inadequate. The UIF should have publicly reported monthly disbursements so that an assessment of trends becomes possible. And it is not only TERS disbursements which should be reported. Ordinary UIF disbursements also affect the UIF’s financial position.

The question arises: How long can the UIF sustain extensions to the TERS scheme? The 2018/19 UIF Annual Report stated that its technical reserves (required to meet UIF liabilities to contributors) amounted to R 42.8 billion, while the accumulated surplus (on which TERS is drawing) was R 101.5 billion. This has accumulated from operating surpluses over the years, but there was actually an operating deficit in 2018/19, adversely affecting the accumulated surplus. On 13 October, News24 reported the Minister of Labour as saying that the UIF is not a ‘money tree with unlimited resources’. His view was that the UIF had about R 50 billion available. He also said: “It is difficult at this stage to determine all the retrenchments. But if the worst comes to the worst, we might see ourselves in the 2008 situation, where we would have to appeal to government.” We have been warned.

CONCLUSION

By way of conclusion, a back of the envelope calculation is presented to compare the increase in state disbursements to households with the drop in compensation of employees in the national accounts in the second quarter.

Disbursements

Social grant augmentation: 3 x R 4.9 billion = R 14.7 billion

Social relief of distress grant: Half of R 7.4 billion = R 3.7 billion

TERS: Two thirds of R 45.2 billion = R 30.1 billion

TOTAL R 48.5 billion

Drop in compensation of employees

First quarter compensation R 593.3 billion

Second quarter compensation R 556.6 billion

Drop R 36.7 billion

Source: Statistics South Africa, Excel table GDP P0441-2020Q2, accompanying Statistics South Africa, Gross Domestic Product, Second Quarter 2020, Statistical Release P0441, 8 September 2020

There are caveats:

The Quarterly Employment Survey estimates a considerably larger drop in compensation of employees between Q1 and Q2 than the national accounts[3].

Some part of the drop in gross operating surplus should be taken into account, as reflecting a drop in the income of working proprietors who do not pay themselves a wage.

The aggregate estimates conceal considerable variation in net outcome across households. Some will have seen a net improvement in income between Q1 and Q2, others a deterioration.

All said and done, income support in Q2 seems to have been substantial in relation to need. Given the rebound in the economy, the relationship should be better, since there will have been little or no slackening in income support, while compensation of employees will have increased again.

By Charles Simkins, Head of Research, HSF, 29 October 2020

[1] April social grants were financed from 2019/20 expenditure

[2] See the Auditor-General’s PowerPoint presentation to the National Assembly’s Portfolio Committee on Employment and Labour on 4 October 2020

[3] See Charles Simkins, August production estimates and April to June Quarterly Employment Statistics, HSF Brief, 20 October 2020