Unemployed youth may destabilise fiscus in the long run - Business Day, 24th June 2013.

High unemployment in South Africa is so often described as a "ticking time bomb" that the warning is no longer taken seriously. Certainly if the African National Congress (ANC) believed it, its representatives in Parliament would not be legislating to reduce the opportunities available to jobless youth via labour brokers.

However, the chapter of the National Development Plan (NDP) dealing with "social protection" has a different take on youth unemployment — it may destabilise the fiscus.

This is because unless unemployed youngsters are absorbed into jobs soon, they will eventually become an older population reliant on the state for a "minimum" standard of living the NDP desires for them in addition to what the constitution guarantees.

By the time today’s youthful unemployed are older, what the NDP describes as a "sweet spot" might have turned into a "perfect storm". What will bring this about is a reversal of population ratios.

The "sweet spot" arises from the "democratic dividend" South Africa is enjoying. Population ratios are such that there are enough people of working age to support those too young or too old to work. But this will change as life expectancy rises on the one hand and fertility rates drop on the other. There will then be too few people of working age to support the population dependent on the state.

One "undesirable scenario" spelt out by the NDP is this: "On current labour market participation and tax-base estimates, there will not be enough taxpayers and contributors to ensure sustainability of social protection." Resulting poverty and inequality could pose problems for governance and "political legitimacy".

South Africa is already on a social protection escalator, however. Expenditure on social grants along with health, education, and such things as free water, electricity, and sanitation already accounts for 59% of consolidated state spending. Even though the dramatic rate of increase in child support grants may slow down as the maximum eligible age of 18 is reached, the dependency ratio between social grant beneficiaries and people with jobs has already reversed itself.

In 2001, there were 330 people in employment for every 100 beneficiaries. Now there are only 90 people employed for every 100 beneficiaries.

The NDP says social protection is a right under section 27 of the constitution. In fact, four sections of the constitution (26, 27, 28 and 29) guarantee access to housing, healthcare, sufficient food and water, social security, basic education provision, and further education. But the NDP goes further. It says that by 2030 everybody must enjoy a decent standard of living and that there should be a defined social floor below which no one should fall.

It envisages not only transfers in cash and kind that provide a minimum income, but also such basic services as water, electricity, sanitation, and refuse removal provided free.

As the South African Institute of Race Relations has previously pointed out, despite all the "service delivery" protests and the aura of failure surrounding the ANC, the rollout of the various forms of social protection has been dramatic. Social grant beneficiaries of all kinds rose 520% between 1997 and 2011, while poverty dropped 82%. But unemployment doubled.

The question is: who pays? The NDP rightly says the best form of social protection is employment. But as it will take time to address labour market challenges South Africa will have to commit "significant resources" to social protection. The state will have to generate sufficient income from the active population to redistribute to those less active or inactive.

Moreover, failure to create jobs means public expenditure has to rise "dramatically". But, says the NDP, benefits should not be so many or generous that they contribute to an unsustainable fiscal position.

Despite its own warning, the NDP favours minimum benefits over and above what the constitution requires. At the same time, the ANC is busy reducing job prospects for unemployed youngsters.

First published in the Business Day on 24th June 2013.