Presentation at CSDA International symposium MAY 2011 FINANCING SOCIAL PROTECTION IN SOUTHERN AFRICA: STATUS AND IMPLICATIONS By Marianne S. Ulriksen

Financing Social Protection in Africa: Status and Implications by Marianne S. Ulriksen CONTRIBUTION AND ARGUMENT Concern: How to build a social contract for sustainable social protection expansion Gaps in literature: 1.Link between financing and spending – search of strategies for improving revenue generation 2.Role of the ‘middle’ (focus on benefits to poor and commitment of elite) Argument: direct taxation key mechanism of sustainable financing & focus of social protection spending to move beyond the poor

OUTLINE OF PRESENTATION 1.Social contract for social protection expansion 2.Taxation as revenue source and mechanism of state-citizen relation 3.The importance of the middle strata 4.Model for social protection expansion 5.Social protection programmes in Southern Africa: spending and financing 6.Theoretical ideals in a Southern African context Financing Social Protection in Africa: Status and Implications by Marianne S. Ulriksen

1. SOCIAL CONTRACT Financing Social Protection in Africa: Status and Implications by Marianne S. Ulriksen Current ideas of social contract: Suggested that extension of social protection ultimately requires the development of a social contract Unclear who is part of social contract and what it entails Elite with political will and commitment Poor as targeted beneficiaries Financing and spending often regarded as unconnected Social contract to include:  Rights and obligations  All citizens: not just poor and the elite (benefits)(taxation)

2. TAXATION: SOURCES OF REVENUE Financing Social Protection in Africa: Status and Implications by Marianne S. Ulriksen Theoretical premise Policy making – whether fiscal or social – an outcome of political bargaining process => Source of revenue likely to affect spending priorities Sources of revenue Aid: important contributions, but also volatile, unpredictable and disturbs state-citizens relation Resource rents: ‘free’ and stable, but render citizens unable to extent leverage on governments Taxation: stable and sustainable, and – particular if visible – increase incentives for public participation

2. TAXATION: STATE-CITIZEN RELATION Financing Social Protection in Africa: Status and Implications by Marianne S. Ulriksen Literature on taxation and state building: exchanged-based theoretical logic Links between taxation and spending: Assumption: citizens want benefits from the state, but “they would rather someone else pay” (Lieberman, 2002: 93), Challenge for state to persuade citizens to contribute => States tend to provide benefits to main groups of taxpayers (preferences vary) Financing mix:  If diversified tax base, state has wider engagement with society (and more members of society engaged with the state)  Types of taxation: visible vs. invisible

3. MIDDLE STRATA Financing Social Protection in Africa: Status and Implications by Marianne S. Ulriksen ‘Middle strata’: unclearly defined and largely ignored Role of middle strata in social contract: Instrumental in development and change If extension of taxation base, support of middle strata required Middle strata likely to accept contribution if also benefit from social protection Conversely, targeted (pro-poor) assistance vulnerable to public attitudes; split between poor and (near poor) middle Σ Taxation superior revenue source and a key mechanism in building state-society relationship based on reciprocity => inclusion of missing middle…

4. SOCIAL PROTECTION EXPANSION: MODEL Financing Social Protection in Africa: Status and Implications by Marianne S. Ulriksen

5. SOCIAL PROTECTION IN SOUTHERN AFRICA Financing Social Protection in Africa: Status and Implications by Marianne S. Ulriksen GNI per capita SP exp.Income taxIndirect taxRents Aid dependent Malawi 911 5% Zambia % SACU beneficiaries Lesotho Swaziland % Namibia % Resource dependent Angola Botswana %12 69 Domestic resource base South Africa % Mauritius % Table 1: Social protection expenditure and revenue sources in Southern Africa

5. SP IN SOUTHERN AFRICA (cont.) Financing Social Protection in Africa: Status and Implications by Marianne S. Ulriksen Southern African countries reflect two trends Pro-poor focus of social protection Sources of SP financing mainly ‘external’ – very limited direct taxation Mauritius and South Africa partial exceptions Purpose of theoretical model: Not strategic blue print Demonstrate reality of social protection spending and financing in region and its potential implications Points to important gaps in our knowledge

6. THEORETICAL IDEALS IN A SOUTHERN AFRICAN CONTEXT (cont.) Financing Social Protection in Africa: Status and Implications by Marianne S. Ulriksen

6. THEORETICAL IDEALS IN A SOUTHERN AFRICAN CONTEXT (cont.) Financing Social Protection in Africa: Status and Implications by Marianne S. Ulriksen Extending SP spending & financing, challenges: Establish popular support / elite commitment Increase revenue with shallow tax base and/or large informal sector + balance btw taxation and eco growth Administrative capacity, etc. Gaps in our knowledge Who is ‘missing middle’ – how do they benefit/contribute? What are the ‘right’ policies to build popular commitment? Will argument apply if including services into model? How can we analyse the impact of direct taxation on state-citizen relations?