Reeling: Volunteers and workers clean up the looted Bara Mall in Soweto. The destruction and theft in the country is a more than R50-million blow to the already struggling economy. (Lucas Sola/AFP)
After almost a week of violence that knocked business — and as the country reels from a long-standing unemployment crisis worsened by the Covid-19 pandemic — the cabinet is mulling a basic income grant.
The country is still counting the cost of the destruction wrought by last week’s violence in KwaZulu-Natal and in Gauteng on the already weak economy. Early estimates by the South African Property Association show that the unprecedented attacks dealt a blow of more than R50-billion blow to the GDP.
The riots, ignited by Jacob Zuma supporters angered by the former president’s incarceration for contempt of court the week before, have renewed calls for a universal basic income grant. The grant has been a subject of discussion among policymakers for more than two decades. But, from as early as 2002, some in government have deemed proposals for expanded income support unaffordable.
The current wave of backing for a basic income grant comes amid increased strain on the fiscus and efforts by the treasury to consolidate government spending.
Although the government now seems to be taking the calls seriously, analysts are split on how economic relief should be provided, whether the budget can take the added pressure and whether the grant is the best fix for rampant unemployment of more than 30%.
Not ruled out
On Sunday night, President Cyril Ramaphosa said during the annual Nelson Mandela memorial lecture that a basic income grant would show people that the government was “giving serious consideration to their lives”.
On Monday, the minister in the presidency, Khumbudzo Ntshavheni, confirmed that the cabinet was considering various options for the provision of a basic income grant. She would not be drawn into giving details on the progress of these discussions.
The treasury was also tight-lipped, saying it could not comment on questions relating to the touted grant while it was still under cabinet consideration.
Despite his department’s stance on fiscal austerity, Finance Minister Tito Mboweni has said in the past that he does not rule out the prospect of a basic income grant.
At a media briefing in April last year, as the country wrestled with the first wave of the Covid-19 pandemic, Mboweni said: “I think about it all the time. I read a lot about it. I study. I analyse it all the time … It is a serious question, which must be considered and not dismissed offhand.”
But Alexander Forbes chief economist Isaah Mhlanga said the calls for the grant were “opportunistic”.
“What we need is temporary intervention, not a permanent basic income grant because we simply don’t have the resources to support something like this. It also does nothing to increase the productivity of the population, which is something we should focus on.”
By diverting funds away from investment, the basic income grant would have negative consequences for employment in the long term, he said, adding: “It’s really a bad policy for an emerging market like South Africa to introduce a welfare state.
“It is just not possible. Without growth, it is inconceivable.
If we had growth of six to seven percent for 10 years straight, then we could say the economy is growing fast enough. Then we could afford a basic income grant for those without jobs. It is not the case,” Mhlanga said.
Relief
During the first year of the Covid-19 pandemic, relief for the unemployed came in the form of a R350 grant. The pandemic triggered a jobs bloodbath; in the first three months of 2020, 2.2-million people became unemployed. The grant was discontinued at the end of April this year.
But the next month, the minister of social development, Lindiwe Zulu, assured the public that another lifeline may be on its way when she said the need to introduce the basic income grant had become “an urgent consideration”.
Zulu said in her May budget speech that the department of social development had developed a discussion document for consultation. These consultations would focus on how the grant would be financed, she said.
The spokesperson for the department, Lumka Oliphant, said the document was not yet available for public consumption, but would eventually be shared.
Among its recommendations for a disaster relief package in response to the riots, labour federation Cosatu has asked for the extension of the R350 grant, which its parliamentary coordinator, Matthew Parks, said was a basic income grant “in genesis”.
He said that last week’s violence “fed into a sea of poverty and unemployment and despair” and that the ultimate damage this caused to the economy would cost far more than it would to extend the R350 grant.
“You want people to have jobs and not be dependent upon the state for a handout.”
But he referred to recent research by the University of Cape Town’s Development Policy Research Unit, which showed that the R350 grant increased the likelihood of recipients re-entering the job market by 25 percentage points.
Parks added: “We’ve said: ‘Let’s be pragmatic about what can be done.’ It’s not being blind to the fiscal crisis … It is manageable.”
Harsh conditions: Unemployed men play a game of cards while waiting for temporary work. Joblessness in the country has risen to more than 30%. (Delwyn Verasamy/M&G)
Considering the options
In May, California-based economic modelling firm Applied Development Research Solutions (ADRS) published a policy brief in which it considered fiscally neutral scenarios for the introduction of a basic income grant.
The ADRS found that the grant could “significantly lower income inequality, eradicate poverty and have a positive impact on growth and employment” and that this could be done even under fiscal austerity.
The study noted that spending on the grant could be fully recouped through increases in income tax and a wealth tax. These tax hikes would mean that spending on the grant would not trigger an increase in the budget deficit and the debt-to-GDP ratio.
The treasury’s budget review in February forecast that in 2020-21 the budget deficit will reach a record 14% of GDP and the country’s debt-to-GDP ratio will reach 80.78%. The department’s fiscal consolidation efforts are aimed at stabilising these two metrics by 2025-26.
Neil Coleman, co-founder and senior policy specialist at Institute For Economic Justice (IEJ), said introducing a basic income grant would require a shift away from the treasury’s “austerity mindset”.
“This is about a paradigm shift and a policy shift. We have no illusions about that … The basic income grant must be seen as part of a long-term strategy, which does depart quite significantly from current economic thinking,” he said.
“We have shown that it is affordable and doable. But it does require a shift. And I think that what has happened is actually leading to that shift taking place.”
In March, the IEJ published a policy brief looking at various financing options for a universal basic income grant. These options include a series of progressive taxation measures, such as limiting tax breaks for those with higher incomes, cancelling ineffective corporate tax breaks, taxing environmentally damaging behaviour and reducing tax evasion.
The institute contends that universal basic income support “is one of the best tools available to reduce poverty, hunger and destitution”.
According to the IEJ’s calculations, additional tax revenue could make R158-million immediately available. This is enough to finance a R585 grant for the unemployed.
If a wealth tax of R189-billion was collected in the medium term, this would increase the amount available to R347-billion — enough to fund a R1 268 grant for the unemployed. This amount would also be enough to cover a R840 grant for all adults.
Coleman was one of the drafters of the proposal for a basic income grant that was presented at the 1998 Presidential Jobs Summit.
“The main argument that we came up against was the notion that it creates dependency,” he said.
“I think now it’s much less of an issue. Very few people can convincingly argue that position. Because the evidence is so clear that, both internationally and in South Africa, grants actually spur economic activity and that they actually promote job seeking.”
A “big obstacle” to shifting policy towards introducing a basic income grant, Coleman explained, is that some in government are narrowly focussed on the notion that the choice is between grants and job creation as a means of resuscitating the economy.
“But it’s about grants and jobs. It is clear that the prospect of bouncing back from these crises through purely a jobs strategy, in a narrow sense — an industrial strategy which is not even supported by your macroeconomic policies, by your monetary policies and fiscal stimulus — is zero,” he added.
“And that is what we are seeing. We are in a downward spiral.”
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