Social security net: Senior citizens queuing for their social grants outside Jabulani Mall in Soweto.
Allies of President Cyril Ramaphosa in his cabinet are divided on whether the government should implement a basic income grant (BIG) as a permanent fixture, with some saying that it will bankrupt an already strained fiscus.
Speaking to the Mail & Guardian, two senior ANC cabinet members and a member of the ANC’s national executive committee (NEC) said the majority in the party and in the cabinet believed that the BIG should be introduced.
One senior cabinet member said Finance Minister Tito Mboweni has been placed in an uncomfortable position of having to find money to support this initiative.
The leaders have told the M&G that the cabinet is considering the BIG as a permanent government initiative.
The senior cabinet leader — who sympathised with Mboweni, who has been against the move by cabinet — said a BIG will plunge the country into more debt, which would result in the government being able to service only a portion of its existing debt.
“I get worried when you make a decision to spend without applying your mind. What’s needed more is jobs, but when we apply our mind, we think we will use the fiscus to solve these problems,” they said. “When you make a decision to spend, there must be an effort to say how it is going to be funded. Are we going to borrow ourselves to our knees? At 88% debt, it’s not sustainable.”
The cabinet leader added that the strain would also be felt by critical departments, which would have to foot the bill for the income grant policy.
“If we do this, we will most likely have to take away money from health and education. We are not in a position to make such compromises; it’s what has hindered growth in the past. What Mboweni said — that the country’s resilience is based on mining — should make us feel uncomfortable.”
On Wednesday, Mboweni announced a R39-billion relief package, outlining how it will be supported by the fiscus.
The R39-billion has been financed using better-than-expected revenue collection — the result of higher earnings in the mining industry because of the current commodities boom — and by reprioritising the budgets of the departments of trade and industry and small business.
The majority of the amount has been allocated to the renewal of the R350 social relief of distress grant, which will cost R26.7-billion.
In a media statement, Mboweni was at pains to detail the country’s strained fiscal position. South Africa’s debt burden is more than 80% of the GDP and rising debt-service costs consume more than R1 of every R5 raised in taxes, he noted.
“South Africa is not an advanced economy, and it is untrue that a government [that] prints its own currency cannot experience a debt crisis,” the minister said.
“Fiscal adventurism is not the solution to South Africa’s problems. We will continue our strategy of restoring the health of public finances. Against this backdrop, a package of measures is proposed [that] will be carefully financed to avoid further damage to the public finances.”
When asked whether the renewal of the R350 grant could become the basis for the introduction of a universal BIG, Mboweni said: “Let’s deal with the situation as we confront it now.”
Treasury, Mboweni said, indicated that the R350 grant could be extended for only six months. “And we were wrestling about this matter with the president. And he — being a very good negotiator from his union days — made us cross over the line until the end of the financial year, which is March 2022.”
Mboweni said a crucial question for any constitutional democracy is how it will support those who cannot support themselves. Education and jobs are at the centre of the answer to this question, he suggested. “I think ordinary people want to be engaged in some kind of work-related activity. That is where the focus should be.”
He added: “Is a precursor to a BIG or some sort of permanent social support. The answer is, ‘I don’t know’.”
Independent economist Duma Gqubule said pitting jobs against a BIG creates a false binary. “We have to do both … The minister was presenting a binary yesterday, saying people must get work before the grant. But we can do both. And we really must get on with it.”
The implementation of a BIG is more about political will than about financing, Gqubule said. “Structural reforms deliver growth in the long term. It is about the long-term health of the supply side of the economy. But what we’re seeing is we’ve got a demand-side problem, and it requires an immediate infusion of new resources into the economy.”
Minister of Finance Tito Mboweni and President Cyril Ramaphosa (below) after last year’s budget speech. (Photo by Brenton Geach/Gallo Images via Getty Images)
However, a cabinet minister who does not believe in the policy, said the government was in a corner and did not have a choice. The minister told the M&G that although a BIG will likely be introduced as early as the beginning of 2022, it cannot be a permanent solution to the problem of unemployment and poverty.
The ANC’s tripartite alliance partner, the South African Communist Party (SACP), has, in the past, called for the government to swiftly implement a universal BIG.
However, “to be dependent on the state is not a permanent thing … We must not want to use this as permanent intervention, but to create opportunities,” the minister said, adding that the government needed to find more creative interventions to resolve the issue of youth unemployment.
Trade union federation Cosatu’s parliamentary convenor Matthew Parks said the federation would push for the extension of the R350 grant beyond the end of the financial year and for it to translate into a BIG in the longer run. Parks said the union would not wage an ideological battle on the feasibility and modalities of BIG while people are in dire distress.
“The R350 is, in our view, a genesis for the BIG. It is not enough, but it is relatively affordable for the government — it is about R24 billion a year. So we thought, ‘go for that, take it one step at a time’.”
Chief economist at the Bureau for Economic Research, Hugo Pienaar, noted Mboweni’s reluctance over the question of whether the R350 grant renewal is a precursor for permanent income support.
“I think he is probably being a bit careful about coming out too strongly for — or, in his case probably, against — it, which tells me that there’s also still a lot of debate on it,” Pienaar said.
He added that although additional revenue has been generated as a result of the commodities boom, the mining sector is very cyclical. “When it goes well, it goes very well. But it can also turn down again quite substantially.”
The rest of the economy, other than mining and the financial service sector, is not doing well, Pienaar said. “We haven’t recovered the ground that we lost due to Covid and it’s going to take some time for us to get back to those levels of growth. So it is really not clear whether this economy can sustainably generate the revenue that would be required for a permanent BIG.”
Democratic Alliance labour spokesperson Michael Cardo said the extension of the relief grant was a likely gateway to the introduction of a BIG.
“There is so much momentum building up behind BIG; a sort of moral consensus that it’s the right thing to do. The political pressure on the government is going to be huge,” he said.
The DA has yet to formalise a policy stance on BIG — it plans to do so by next week — but the Inkatha Freedom Party said it had become imperative to protect vulnerable people in our society.
An NEC member and close ally of Ramaphosa said that if the government is reluctant to introduce this policy it would be at its own peril.
SACP second general secretary Solly Mapaila told the M&G that the government can never let its support of the poor be threatened because of a bottom line.
“Our social security net must effectively respond to that. We are happy; we think it’s a good step, but going forward we need to develop an appropriate framework and sustainable solution to this matter,” Mapaila said.
He added that the country will need to go for the BIG option and create a mechanism to manage its debt. “We do need this intervention as early as yesterday,” Mapaila said.
But conservative economists caution that if this month’s unrest pointed to a tinder box of desperation and discontent, there is also a huge political risk in extending a BIG only to withdraw it later because the fiscus cannot sustain it.
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