Ramaphosa right to insist on feasibility of basic income grant, say economists

With the 2022 budget speech a month away, it remains to be seen what the approach to the much-touted basic income grant (BIG) would be after President Cyril Ramaphosa’s calls for the government to examine the feasibility and affordability of providing income support for the poor and unemployed.

In his closing remarks at the ANC’s national executive committee meeting on Sunday, Ramaphosa said the R350 social relief of distress (SRD) grant, launched two years ago to help adults without income cope during the pandemic, has had a “significant positive impact” on unemployed and poor people.

“The government must examine the feasibility and affordability of providing some form of income support for the poor and unemployed,” Ramaphosa said.

Political pressure is growing to turn the grant into a more permanent feature of SA’s welfare net. In his January 8 ANC address, Ramaphosa said the grant has provided vital support for the unemployed during the pandemic and reached 9.5-million people, “lifting 5-million above the food poverty line”.

“There is a clear need for some form of income support for unemployed and poor South Africans based on clear principles of affordability and sustainability,” he added. 

The coronavirus pandemic has battered the economy, which contracted 6.4% in 2020, leading to a loss of about 1.4-million jobs. The economy was also hurt by the July 2021 unrest in Gauteng and KwaZulu-Natal after the jailing of former president Jacob Zuma. Warehouses were stripped bare during the unrest and set alight, costing the economy about R50bn. 

Speaking at the annual Nelson Mandela memorial lecture in July 2021, after 10 days of unprecedented violence and mayhem in KwaZulu-Natal and Gauteng, Ramaphosa said a basic income grant would show people that the government cared.

“This will validate our people and show them that we are giving serious consideration to their lives ... we are giving active consideration to the grinding poverty that we continue to see in our country ... we need to address the structural inequalities in our economy,” he said at the time.

Ramaphosa’s remarks on Sunday came a day after Cosatu president Zingiswa Losi, in her submission to the lekgotla, called for the R350 SRD grant to be extended beyond March, be increased to the food poverty line, and be used “as the foundation for a BIG”.

Cosatu national spokesperson Sizwe Pamla said: “We welcome the statement by President Ramaphosa on the BIG. The R350 should be extended and increased to the food poverty line. We hope this position by the president will be reflected on the Sona [state of the nation address] and the budget speech.”

Pamla said Cosatu was of the view that the government could afford to fund the BIG, saying: “They [government] can adjust the corporate tax from 27% to 30%.”

During his medium-term budget policy statement (MTBPS) in November, finance minister Enoch Godongwana said the government’s total spending on the social wage was high, with 27.8-million South Africans being social grants recipients.

“Our total spending on the social wage is also high. This amount has grown from R860bn in 2018/2019 to R1.1-trillion in 2021/2022,” he said during his maiden MTBPS.

Godongwana said at the time that details on the government’s interventions regarding the social security net “will be provided in the February 2022 budget”.

Econometrix chief economist Azar Jammine said at the moment the government was spending about R180bn on various forms of grants such as the child support, old age pensions, disability, and veterans’ grants.

“If the idea is to replace all of that with a basic income grant, in other grants, scrap the child support grant, old age pensions, and so on, then it [BIG] becomes a little more affordable. That’s the only way I feel it can be affordable,” said Jammine.

He said some experts who were not mainstream economists were suggesting that the government could simply borrow the money to fund the BIG. “They are saying borrow the money, dish it out to the poor, they will spend it and the economy will grow faster as the government will collect more revenue. But it’s been proven that such an approach is short-sighted. It could work for a period of time ... Before the real costs start hitting back in a few years’ time,” said Jammine.

“What is feasible, I think, within the current parameters, is to extend this [SRD] grant into the coming year. It would cost about 1% of GDP to finance. That’s more affordable than spending 5% of GDP funding the basic income grant on top of all the other social grants.”

North West University Business School economist Raymond Parsons said: “There remains a strong case on socioeconomic grounds to extend the R350 per month social relief grant on a temporary basis. However, there is a big difference between giving necessary temporary assistance and the government being locked into a permanent BIG. Given the fiscal implications President Ramaphosa is right to insist on the feasibility and affordability of a BIG needing an in-depth examination. The budget next month will update SA’s margin of fiscal sustainability.”

Parsons said what the country must “realistically seek over time is to rather turn many more citizens into victors over poverty and deprivation, than to be victims trapped in welfare dependency”.

“This requires much faster inclusive growth that steadily moves people out of welfare into work. Both government and the private sector are agreed that growth in SA has been low for too long and needs to be urgently remedied,” said Parsons.

mkentanel@businesslive.co.za