DUMA GQUBULE: Main parties fail to see BIG as shot in arm for economy

The election manifestos of SA’s three largest political parties — the ANC, DA and EFF — have failed to commit to the implementation of a basic income grant (BIG), disappointing numerous civil society organisations that have campaigned for the grant for many years.

But three smaller political parties — Good, Action SA and the MK party — have pledged to implement the grant. 

The ANC made a bland statement that it will strengthen income support through existing social grants and use the social relief of distress (SRD) grant as a mechanism towards phasing in a basic income support grant. But the government has shown no urgency to make the transition to a BIG. Four years after introducing the SRD it recently increased its value to R370 a month from R350. 

The Universal Basic Income Coalition said the increase was an insulting pittance that did not consider the rising cost of living. “If the grant is increased to be in line with prices alone, the value in 2024 should be R440-R467 based on food inflation.”

The DA manifesto reads it will convert the SRD grant into a jobseekers’ grant. “The grant’s continuation will only remain viable if there is economic growth and sufficient tax revenue to fund it,” the party says.

The EFF has pledged in its manifesto to double all social grants but says nothing about the future of the SRD grant or the need for a BIG. 

SA’s largest parties must understand the economics of implementing a BIG and stop thinking that government finances operate like a household budget. Instead of waiting for GDP growth that will never happen with austerity budgets before they can implement it, they must realise that a BIG can provide a powerful stimulus to an economy that is expected to grow 1% this year after 16 years of declining GDP per capita. The stimulus will generate the revenues to mostly pay for the BIG. 

A paper by Dante Cardoso and others at the University of São Paulo shows that social security spending has high multipliers — the additional GDP generated by each rand of new spending — because it targets poor people who have a higher propensity to spend their income. 

Increase growth

In a recent meeting with the Social Policy Institute and government officials, Cardoso said in Brazil social security spending had a higher multiplier than investment in infrastructure. The BIG is sustainable within the context of a higher GDP growth rate. This means it will be impossible to sustain if SA increases taxes to pay for it and take the stimulus away. The country must let the new spending rip through the economy to make the BIG affordable. SA cannot afford another year of declining GDP per capita. 

Action SA has understood this basic economic principle and proposed a universal basic income stimulus that will be implemented over three years at the three national poverty lines. “This will increase the growth of SA’s economy by at least two additional percentage points measured against projected GDP growth and create an additional 1.6-million jobs.” Why is this so difficult to understand?

The Good party has proposed a monthly BIG of R999. “So where will the money come from?” is the absurd question I am still asked. SA cannot run out of the currency it issues, and it has a public sector balance sheet that has assets of R4-trillion.

The cost of implementing a BIG is too small to start an inflationary spiral in a country in which industrial companies have spare capacity of more than 20%. This is primarily because people lack the money to buy the goods that they can produce.

SA needs a boost to the demand side of the economy. As long as this happens within the context of a credible growth strategy there is nothing that anyone should worry about. 

• Gqubule is research associate at the Social Policy Initiative.