BIG IDEA, BIG PROB­LEM

Financial Mail - - FEATURE - Claire Bis­seker bis­sek­erc@fm.co.za

Calls are mount­ing for the Covid-19 re­lief grant to be made per­ma­nent, given SA’S wors­en­ing hu­man­i­tar­ian cri­sis. But where will the money come from?

There is sym­pa­thy for the idea of a ba­sic in­come grant (BIG), given the dev­as­tat­ing im­pact Covid-19 is hav­ing on so­ci­ety, but the gov­ern­ment would likely have to slash its wage bill to fund such an ex­pan­sive pol­icy. That alone could leave any plan stone dead.

The dream of ex­tend­ing so­cial grants to un­em­ployed adults has been on the ANC’S agenda for more than a decade. It inched a step closer af­ter the meet­ing last week­end of the na­tional ex­ec­u­tive com­mit­tee, with the party re­solv­ing that its so­cial and eco­nomic trans­for­ma­tion com­mit­tees con­sider the fea­si­bil­ity of a BIG.

Ac­cord­ing to a doc­u­ment seen by Bloomberg, the ANC is propos­ing a R500 monthly grant to those aged 19-59 who aren’t el­i­gi­ble for other state ben­e­fits, at a cost of R198bn a year.

How­ever, this would more than dou­ble the state’s ex­ist­ing so­cial grants bill. The num­ber of grant ben­e­fi­cia­ries has grown by 50%, from 12mil­lion in 2007 to 18-mil­lion now, largely due to the ex­pan­sion of the child sup­port grant. All this costs R188bn a year, or 3.5% of GDP. With roughly one in three peo­ple ben­e­fit­ing, SA al­ready has the sec­ond-largest share of house­holds re­ceiv­ing state trans­fers in the world af­ter Iran, ac­cord­ing to World Bank data.

Even so, among the poor­est 50%, just over 30% of house­holds re­ceive no gov­ern­ment grants. Th­ese in­di­vid­u­als are not dis­abled and are aged be­tween 19 and 59, which makes them too old for the child sup­port grant and too young for the old age grant.

The ap­peal of a BIG has been en­hanced by the slow rollout of the gov­ern­ment’s Covid-19 re­lief grant. Adults who are un­em­ployed and don’t re­ceive any other state ben­e­fits are el­i­gi­ble for R350 a month for six months. That pe­riod was sup­posed to end in Oc­to­ber, but so far only 3.3-mil­lion of the 7.4-mil­lion ap­pli­ca­tions have been ap­proved.

Calls have been mount­ing for the grant to be made per­ma­nent given SA’S wors­en­ing jobs cri­sis, with al­most 10-mil­lion peo­ple un­em­ployed, in­clud­ing dis­cour­aged work­seek­ers. This put the ex­panded un­em­ploy­ment rate at just un­der 40% — and that was be­fore Covid-19 struck.

Ninety One deputy MD Nazmeera Moola has “a lot of sym­pa­thy” for a BIG, given the cur­rent eco­nomic cli­mate, but says the gov­ern­ment shouldn’t open the door to the idea un­til it has found the money.

In the ab­sence of faster eco­nomic growth, that means the R639bn public sec­tor wage bill will have to be cut, she says. Given that there are 1.3-mil­lion public ser­vants, wages for just 2.2% of the pop­u­la­tion will ab­sorb about 60% of all tax rev­enue this year (com­pared with about 47% in a nor­mal year).

“In most pri­vate com­pa­nies ex­pe­ri­enc­ing this much pres­sure on rev­enues we are see­ing salary cuts,” she adds — yet that idea re­mains anath­ema to the public ser­vice.

To grant SA’S 10-mil­lion un­em­ployed

R350 a month would cost R42bn a year — roughly equiv­a­lent to a 6.5% cut in the salary bill, by Moola’s es­ti­mates. She sug­gests that cuts start at the top with cabi­net min­is­ters, and be achieved by shrink­ing the num­ber of de­part­ments.

The ANC’S BIG doc­u­ment in­stead pro­poses a tax hike on those with jobs. But hav­ing raised taxes con­sis­tently for much of the past decade, there’s lit­tle room to ma­noeu­vre.

High-in­come earn­ers are likely to bear the brunt of tax hikes af­ter Covid-19 but are too few to yield sig­nif­i­cant sums. Hik­ing VAT from 15% to 16.5% would raise R42bn, but that’s a non­starter, as it would hurt the poor the most.

Last year, a team of aca­demics col­lab­o­rat­ing un­der the SA-TIED ban­ner un­der­took a study into the im­pact on poverty of scrap­ping the zero-rat­ing of VAT items. They found that it would be more ef­fec­tive to scrap zero-rat­ing and use the R20bn gen­er­ated to tar­get a new so­cial grant at the poor who fall out­side the so­cial se­cu­rity net.

The most ef­fec­tive sce­nario pro­posed for the R20bn was the in­tro­duc­tion of a R200 monthly ben­e­fit for un­em­ployed 26- to 59-year-olds, as it would raise the low­est decile’s pur­chas­ing power by 41%.

The re­searchers also tested the fea­si­bil­ity of a BIG for all adults, ex­clud­ing the dis­abled. They found that a R200 monthly grant to those aged 18-59 would re­duce SA’S poverty head count from 33.5% to 29.6%, but cost R70bn a year. If re­stricted to 18- to 30year-olds, it would re­duce poverty to 31.7% for R31.7bn a year.

Clearly, SA is not go­ing to be able to af­ford a BIG with­out mak­ing hard choices. The ANC would be wise to tem­per ex­pec­ta­tions un­til it has done the maths.

To grant SA’S 10-mil­lion un­em­ployed R350 a month would cost R42bn a year —roughly equiv­a­lent to a 6.5% cut in the salary bill

Gallo Im­ages/er Lom­bard

State sup­port: Se­nior cit­i­zens queue for their so­cial grants out­side Jab­u­lani Mall, Soweto, on May 4

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