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