A B.I.G. DISASTER JUST WAITING TO HAPPEN
Fiscally, SA is completely outmanoeuvred. Covid, by destroying more than a million jobs, has caused the need for social support to explode, at the very moment when SA’s public finances are dangerously overstretched.
To prevent a humanitarian disaster, the government extended the special R350 a month Covid relief grant from October 2020 to the end of April. But it remains under intense pressure to not only make the grant permanent, but to use it as a step towards a universal basic income grant (BIG) for adults aged 18-59 — the group that falls outside the social security net.
For instance, Wits University’s Institute for Economic Justice (IEJ) argues for the Covid grant to be extended at a cost of R29bn a year or, better yet, the introduction of a universal BIG at the food poverty line of R585 a month.
A BIG would cost about R157bn a year for the 22.4-million adults not formally employed and would be “affordable”, the
IEJ says, if it is financed through cost-cutting and a slew of tax hikes.
Given that SA currently spends about
R195bn a year on social grants for 17-million people, the proposal would almost double the size of the welfare net. Even the R29bn to extend the Covid grant would be a 15% escalation. To put that in context, SA spends less than that annually (R17.4bn) to foster innovation, science, and technology. The IEJ argues that social grants have been SA’s most effective weapon against extreme poverty — something the job market has failed to address, given rising unemployment and low wage growth. This is arguably true. But the IEJ also claims SA has a constitutional obligation to provide a universal BIG — which is simply untrue.
The constitution says everyone has the right to social security and that the state must take reasonable steps to achieve the progressive realisation of this right — something it has done by increasing the coverage from 13% to 31% of individuals over the past 15 years (or 44% of all households). However, the constitution qualifies this by saying the state must act “within its available resources”, which is impossible to square with any prospect of doubling the welfare bill. Another frequent argument is that SA should view extending welfare as a form of “insurance” to prevent anger and hunger boiling over into social discontent and fuelling political extremism. Given these risks, the question is not whether SA can afford a BIG, but whether it can afford not to. The FM would argue that what SA really cannot afford is an explosion of unsustainable welfare spending predicated on higher taxes, as it would invite a calamitous fiscal crisis which may unravel all the social gains made since 1994.
A BIG would be unsustainable, given our sclerotic economy. As long as the tiny pool of taxpayers is shrinking (6.3million people submitted returns in 2019, down from 6.6-million the year before) while the vast pool of people on welfare is set to grow by 100,000 a year, financing a BIG would require constant tax hikes. This would further dampen savings, investment and growth — hastening the spiral. To introduce a BIG now, in the hope that economic reform and growth will one day materialise (or corruption be reined in), would be like buying a pair of too-small jeans believing that the diet you’ve been putting off for years will soon allow you to fit into them.
Expanding the welfare bill might seem like the right moral choice — but it’ll make things worse if it destroys SA’s fragile macroeconomic stability. The only sustainable solution is faster growth and job creation. Without this, SA will be unable to afford the social safety net it already has, let alone expand it. And that would be a tragedy.