OPINION

Can SA really afford a basic income grant?

Ann Bernstein |

22 June 2022

Ann Bernstein says this would significantly undermine the quest for faster growth and more jobs

Can SA really afford a basic income grant? The short answer is no

22 June 2022

SA is in the throes of a serious debate about implementing a basic income grant BIG. The key issues include whether a BIG is affordable, whether it would deepen the crisis of sustainability of the country’s public finances, and whether it would lower the rate of economic growth and job creation.

About 60% to 70% of South Africans are poor. The single greatest driver of poverty is our exceptionally high and rapidly rising level of unemployment. The ANC appears to have lost confidence in its ability to deliver the jobs needed to reduce poverty. A BIG is now seen by many of its key leaders as essential for continued electoral viability.

There is no single position advocated by proponents of a BIG, though there is general agreement that if a BIG were to make a meaningful contribution to reducing poverty, many people would have to be eligible and the value of the grant would have to be meaningful. Most proponents seem to think that a BIG should cover all adults or all unemployed adults, and that it should be worth at least R800 per month. This would cost R200bn – R300bn a year, depending on eligibility rules.

A BIG should not be seen in isolation of other policies that seek to achieve the same broad goals.

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Social and economic policy in SA is determinedly redistributive. Social grants already account for a larger share of national income than is the norm for developing countries.

The national government spends about R2.1trillion a year, of which more than half is accounted for by the “social wage”: mainly free and near-free education, health care and social grants. These spending programmes deliver services disproportionately to poorer households.

However, care must be taken with the figures because the costs of delivering services such as education and health care are driven by public sector wages, and the rise in spending does not mean an increase in the value of these services to the poor when the quality of those services is low.

Apart from redistribution funded through the budget, a number of policies seek to direct income, wealth and opportunity to individuals, households and firms to achieve economic transformation.