New welfare grant is on the table — the question is how much

The pressure and the rationale to introduce a basic income grant (BIG) of some sort has never been greater.

While there has always been a constitutional imperative that all South Africans "have the right ... to social security, including, if they are unable to support themselves and their dependants, appropriate social assistance", the idea has been much discussed but never adopted by the ANC.

The political space exists for it to be now, and few, even among the privileged who will ultimately pay for it, will argue that there is no case to be made for the state to support the destitute after last week’s violence.

A targeted income grant seems pretty much a done deal. At a minimum, the R350 social relief of distress grant will be reintroduced soon to go to the 7-million people already registered, as well as the 2.5-million caregivers who receive social grants to care for children.

The only remaining sticking point within government is how long it will last. As the hardship will continue well into the future, the question is actually will it ever be possible to end it? In effect, planned or not, it may be the beginning of a permanent unemployment or basic income grant.

There will also be a built-in momentum for it to be increased. The food poverty line is R585 a month, and R350, apart from having no reference to any benchmark, is not sufficient to sustain an individual.

While the social relief of distress grant introduced last May to assist people thrown into destitution by the Covid-19 pandemic was a no-brainer given the context, a long-term income grant, whether targeted as this one is, or universal, raises a different set of questions and considerations.

These include the need for a dedicated revenue stream to pay for it, an agreement on the budget trade-offs that will be made and whether it will achieve what SA most needs: substantially lower inequality and substantially more economic inclusion.

The debate on the merits of a basic income grant has been around as long as SA’s democracy. Social grants do improve social cohesion, lower costs of social unrest and promote healthier, more productive people.

Ambitious version

In its most ambitious version, which is supported by 40 civil society organisations including the Black Sash and the Studies in Poverty and Inequality Institute, the call is for R1,268 a month, at the upper-bound poverty line. The cost would be R200bn a year.

The model follows a universal grant design in which everyone receives the grant, which would be clawed back from middle and higher earners through the tax system. Higher earners would also subsidise the payment of the grant to the poor through higher taxes.

A more modest version has been suggested by University of Cape Town’s Prof Vivienne Taylor, the lead figure in the Taylor Commission in 2000 that recommended the implementation of a basic income grant more than 20 years ago.

In a report to Nedlac last August, Taylor suggested various options to phase in increased social security for the poor. Among them was a basic income grant of R500 a month, financed along similar lines. Taylor projected 12.8-million recipients by 2024 at a cost of R77bn a year.

Costs of a permanent grant can mount fast. While the government is now looking at R40bn to cover the 7-million from the last grant plus the 2.5-million caregivers, numbers could be higher. Together the unemployed (7.2-million) and discouraged work seekers (3.1-million) number more than 10-million.

So, while the costs to the fiscus might look manageable now while tax revenues are running high, is a basic income grant affordable in the long term and will it reduce inequality?

Trade and Industrial Policy Strategies (Tips) senior economist Neva Makgetla says that "social grants already improve the Gini coefficient. The trouble is if you don’t change the economic structures that generate inequality, they become less affordable and governments end up eroding their value or the coverage.... If government does get it right and the economy grows then the grants phase themselves out as people move into employment".

The value of a small grant, such as the one in the offing, is its symbolism, says Makgetla.

"You are telling people we are trying, and it also provides some relief. We should see it as an investment in social cohesion, which is crucial for long-run growth, as we have just seen," she says.

Takes time to fix

Economists across the board agree that to change inequality both the economy and the state need fixing. Economic and employment growth, which are stagnant or shrinking, are vital and also that the poor have access to quality public services, including good schools, vocational training, affordable public transport and safe communities.

For businesses to thrive the investment environment must improve with wide agreement among all stakeholders that microeconomic reforms to the network industries are essential. But these take time to fix, says Miriam Altman, economics professor at the University of Johannesburg.

"A middle-income country with our resources and yet with extreme levels of poverty and inequality has to implement this kind of redistribution as part of its commitment to human rights and achieving a decent standard of living," Altman says.

"However, the expansion of social grants and deepening of social services will only be sustainable if the economy is growing and the cost of living is falling. That means we need to accelerate the effort to make the economy more dynamic."

But while the political space has shifted, the fiscal space has not. Budgets are about choices and trade-offs, and R40bn, in the context of the tight budget tabled in February, is not insignificant.

In February, despite expectations, taxes were not raised. This was in part because of the commodity boom, but also because of declining tax buoyancy and a belief in the Treasury that taxpayers were close to their compliance limits.

To avoid busting the expenditure ceiling, or busting it only a little, other programmes will have to go. These could include other poverty alleviation measures such as public employment programmes, or investment programmes such as municipal infrastructure, or adjusting active labour market policies.

Social programmes such as education and health are already on the chopping block, as are the police and the army, which have seen their budgets heavily eroded in recent years.

Business has already suggested that the social partners return to the drawing board to discuss the adjustment budget due to be tabled in October. And President Cyril Ramaphosa has indicated that in the wake of the violence the economic reconstruction and recovery programme will be revisited.

Big decisions will have to be made with no easy answer available.

patonc@businesslive.co.za