After mismanaging the SA economy for 27 years, the government now has the opportunity to implement the most transformative economic policy since Nelson Mandela became president.
Reading the ANC’s January 8 statement on Saturday, President Cyril Ramaphosa said: “This year, the ANC, the government and broader society will need to continue discussions on the viability of a basic income grant to provide a social safety net for the poor.”
In six months the brutal lockdown in 2020 wiped out all the jobs the economy had created during the previous 12 years. Between December 2008 and September 2020 the number of unemployed people increased by 5.2-million, while the labour force increased by 5.1-million. There were 78,000 fewer people employed in September 2020 than there were in December 2008. After all the pain, there is nothing to show. Public health outcomes have not improved.
The crises of global capitalism are now more frequent and can no longer be called black swan events. The next crisis could be related to climate change, commodity prices or the financial sector. Never again should we leave millions of South Africans exposed to such crises. One of the saddest episodes during the economic crisis has been watching millions of South Africans queuing at post offices for the R350 social grant for relief of distress.
The economic outlook for 2021 is more uncertain than ever before. The government we have (not the one we wish we had) is unlikely to vaccinate the population by the end of 2021. There is a possible disaster scenario of cycles of soft lockdown, easing, new surges and lockdown again. Planned austerity measures of R83.2bn will impede the recovery. A deadly cocktail of lockdown and austerity without income support for households can end in tears. The Treasury will have to revise downwards its 3.3% growth forecast for 2021.
A basic income grant at the upper poverty line of R1,268 a month provided to about 33-million people between the ages of 18 and 59 would cost about R500bn a year. Though this column cannot provide comprehensive analysis of the financing of a basic income grant, two points must be made.
First, a budget-neutral basic income grant where equivalent taxes are raised to finance it would defeat the purpose of providing a fiscal stimulus that injects new money into the economy. So would a phased implementation. The point of a stimulus is that it must be large.
For the same reason, the basic income grant should not replace other social security programmes such as the child support grant and the state pension. The basic income grant is one path towards achieving universal social security. There could be a phased-in funding of the grant depending on the desired stimulus for each year. This means monetary financing, debt and surpluses in over-funded social security funds can pay for the initially unfunded portion. Over time there can be new taxes on wealth, financial transactions, carbon emissions and land.
Second, a basic income grant could partly pay for itself. We must look at the net as opposed to the gross cost after taking into account increased tax revenue and fiscal multipliers, which measure the additional GDP generated by each rand of new spending. A basic income grant would immediately generate VAT of R75bn. Deloitte says the claw-back through income tax would generate R25bn. International estimates for basic income grant multipliers range from 0.8 to 2.52, according to World Bank economist Ugo Gentilini and others in a recent paper.
This additional GDP due to stimulus and multiplier effects generates tax revenues that would not have been earned in the absence of the basic income grant. The net cost could easily be between 50% and 60% of the gross cost. We must close our eyes, implement the basic income grant and hope for the best. Trust me, it will work.
• Gqubule is founding director at the Centre for Economic Development and Transformation.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.