My fellow columnist, the inestimable Jonny Steinberg, is dismayed at the binary way in which the debate over a basic income grant is being conducted in SA, where the choice is being framed as one between more welfare or more job creation (“Unemployment is here to stay: that should be our starting point,” July 29).
His argument is that SA has little choice but to extend welfare (or some other form of redress), since unemployment is deeply structural. He notes that even at the end of the commodity supercycle in 2008, SA’s unemployment rate only dropped to 22%, so it’s crazy to think we will ever eradicate unemployment through faster growth.
I agree. This is because millions of poor South Africans are unskilled, have the wrong skills for a modern economy, or live where there are no job opportunities. And given SA’s extreme wealth inequality the poor also have no assets. So when a crisis like the coronavirus hits they have no way of earning an income, and no buffers. For them, welfare will always be necessary.
The problem is that this group is vast and growing. Over the past 15 years the coverage of welfare grants has expanded from 13% to 31% of individuals (44% of all households) at almost R200bn a year. But given the economy’s failure to grow and create sufficient jobs, the pressure to expand the net has become intense, made worse by the pandemic and recent unrest.
In response, the R350 special Covid-19 grant has been reinstated. It will run until March 2022, costing about R27bn to cover about 9.5-million people and absorbing most of the new R39bn relief package. It’s unclear if the grant will be made permanent, but a basic income grant is beginning to look inevitable.
However, that government’s focus seems consumed with how to increase welfare rather than how to accelerate pro-growth reforms is alarming, because although SA may be able to afford to increase welfare in the short run (thanks to the commodity windfall) it will not be able to sustain this unless the economy grows much faster.
Look at it this way: as long a SA’s tiny pool of personal taxpayers (about 6.3-million) is shrinking and the pool on welfare (about 17-million) is growing, financing a basic income grant would require constant tax hikes. This would be severely growth dampening, which would worsen unemployment in a dangerous downward spiral.
The only sustainable solution is to accelerate reform. Yes, growth will bypass many who have no skills, but if SA could wind its 32.6% unemployment rate back to 22% it would mean 5-million more people had jobs, and 5-million fewer would need welfare.
Sure, it may be unrealistic to think SA could cut unemployment that much, but it’s not inevitable that it keeps on rising. Prior to the unrest, the International Monetary Fund (IMF) was forecasting that it would dip below 30% in coming years on faster GDP growth predicated on an improved electricity supply. It is vital that SA resume this path through faster reform, both to preserve jobs and to create new ones.
But ultimately Steinberg is right — growth on its own will never be enough. Even if SA undertook every reform punted by the Treasury it estimates it would take a decade to create 1-million more jobs. So the pressure to keep raising social spending will remain relentless. By implication, SA is headed for higher taxes amid rising fiscal risk.
A basic income grant may buy SA some respite from social unrest, but unless the country makes it much easier for people not only to enter employment but also to sustain themselves — by reforming vocational training, reducing barriers to hiring and small-firm growth, accelerating land reform and lowering the cost of living (especially of electricity and Wi-Fi) — the entire pack of cards will ultimately come tumbling down.
The scenes from KwaZulu-Natal showed us what that might look like; it’s not something we can afford to relive.
• Bisseker is a Financial Mail assistant editor.
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