Coronavirus | Could a basic universal income grant work?

In an open letter to President Cyril Ramaphosa and the Cabinet earlier this week, 76 South African economists, academics and business analysts asked government to urgently assist those hardest hit by the novel coronavirus crisis.

One of the measures proposed was the introduction of a universal basic income grant to the vulnerable.

Currently, some 18 million South Africans rely on social grants. Social development received a substantial portion of the budget this year at R309.5 billion, with existing grants including foster care, old age, disability, war veterans, and child support.

Since the outbreak of the virus, support announced by government has included tax breaks and relief measures by the Unemployment Insurance Fund, as well as funding for small businesses. 

Lumkile Mondi, a senior lecturer at the School of Economics and Business Science at the University of the Witwatersrand - and one of the signees - said while no one would be exempted from the devastating effects of the virus, the self-employed, atypically employed, informal workers, and small businesses fell into the category of people particularly vulnerable after South Africa entered a 21-day lockdown on 27 March.

'Extraordinary times'

Mondi said these individuals’ traditional social support networks would be disrupted.

"These are extraordinary times, requiring South Africa to focus on humanity and solidarity. There is a significant risk that millions in poverty will fall into destitution," said Mondi.

He proposed a universal R1 000 grant for four months.

Johann Els, head of economic research at Old Mutual, said this could be in the form of a top-up pay to social grant recipients for few months.

Bringing more people under the safety net

But not all vulnerable individuals are social grant recipients.

Mondi noted that self-employed and those working in the informal economy need this relief the most. However, most small businesses and workers in the informal sector fall outside of the assistance net recently announced by government.

Finance Minister Tito Mboweni announced tax adjustments in line with the National State of Disaster to help taxpayers earning below R6 500, and tax compliant businesses with a turnover of R50 million or less.

A 2019 research article published by Mike Rogan, associate professor at Rhodes University, and senior researcher at the University of Cape Town’s African Centre for Cities, Caroline Skinner, showed that 73% of informal operators earned well below the income tax threshold of R79 000 per annum. Yet the informal sector made up a large part of the workforce, they argued.

Lara Hodes, an economist at Investec, acknowledged that government is already doing considerable work to help small businesses so that they can avoid retrenching staff and can continue paying salaries.

"There is, however, definitely a case for some type of basic income package. However, the administration of such an undertaking is mammoth," she said.

Hodes said a basic grant could help contain the spread of the virus, as it would allow people who had lost their incomes because of the lockdown and/or retrenchments resulting from business closures. She said a grant would allow the needy to buy basic goods for their families for a few days, allowing them to stay at home and not have to venture out regularly to borrow or beg for basic items.

How severe could the need be?

According to 2019 national expenditure estimates, the National Treasury said about 18.7 million beneficiaries would receive social grants in the 2021/22 fiscal year.

Statistics SA’s last general household survey showed that 45% of South African households benefited from social grants in 2018, with 20% of those signalling it was their primary income. But another 9.4% relied on remittances as their primary income, and 9.9% others relied on "other sources" that are not salaries, grants or pensions.

How will government fund a universal grant?

Hodes said while government doesn’t have much room to manoeuvre in terms of fiscal policy, initiatives announced before the coronavirus crisis that are not time-sensitive can be put on hold, and Treasury can redirect funds to those in need during this dire time.

"It would be an enormous administrative exercise, but it can be done," she added.

Mondi said government could borrow locally by issuing bonds. "Both fiscal and monetary policies can contribute as well as institutional investors who can buy more government debt.  We are asking Institutional Investors to buy more government bonds, since these are South Africa’s savings."

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