New leak as Ramaphosa advisers slog it out over basic income grant

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Pres. Cyril Ramaphosa. Photo: Gallo Images
Pres. Cyril Ramaphosa. Photo: Gallo Images

  • The president's advisors divided on a permanent income grant.
  • Some say it is essential because "SA cannot grow itself out of poverty".
  • Others warn it will damage economic growth and job creation.

A second report has been leaked from the President’s Economic Advisory Council (PEAC), this time expressing strong support for a permanent basic income grant for the poor.

The decision on a permanent income grant is among the most important facing government over the next 12 months. It has provoked a heated debate both within government and in wider society, with economists strongly divided on the issue.

It is, however, unlikely that a decision will be made before the State of the Nation speech and the budget in February, with most indications suggesting another temporary extension of the R340 grant that was put in place at the start of the Covid-19 pandemic. 

More than 12 million people in SA live below the food poverty line of R595 a month. SA is also the most unequal country in the world, with the largest gap of any society between the richest and the poorest.

The contents of the most recently leaked report were published by the Sunday Times on Sunday. This follows the leak early last week of a briefing note prepared by the PEAC in response to a request to provide President Cyril Ramaphosa with a brief ahead of the state of the nation. The note, which was written by the macro-economic sub-committee of the council and circulated to the rest of the council, warned that a permanent grant could place SA’s financial sustainability in jeopardy. 

The leak caused an uproar among proponents. Ramaphosa's office, meanwhile, put out a statement on Saturday criticising the leak and claiming the reporting was selective.

The Council had previously debated the issue of the basic income grant without reaching consensus. Two separate briefing notes were to sent to Ramaphosa last September under a covering letter, one for the grant and the other against. 

It was this earlier briefing note that became the latest leak to the media. The key argument of the note is that SA has extreme levels of poverty, multilple times that of countries with a similar per capita income. It will be many, many years before the economy is able to provide jobs and sustainable livelihoods for the poor. In the immediate term, the country faces the high risk of social instability due to its inordinately high levels of poverty and unemployment.

"The depth of poverty in South Africa is such that

"We cannot feasibly ‘grow our way out poverty’ in any reasonable timeline."
Presidential Economic Advisory Council

...with the current patterns of income distribution. Significant poverty reduction needs a combination of growth and pro-poor distributional change," it argues.

The note also sets out the positive impact of a basic income grant on inclusive growth because it enables economic participation, a critical component of poverty alleviation.

On the contrary, the PEAC’s note last week said that large tax increases would be required to fund a basic income grant and that tax increases of this magnitude will kill economic growth, investment and job creation. If debt financing is used, it will divert public resources away from infrastructure and investment spending, which are critical for service delivery, growth and jobs. 

Separately from the PEAC process, the department of social development last year commissioned an investigation into the feasibility of a grant. The report arising from this, authored by a panel led by Wits professor Alex van den Heever, argued that SA could afford a grant without negatively impacting the economy but large tax hikes would be required to fund it. 

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