SA needs to discuss the viability of a basic income grant, says Ramaphosa

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President Cyril Ramaphosa. Photo: GCIS
President Cyril Ramaphosa. Photo: GCIS
GCIS
  • President Cyril Ramaphosa delivered the ANC's January 8 statement on Friday night.
  • In addition to a mass rollout of a Covid-19 vaccine and a focus on infrastructure, the president says the viability of a basic income grant must be probed in 2021. 
  • Economists, however, have warned that SA may not be able to afford such a grant. 

As the unemployment grant introduced by the government to help the poor cope with the economic shock caused by the Covid-19 pandemic comes to an end, President Cyril Ramaphosa says South Africa needs to investigate the viability of introducing a basic income grant.

While Ramaphosa did not outline what type of basic income grant would be probed, such grants are generally defined as income paid by the state to all residents. 

Delivering the ANC's January 8 statement on Friday night, Ramaphosa said the ruling party's second priority for 2021 - after overcoming the pandemic by rolling out a mass vaccination programme - was to restore the economy to growth and create jobs.

With over 2 million people already out of work because of the virus in 2020,

Inequality, income deprivation, and lack of economic opportunities have been exacerbated by the pandemic, said Ramaphosa, with over 2 million South Africans losing their jobs last year. 

With the social relief measures introduced by government in April including the Covid-19 unemployment grant and the temporary top-up of social grants halted at the end of 2020, Ramaphosa said the country needs to intensify other poverty alleviation measures, including investigating a basic income grant. 

"This year, the ANC, government and broader society will need to continue discussions on the desirability and viability of a basic income grant to provide a social safety net to the poor," he said during his virtual address. 

The idea of a basic income grant is something that has been on the government and the ruling party's radar since the early days of the lockdown in 2020.

South Africa already pays roughly R20 billion per month in social grants to approximately 11.3 million recipients.

Econometrix director and chief economist, Dr Azar Jammine said on Friday night that SA's current social security net doesn't reach everyone in need.

"It leaves a gap for those who are not employed, are not disabled, are not old and don't receive child support grant. Now, the idea of a basic income grant is to plug that hole so that everyone receives a bit of money," he said.

'We can't afford it'

However, Jammine said he thought it would be a waste to implement universal basic income grant as it would likely mean everyone would get it, including those who are employed. On the other hand, a "special grant" to the "missing middle" would make better sense. The problem, however, is how to fund it. 

"Many of these things are unaffordable. As it is at the moment, every person earning over R1 million is subsidising the survival of 60 to 80 people through the tax that they pay.

"It shows that there's a limit to the extent which you can extend this. Eventually you'll have a society where only one in five people works," said Jammine.

Economist Mike Schussler said given SA's constrained fiscus the country simply cannot afford to implement a basic income grant even though this was a noble idea.

"We are in deep financial trouble. Putting resources towards fighting Covid-19 makes sense. But for the basic income grant right now, we don't have the money. It is going to drain the fiscus even more," he said.

Schussler said if the ruling party pushes with this idea at any cost, it could mean further credit rating downgrades.

His worry is that when interest rates again rise in the developed economies, South Africa - which already spends around 20% of all its tax revenues towards debt interest payments - will struggle to keep its head above water. A new expense the size of a basic income grant programme will simply not be sustainable.

According to the World Bank, while interest in universal basic income is increasing, there are currently no countries that have a basic income grant in place, apart from small-scale pilots and trials. Mongolia and the Iran both a national UBI in place for a short period of time.

Job creation is what SA needs

"This is not a time to fund a basic income grant. We need to find a way to start more businesses and to make businesses comfortable so that we can create more jobs. That is a more sustainable way to support the vulnerable, give them jobs," said Schussler. 

Jammine said another reason to prioritiss job creation over income grants was that there is usually less of an incentive to find a job when people receive grants. He said while it was true that finding employment has become more difficult, there was evidence showing that some people who got multiple social grants leave their low paying jobs.

Ramaphosa said during his speech that the government had also started a process of rolling out public employment programmes. These will offer more work opportunities to women, youth, people living with disabilities and other marginalised groups.

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