Basic Income Grant proposal revived despite not being affordable

The left's proposal for a basic income grant (BIG) has been revived in the aftermath of the economic impact of the Covid-19 pandemic. But concerns about its affordability. President Cyril Ramaphosa, ever the weak leader riding on popular opinion, has expressed support for it and asked Treasury to see how it can be funded. It would be no surprise if this was one of the reasons why finance minister Tito Mboweni, who was against it and said the country can't afford it, resigned.

 During the recent riots and looting in Gauteng and Kwazulu-Natal, commentators said poverty and unemployment were among the causes. This was despite the motives been an attempted insurrection. Incidentally, attributing riots to the poor is insulting because it presumes this is the only way they voice their concerns. The fact is middle class people were among rioters too.

 Commentators opined the basic income grant (BIG) must be implemented as soon as possible. Suddenly it’s been resurrected again. It is South Africa’s approach to almost any problem: throw money at and tax it. But we know that problems never go away. Rather, after billions are spent, they fester worse than ever. All the ineffective measures, mostly cosmetic and not worth the huge expenditures, serve is to delay and put urgent transformation out of mind.

 The ANC ruling party must shoulder almost the entire blame. They’re egged on by well-meaning but ideological, poorly informed social scientists who champion social engineering projects.

 Despite what BIG’s advocates claim, South Africa simply cannot afford it. The country’s six million or less individual taxpayers contribute over 40% of government revenue, companies most of the rest. As a middle income country, we’re among the most taxed in the world, but receive little value for money.

 Already the state provides free basic municipal services, social housing, health, partly free basic education, and getting there, free higher education. Then there are the billions of rand on expanded public work programmes. The unaffordable and unworkable national health plan in its present idea is coming.

 Free everything but without responsibility to be better citizens, SA’s way.

 There are over 17 million grant and pension beneficiaries, almost a third of the population. Grants reach about 50% of the poor population (SA’s poverty rate is about 50%). The grants regime since 1994 has not enabled this group to rise out of poverty, dependence and in many cases entitlement BIG advocates claim it would. It’s long known social transfers don’t and can’t enable recipients to develop livelihood assets, but further entrenches dependence. It appears this is what they want.

 Public sector remuneration is the single largest budget item. It and grants together are over 50% of the national budget. Treasury was concerned those two would rise significantly, crowding out other budgets. With BIG, it would.

 From an economics view, grants and salaries are non-productive expenditure, not investment in economic infrastructure. Instead, they almost entirely contribute to consumption spending, one of post-apartheid South Africa’s biggest problems. We’re not a nation of saving and investing as the failures of Eskom, SAA, railways, telecoms, other public enterprises and infrastructure prove, and as the riots showed, not investing in safety and security that didn’t anticipate them.

 BIG advocates speak grandly about “multipliers” and downstream knock-on benefits. They’re vague how exactly it works. When one tries to pin them down, they mention “models” and such. But it’s all smoke and mirrors.

 Grants may have short-term microeconomic impacts but as proved by the 17 million beneficiaries they don’t have lasting benefits; the country a lot of surplus capacity due to its underperforming economy.

 Since 1994 the massive spending by grant and pension recipients are on food, basics, and since SA has a substance abuse problem, perhaps alcohol. Who knows, likely lottery tickets too.

 BIG advocates also don’t address that once most people go on grants for the long-term, helpless, despair and entitlement endures. Also, recipients become fussy and won’t accept work if available.

 Dr Greg Mills and Jeffrey Herbst, who’ve investigated development models around the world, wrote “Africans are poor because their leaders want them to be poor in the policies choices made”.

 The only way for South Africa’s socio-economic situation to measurably change, is not by tinkering with social welfare which can’t produce educated and skilled innovators and entrepreneurs, but the immediate significant restructuring of the economy. This could have been started anytime over the last twenty years, and as successful East African economies have shown, would have produced the results BIG advocates are demanding.

 But the “model” the country and ruling party have chosen, spurred on from the sidelines by its cheerleader academics and social scientists, is for citizens to remain poor, restive and ripe for demagoguery and insurrection.