Basic income grant is necessary and should be on-budget

First Published in Business Day on   May 13th, 2021   |   by   Isaah Mhlanga

Basic income grant is necessary and should be on-budget

It means making hard policy trade-offs within the existing budget framework to ensure fiscal sustainability

Temporary tax revenues should not be used as a basis for introducing permanent expenditures. Specifically, current commodity-based tax revenues are temporary and should not be used as the basis for introducing a basic income grant. It is fiscally imprudent to do so.

A basic income grant is necessary in SA, but it must be done on-budget, which means making hard policy trade-offs within the existing budget framework to ensure fiscal sustainability.

The rationale for a basic income grant was established as far back as 1997 when the white paper on social welfare was published. This was followed by the Taylor inquiry into a comprehensive system of social security for SA in 2002 and the basic income grant financing reference group in 2004, all of which tried to establish principles and guidelines for the structure of a social security system that guarantees constitutionally mandated basic rights.

Since then the social security system has cast a wider net to include more people in need of state support. From 2012 to 2021 recipients of the child support grant increased 15% to nearly 13-million and now account for 70% of those who receive support from the state. The next big category, accounting for 20%, is those receiving the old age grant, having increased 31% to 3.74-million.

The remaining 10% is made up of 1-million senior citizens on old age grants, 315,000 foster child grants, 269,000 grants-in-aid, and 151,000 care dependency grants. Combined with that is 18.2-million people on social security, meaning almost one in three South Africans is dependent on the state for survival. This number is expected to increase to 19.3-million by the 2023/2024 fiscal year.

Yet this is still not perfect coverage given that there are 17.1-million people who are not economically active, including 7.2-million who are unemployed according to the official narrow definition. This is a group of people who still need to be captured in the social security net, an indication of institutions, social contracts — and ultimately an economy — that are not fit for purpose.

How can this problem be addressed in the context of a constrained fiscus? There are no easy answers and solutions, only hard policy trade-offs if there is to be sustainability in the fiscus. A relook of the entire social security system is necessary to establish the true extent of the problem.

Data deficiencies at the SA Revenue Service (Sars), SA Social Security Agency, department of home affairs and other state agencies still pose a challenge establishing who is unemployed and requires state support. This would need to also clarify who operates in the informal sector, which has unrecorded and largely cash transactions the revenue service cannot easily capture.

I assume this is where finance minister Tito Mboweni was coming from when he said every business must be registered with Sars and have a bank account. There was pushback against his call, but if the state is to help those who have no income it needs an efficient process to establish who they are.

A basic income grant needs to be looked at as part of a set of reforms in the context of the entire social security system within the existing budget, to ensure fiscal sustainability. Support needs to shift from individual to household level. This means if the state implements a Big for those who are unemployed, the child support grant should fall away.

In fiscal 2021/2022 the child support grant will cost R85bn. Catering for all of those who are not economically active (17.1-million) could cost R72bn a year if they each receive R350 a month. This would be a wider reach, but it entails a hard policy choice government and society must make in the context of severe fiscal constraints.

The Economic Recovery & Reconstruction Plan must be implemented aggressively, with job creation as the ultimate measure of its success such that over time the unemployed can get jobs and stand on their own, thus reducing state spending on social security. It makes sense for government as much as it does for society and business. Social stability is a prerequisite for all successful societies.

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