South Africa should Focus on Job Growth, not Basic Economic Grants

In a recent interview covered in BusinessLive on the 14th of November, Finance minister Enoch Gondongwana noted:

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]We cannot at this stage, without growing the economy, think we can afford everything. [/perfectpullquote]

With debt service costs topping R300bn next year as bondholders price in the risk of SA’s borrowing, he said there could never be a reasonable argument for spending more money by paying interest on debt than we do on policing and healthcare.

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]Next year, debt service costs will be about R303bn. That single component is bigger than home affairs, police, defence combined.[/perfectpullquote]

As political pressure grows from both within and outside the ANC, for the government to implement a basic income grant (BIG), Gondongwana, in his first medium-term budget speech stressed that the government is already spending R1.1 trillion on grants while struggling with a snowballing debt of over R4 trillion.

The Institute for Economic Justice (IEJ) has estimated that R158 billion would be needed to fund a grant of R585 per month (the food poverty line in 2020) to all unemployed people aged between 18 and 59 and would have to be funded mainly through extra taxes such as a social security tax (SST) on income. The SST would be a levy of 1.5% on those earning up to R80,000 a year, 2% on earnings between R80,000 and R350,000, 2.5% on earnings between R350,000 to R1-million, and 3% on those earning above R1-million.

In an SABC news article on the 22nd of July titled, Fiscus does not have capacity for a Basic Income Grant, Economist Mike Schussler argues that the government will have to find R50 billion in extra income and 4% more money from the tax base. This would require more than a 2% increase in the VAT rate, and the government will have to also cut back some budget programmes, a sentiment echoed by Minister Gondogwana in various interviews.

Schussler goes on to say:

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]We already have 18 million people in some form of grant and to add another 12 million to that means more than half of the South African population is going to be in some sort of government grant. I don’t think many countries can sustain that and I don’t think South Africa with its poor financial record and low tax base will not be able to do well under those circumstances.[/perfectpullquote]

The C-19 People’s Coalition, an alliance of social movements, trade unions, community organisations and NGOs goes even further than the IEJ and proposes that the BIG be R1,268 per month. These demands have to be seen in light of many South Africans taking on extra debt to make it through the pandemic and lockdowns and having their income reduced and small businesses and self–employed people having their finances severely hampered.

South Africa would be better served in the long term by focusing on economic and jobs growth and becoming a manufacturing and agricultural base that serves the growing needs of the African continent who will need food, clothing, blankets, kettles, and other products as the economies of the continent grow. The signs for this are promising.

A 2017 study commissioned by the Johannesburg Inner City Partnership and headed by Dr Tanya Zack revealed that over R10 billion was spent every year by cross border shoppers in the Johannesburg inner city, twice the annual turnover of Sandton City.

It is a vast, booming, low-end globalised trade that has transformed space and pioneered a retail phenomenon in the inner city for the sale of cheap clothing, shoes, household wares and accessories. There is massive potential to leverage this demand by manufacturing the goods in our local townships rather than having the goods imported from countries like China and Bangladesh.

Cross border shoppers are international visitors to Johannesburg. Their visits increase the demand for services, products, and good infrastructure – all of which attract jobs and investment to the inner city. They require and inspire new investment in buildings, maintenance, entertainment services, transportation services and accommodation establishments. They transform buildings and environments.

Considering the precarious financial positions of many South African households post lockdown and the profoundly over indebtedness of South Africa’s middle class, if the government implements a BIG, especially at the rate desired by the C-19 People’s Coalition, it would be the government essentially communicating that they are fine with drowning our over indebted middle class because low wage work is either too demeaning or exploitative for unemployed South Africans.

It would be a Faustian bargain considering our government also has to service debt at an average of over R334.5 billion through 2026, which is more than the anticipated spending on healthcare and policing combined.

Sindile Vabaza is an avid writer and aspiring economist.