South Africa’s economy has been in trouble for some time. Protecting our most vulnerable is an age-old problem that we need BIG ideas to solve.
Pun intended. The idea of providing a Basic Income Grant (BIG) began in March 2020, when the government started rolling out Covid-19 social relief grants of R350 a month. The monthly cash payments to poor and unemployed South Africans provided them with a social safety net. It’s now proving difficult to discontinue and has seen several extensions.
South Africa already runs a sophisticated social grants system but these are aimed at specific categories of people such as pensioners and those who are disabled. The BIG hews to the larger idea of a universal basic income grant, which has been trialled in other countries where inequality is also a problem.
The problem of course is where to find the money to fund it.
A recent report by research house Intellidex on behalf of Business Unity SA (Busa) and Business Leadership SA (BLSA) has settled on increasing VAT as the “the least bad option”. A 2% hike to 17% in VAT could bring in an additional R50 billion in tax revenues, according to the 64-page report released last month.
That’s because the other options to raise the money just aren’t viable right now, as BLSA’s CEO Busisiwe Mavuso explains. We can’t cut spending on other crucial items in our budget, particularly other grants. 24.4% of SA homes are reliant on social grants as their main source of income. We cannot take on more debt and the middle class already pays some of the highest tax in the world.
But some experts are concerned that, with inflation already so high, the increase in prices of products and services could simply create more market problems and, in relative terms, make little to no difference in people’s lives.
Ultimately SA has a problem with poverty and inequality. We score 63.0 in the Gini coefficient (an index that measures inequality), which is the highest in the world. The riots in July last year, as well as the protests in Sri Lanka are examples of what happens when you leave too many people behind. Even business agrees a BIG is necessary and there’s plenty of evidence to show how effective it can be. But it comes with risks and it’s going to take some number crunching and incredibly smart economic policy to fund the programme.