A very BIG but very bad idea from the GOOD party

John Kane-Berman on the problems with the basic income grant proposal

Brett Herron, secretary-general of the GOOD party, recently wrote an article for Daily Maverick which that publication headlined “South Africa’s shocking jobless figures make a basic income grant a social, moral, and historical imperative”.

Mr Herron went on to assert: “To those who say such a grant is unaffordable, the obvious answer is that South Africa cannot afford not to.” This is a debating point, not an argument. A “basic income grant” (BIG) is both unaffordable and undesirable.

Since the African National Congress (ANC) came to power in 1994, social spending (mainly education, welfare, health, and housing) has risen from 45% of the budget to almost 59%. This increase of around 31% has been partly financed by a decline of 39% in spending on defence and safety, which is part – no doubt only part - of the explanation for the rise in crime and violence in this country.  

Over the same period, government expenditure has risen from 26% of GDP to around 35%. Revenue has not kept pace, the result being rising budget deficits and debt. A basic income grant would necessitate both higher taxes and more borrowing.

But that is not the only problem. In 2001, for every 100 social grants paid out in this country there were 313 people employed. Since then employment has grown by 31% but the number of grants by 358% - more than eleven times as much. The result is that in 2019 there were only 89 people employed for every 100 on grants.

In other words, the burgeoning grant system depends on the economic activity of fewer and fewer people with jobs. A basic income grant would place an even greater burden on such people. The greater tax load would cause this country’s shrinking tax base to shrink even further.

Another objection to the introduction of a basic income grant is that it would extend the ANC’s powers of patronage. These already include deployed cadres and the vast majority of other public sector employees, beneficiaries of the various affirmative action laws, and recipients of free education, water, and electricity. They further embrace the recipients of more than 18 million social grants (mainly children, social pensioners, and disabled people).

A basic income grant would add some 12 million jobless people and their families to those already benefiting from transfers to households by the state. This would strengthen the ANC at the polls. Add in all the business activities that require permits from one or another department at national, provincial, or local level, and this country would be moving ever closer to the ANC’s chosen model in which more and more people – and more and more voters - are dependent in one way or another on the goodwill of the ruling party.  

Some sort of social security net is of course the responsibility of the state. Apart from all our other weaknesses, South Africa’s problem is that the 59% of budget it spends on social security is on a par with the spending of countries that are not only very much richer but which are also growing faster. In addition, their levels of investment are higher and their rates of unemployment lower.

Which brings us back to the GOOD article. It headlines South Africa’s “shocking jobless figures” but then devotes four pages to its case for a basic income grant. At the end is a single paragraph about jobs: “It should go without saying that economic growth that creates jobs is the pathway we are all looking for.”

Indeed. But, contrary to what GOOD asserts, the jobless figures argue the case not for an unaffordable basic income grant but for policies that promote economic growth and the generation of jobs. Such policies do not include extending the patronage powers of a ruling party which makes no attempt to do either.

Appropriate policies include getting rid of all the restrictions that prevent people from obtaining work. These include minimum wage laws, provisions that discourage hiring by making firing difficult, and regulations that make South Africa so unwelcome a place for local as well as foreign investors.

All the energy now being put into arguing the case for a basic income grant would be better directed towards hammering home the case for removing obstacles that make it more difficult than it might otherwise be for poor people to obtain work.

* John Kane-Berman is a policy fellow at the IRR, a think-tank that promotes political and economic freedom. Readers are invited to take a stand with the IRR by clicking here or sending an SMS with your name to 32823. Each SMS costs R1. Ts and Cs apply.