The investment community has shot down as unfeasible the proposed multibillion-rand basic income grant scheme as the government mulls introducing it to curb poverty. Photo: AP Photo/Denis Farrell
The investment community has shot down as unfeasible the proposed multibillion-rand basic income grant scheme as the government mulls introducing it to curb poverty. Photo: AP Photo/Denis Farrell

Basic income grant ‘unaffordable right now’

By Siphelele Dludla Time of article published Jul 20, 2021

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THE INVESTMENT community has shot down as unfeasible the proposed multibillion-rand basic income grant scheme as the government mulls introducing it to curb poverty.

President Cyril Ramaphosa on Sunday gave the biggest hint that the government was investigating the feasibility of introducing a basic income grant in South Africa.

Investors have said they would await more clarity on the full cost to the fiscus that this new grant would entail as more than a third of the South African population was unemployed.

Anchor Capital investment analyst Casey Delport said yesterday that as it currently stands, they had a mixed view on the implementation of a basic wage.

Delport said from a socio-political perspective, there was indeed a strong argument to be made for its implementation.

“However, from a fiscal perspective, the situation gets a tad murkier,” she said.

Though there is not enough detail to reach a conclusive figure, rough estimates indicate that the basic income grant scheme will cost around R200 billion a year, thus roughly equating to around R4bn a week.

Delport said the National Treasury simply did not have the funds available, leaving questions on who would carry the fiscal burden as new debt issuance was also not possible.

“A basic income grant would only serve to offer some short-term relief to those most in need and will not address the long-term structural issues in the economy that desperately need to be solved,” Delport said.

“The level of funds required to float a basic income grant would also, in our view, be better invested in key economic infrastructure projects.

Speaking at a Mandela Day memorial lecture, Ramaphosa said that the grant would show people that the government cared.

“This will validate our people and show them that we are giving serious consideration to their lives,” Ramaphosa said.

“We are giving active consideration to the grinding poverty that we continue to see in our country. We need to address the structural inequalities in our economy.”

Old Mutual Investments chief economist Johann Els said the fiscus cannot afford both the basic income grant and national health insurance amid a weak economic growth trajectory.

Els said the government needed to get economic growth to a sustainable level and reduce the burden of unemployment on the taxpayer.

He said maybe in 10 to 15 years time this scheme would be affordable when the fiscal position had improved.

“Right now we cannot afford to pay civil service their salary demands as the fiscus is in deficit with a ballooning GDP-to-debt ratio,” Els said.

“We need to enhance economic growth to about 10 years of 2.5 percent of annual GDP growth. That would create a huge difference.

“In the current circumstances you want to throw hope but that is dangerous, because you are making promises you cannot afford,” he said.

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