We cannot redistribute South Africa into prosperity

South Africans cannot be redistributed into prosperity.

At the current pace, the debt-to-GDP ratio will eclipse 100% – and the desire to simply print more and more money will become overwhelming. With that comes a debt spiral, possible hyperinflation, and more hardships for poorer people, who won’t be able to afford basic foodstuffs, if indeed those can be found in stores.

The Covid-19 pandemic and lockdown have exposed the policy and spending mistakes made over previous years. With calls for taxpayers to fund a new basic income grant, it must be laid out that, if South Africa does not tread very carefully, it may well drive away those who, until this point, have made it possible for this country to have at least some kind of safety net.

In a recent presentation, the secretary-general of the South African Federation of Trade Unions (Saftu), Zwelinzima Vavi, added his support to the idea of introducing a basic income grant, to the amount of R1 500. Given the recent news of SAA’s receiving a further R10 billion, Eskom’s ballooning debt, and plans to implement the National Health Insurance, I struggle to figure out where precisely the money for a basic income grant may come from.

If the grant is set at R500, the total cost would be in the range of R210 billion a year to cover those aged 18-59. Perhaps some kind of grant could be feasible, but only if the government let go of failed vanity projects such as SAA. A move like this would indicate at least some sense of prioritization.

If a basic income grant is to be implemented, the government would need to once more raise taxes. But South Africans may well reach the point where paying one’s taxes is something of the past, by virtue of simply being unable to pay anymore. Covid-19 has made many people’s harsh economic situation all the more difficult. One’s money doesn’t go nearly as far as it used to – and some things, such as buying food for one’s family, will always be more important than other things.

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Taxes that are paid are squandered

There will come a point where those few remaining taxpayers will resist. (Out of a population of 56 million, fewer than 3 million people pay 97% of all personal income tax.) Taxes that are paid are too often squandered, either through individuals’ personal spending, inefficiency, or bloated bureaucratic government processes. Arguably, more taxes would be paid if citizens felt the state used those taxes effectively to improve infrastructure and actually help those who desperately need the assistance.

The government could of course decide to forge ahead with higher taxes to fund vanity projects such as SAA. But there’s a very high chance that this will encourage people either to pay lower taxes, or to look for ways to avoid paying tax altogether. If this point is reached, how will the government provide social assistance? Without tax revenue, the government cannot do anything. A realistic understanding of economics is needed. Before wealth can be consumed or redistributed, it needs to be created – and a basic income grant relying on the wealth others have created could act as another disincentive for keeping one’s wealth in the country.

Apart from the practical concerns around funding, a desire to implement a basic income grant indicates that you hold a certain view of people, of their level of agency and ability, and of the role you think the state needs to play in their lives. A basic income grant presumes that individuals won’t invest their wealth in new businesses, and investments. Of course, some people may well choose not to do so.

More bureaucracy

But it is not the role of the state to decide what is the ‘best’ use of some people’s wealth. Can we be sure the revenue taken for the purposes of a grant would ultimately make its way to people the government decides are most deserving? Creating more bureaucracy is not going to solve the many problems caused by bureaucracy in the first place.

As the saying goes, once you’re in a hole, you should probably stop digging – if you ever hope to get out. As tempting as it might be, South Africa simply cannot spend itself out of its current predicament. Indiscriminate spending does not create skills, and most assuredly does not create meaningful, long-term jobs. A basic income grant could provide some measure of short-term psychological ‘relief’; government, and many in society, will feel that at least ‘something’ is being done to help those less fortunate.

But such a move merely papers over the cracks, and does not push the government in the right direction – towards removing barriers to employment for those priced out of the labour market.