In 2000, per capita income in South Africa was on a par with the global average and twice that of middle-income countries. But 20 years later, per capita income was only three quarters of the global average and below that of middle-income peers. The tax base is also shrinking, from 6.3 million people in 2012 to 4.3 million people in 2019, according to a consultancy firm, Eunomix.
These are troubling numbers, considering the government’s plans to expand state largesse through programs like the National Health Insurance (NHI), and the increasing activist pressure on the government for a Basic Income Grant (BIG). It is difficult to see how the government will pay for these goods, especially considering that the country’s gross debt is sitting at R4.2 trillion. According to the National Treasury, the government is spending R303 billion annually to service this debt. Another way to look at it is that of every R5 raised R1 goes towards debt repayments.
Basic income grant
The C-19 coalition, a grouping of NGOs, trade unions, and community groups, has called on the government to implement a BIG of R1268 per month (the equivalent of the upper bound poverty line). A report commissioned by Nedlac and compiled by the Actuarial & Analytical Solutions Team at Deloitte and Touche South Africa estimates that a universal BIG (for citizens aged 18 to 59) at that level would cost the state over R550 billion. Put another way, the BIG would cost over 27% of the government’s 2021/22 budget. The Institute of Economic Justice estimates that 19 new taxes would be needed to fund the BIG, including a Social Security Tax on earnings, a wealth tax on the richest 1% of South Africans and eliminations of tax credits such as the medical aid tax credit.
Of the 257 municipalities in the country, only 27 had clean audits in 2019/20, ten fewer than in 2017. Fifty-seven municipalities failed to deliver any kind of financial statement by the statutory audit deadline. According to the Out of Order Index, compiled by News24, 43 municipalities over and above 87 other municipalities red-flagged by the government are in danger of collapse. That is more than half of all municipalities, and while correlation does not equal causation, the Bureau of Economic Research found that only half of all senior officials and financial managers have suitable and appropriate qualifications for their posts.
Even with the provisions of Section 139 of the Constitution, interventions to correct failing municipalities have often fallen short because of the sheer scale of unaccountability and bureaucracy within government. Municipalities are also often left to rot for so long that any interventions likely to work would take a very long time because of the sheer bureaucracy surrounding the processes. While this plays out, residential homes and businesses often have to do without services or have to deal with very intermittent services.
Poor service delivery
Perhaps one of the most important cases of municipal failure is that of Clover, which closed down South Africa’s largest cheese factory in Lichtenburg, North West, because of ongoing poor service delivery. The other is poultry producer, Astral Foods, which obtained a High Court Order against the government and the Treasury after the Lekwa (Standerton) municipality failed to deliver basic water and electricity supply services to its factory for a sustained period of time. Both of these companies were operating at sub-optimal levels because of municipal failure in small towns that desperately need all the jobs the private sector can offer. Clover decided to pack up and go to Durban at a cost of R1.5 billion, and with its departure 330 desperately needed jobs vanished. It is entirely possible that many more businesses and jobs will leave failing municipalities for greener pastures ̶ and who can blame them?
The government’s seeming openness to raiding the fiscus to pay for a BIG and its own inattentiveness to municipal failure and resulting havoc, economic decline and misery offer an instructive lesson as to how we got here. Increasingly the option most generally entertained for poverty reduction is a BIG.
The government is unable or unwilling to stamp out corruption and rent-seeking. It is also unwilling to have merit-based appointments throughout the civil service. This has meant that many small towns and cities are suffering decline, de-industrialisation, and predictable social problems with drugs, alcohol, and violence because of a lack of opportunity and jobs for the youth.
Increasing welfare is not a sustainable long-term solution where structural unemployment and poor education still hamper our economy. While I am very sympathetic to those who are hungry and unemployed, the government has to simply do better than enlarging the welfare state and potentially collapsing the fiscus in the long term.
In 2024 one hopes that more people will vote for opposition parties which believe in merit-based appointments in the civil service, and which will champion policies that emphasize labour-intensive jobs and economic growth.
The views of the writer are not necessarily the views of the Daily Friend or the IRR
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