Letter: When the money runs out - Business Day

The debate over expanding grants, whether to introduce a basic income grant or increase the social relief of distress grants beyond inflation boils down to one question: can SA afford it? (“Universal basic income the answer to SA’s economic woes”, December 3).

Social protection spending already consumes 16.6% of total government expenditure, up from 9.3% in 1994/95. This increase coincided with a worsening of the dependency ratio from 313 people having a job for every 100 social grants in 2001, to just 62 in 2023.

That describes a trend of increases in the size of the population that is dependent on grants without corresponding increases in the productive population, and implies a growing burden on those who fund the system.

Funding an expanding grants system would require more money. This can mean two things: higher taxes or more borrowing. Both options are unsustainable. SA is already beyond the tipping point of the Laffer curve, where higher tax rates bring diminishing returns. That was evidenced when the 2017 increase in personal income tax rates led to lower overall tax revenue.

Higher taxes would discourage economic activity and probably shrink the tax base as taxpayers attempt to minimise their exposure, possibly through emigration. Borrowing is also unfeasible with debt nearing 76% of GDP and economic growth hovering at just over 1%. Both options risk pushing SA into a cycle where more people depend on grants while the ability to fund them declines.

As unpalatable as it may be in some quarters, fiscal limits matter, and SA has reached them. Any expansion of the social protection net now depends squarely on increasing SA’s growth rate and generating the wealth that will make such increases possible.

Anlu Keeve
Researcher, Institute of Race Relations

https://www.businesslive.co.za/bd/opinion/letters/2024-12-05-letter-when-the-money-runs-out/