One of the issues at stake is what will happen to the R350 Social Relief of Distress (SRD) grant, which is only budgeted for until March 2024.
There are four possibilities:
- The grant is terminated;
- It is replaced with something more restrictive;
- It is extended and preferably improved; and
- It is transformed into a more comprehensive form of basic income support.
The Minister of Finance has said the first option is not realistic. And there are opposing views amongst policymakers, with some supporting a more extensive form of basic income and others wanting to replace the SRD with a restrictive and exclusionary family or jobseekers’ grant.
This is a decision of critical importance to millions.
Based on a recent study, we estimate that the SRD grant currently benefits nearly 30 million people, or half the population, directly and indirectly.
In this context, comments by UCT economist Professor Haroon Bhorat, and Treasury’s Director of Macroeconomic Policy, Sibusiso Gumbi, regarding the future of the SRD grant, are particularly disturbing (“Economist questions efficacy of Covid grant in job creation” – Business Day 27 June).
Bhorat and Gumbi, speaking at a policy dialogue on social grants and employment, raised questions over the desirability of continuing the SRD grant. Bhorat proposed that the grant should be withdrawn in favour of policies to support informal business.
These arguments fail to take fully into account: (1) the purpose of the SRD grant; (2) key aspects of the relationship between the SRD grant and labour markets; (3) factors which mitigate the cost of social grants; and (4) the constitutional right to social assistance. We address each of these in turn.
The current crisis and the purpose of the SRD grant
Bhorat pointed to his research findings that, although the SRD grant led to an early increase in the likelihood of employment of 3%, this impact was not sustained. He also questioned the long-term impact of the grant on job search and enterprise formation and proposed that if we are trying to “solve for employment”, the funds should be redirected to support firms, particularly informal microenterprises.
But the SRD grant is not primarily an unemployment intervention. It was introduced to mitigate extreme deprivation and hunger – a crisis which has not abated. A 2023 study found that one in five South African households is food insecure, and one in five sends a family member out to beg for food.
Research on the impact of the SRD grant has found that 93% of recipients spend the grant on food. Without the SRD grant, between 2 million and 2.8 million more people would have entered into food poverty during 2020 and 2021.
Unemployment is a serious crisis that we need to address through a comprehensive policy framework, but this should not come at the expense of meeting peoples’ immediate basic needs. Indeed, it does not have to – the international evidence clearly suggests that measures to address poverty complement employment interventions through various channels.
Though the SRD grant might not be a direct employment measure and is set at such a low level, extensive research has shown that it does have a beneficial impact on economic development and employment, while also – critically – combating malnutrition and starvation.
This led the president to conclude that the grant “has lifted millions of people out of food poverty”, and acted “as a stimulus for the economy as a whole, increasing spending in townships and rural areas, and improving employment outcomes”.
Understanding the SRD grant’s relationship with labour markets and unemployment
The R350 SRD grant is a meagre monthly payment equal to 52% of the food poverty line.
While about 8.5 million people were approved to receive it in May, government has estimated that 18.3 million people live in food poverty. The fact that Bhorat’s research found this limited measure still had a minor impact on job search and employment is in itself remarkable and a strong indicator of the positive overall contribution of social protection spending to employment (in line with international evidence).
The fact that this impact was not sustained – far from being an argument for withdrawing the grant – is actually an argument for increasing its value.
Compare the value of the SRD grant (R350) with the monthly cost of searching for a job in South Africa (R938). Higher grant values would be needed to properly finance job search while boosting job availability through complementary and effective economic and labour market policies. Jobs must actually be available for jobseekers – this is currently not the case for the vast majority, with over 80% of those without jobs being long-term unemployed.
Yet, the opposite has happened: the grant’s value has been significantly eroded by inflation since 2020. It is now worth R294 in real terms. This, combined with the unavailability of jobs, may help explain the drop-off in job search impacts over time.
The relative and net cost of the SRD grant
Gumbi suggested at the policy dialogue that the R36-billion cost of the SRD grant was too high: “The money allocated to the SRD grant is an equivalent of 8% of the VAT intake for that year, or 10% of the entire corporate income tax take for that year.”
Considering that the SRD grant helps to meet the most basic needs of around 30 million people as well as stimulate demand in local economies – at the cost of less than 2% of the national budget – we contend this is an extremely high benefit per rand spent.
Despite this value for money, the SRD grant budget was slashed by 18% by Treasury this year, and they have signalled their preference to cut it further.
Contrary to Bhorat’s assertion that the grant comes at the expense of support to enterprises, a 2022 World Bank study documented 106 active supply- and demand-side employment programmes in South Africa, many targeted to small enterprises. However, while we need impactful labour market policies as well as social protection, solving structural unemployment is a long-term project, and many of these programmes are failing to target the most marginalised and vulnerable.
Despite nearly R100-billion being spent on these programmes (about three times the SRD budget), they had only about 4.8 million beneficiaries.
A large body of evidence, including economic modelling, shows that expanding social protection spending (particularly if not funded by regressive taxes such as VAT), has a multiplier effect on incomes in poor communities, and the economy as a whole, and helps to boost government revenue.
Despite this, Treasury has taken a clear political position on the SRD and a future basic income grant and has continually attempted to undermine the right to social assistance, in favour of overly aggressive fiscal consolidation which ignores the needs of the poorest and most vulnerable.
This is extremely short-sighted. We need to address unemployment in tandem with the immediate crisis of deprivation which traps people in survival mode and undermines other structural interventions.
An adequate basic income grant can help to do both and will support existing and future policy interventions that promote employment and investment, and give people access to productive assets.
The right to social assistance
Bhorat and Gumbi’s arguments reduce the SRD grant debate to narrow technocratic parameters, overlooking the fact that access to social assistance is a constitutional right.
The South African Constitution guarantees the right to social assistance for those unable to support themselves.
Apart from the SRD grant, millions of able-bodied people of working age without income have no social assistance in South Africa. Withdrawing the grant and diverting funding into enterprise support would be an unlawful and unjustifiable retrogression of their rights.
While Bhorat’s framing suggests that employment is the only possible pathway out of poverty, many people in South Africa – particularly women – do not have equal access to the labour market because they have caregiving responsibilities. We must protect and progressively realise the right of carers to dignified basic income support to meet their own needs, as well as those of children and other vulnerable household members.
The president has committed to transitioning the SRD grant into an expanded form of basic income support. The cynical claims that this is a vote-buying exercise notably do not come from those facing food insecurity.
Those who would terminate this lifeline which has kept millions from hunger – and has additional, demonstrated stimulus impacts – in favour of support for informal enterprises have clearly not thought through their proposals carefully: multiple enterprise support programmes are not benefiting the self-employed; there are many structural impediments explaining why our informal sector is small relative to peer economies; and, critically, the lack of demand in economically depressed communities is a major inhibitor.
Terminating the SRD grant will only make this situation worse. DM
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The downside is that all of this is necessary because of a corrupt, incompetent, racist, criminal, government. The base exploited by this cohort of thieves, has had enough. So, you can write all you want about how we must keep paying to find the unspeakable, but you may find that the payers are no longer around. What then? This is not to say that I stand untouched by the plight of the many. But I have had quite enough of having to pay the bill for the criminals sucking South Africa dry. Time to get the likes of Ramaphosa and his cohorts to cough up.
I meant to say ‘fund’ the unspeakable.
NHI is just around the corner, & with it significant tax increases. Where should the money come from? You do realise we have a tiny tax base & one of the highest unemployment rates in the world right? But the IEJ doesn’t care at all about any of that, and is completely ok with taxing the middle class into actual poverty. Studies (that are not from the IEJ) seem to suggest huge tax increases are required to fund this. And while the ANC will try and implement the NHI and BIG at the cost of a few tax payers for purely electoral purposes no matter the consequences (just like the NSFAS, a bottomless pit full of corruption), there is no plan how this will be sustainable in the future, and no concern how this will keep the ANC and their crippling corruption in power. It’s so easy to dictate how to spend other people’s money without any regard for them and their future, a future they have just as much right to. Lets find a way to increase grants, but let’s do it realistically, sustainability and fairly. Don’t get me wrong, I do have alot of sympathy or the plight of the poor, but it is also primarily that voter base (rural low to no income) that keep the ANC in power. And the ANC has kept them with 25 years of false promises at the cost of this entire country and any future. How else do we remove the ANC if they can keep on promising unsustainable benefits while robbing us blind. It’s almost like weaning a drug addict of drugs, no addict stops before the drugs stop being supplied.
A very necessary rebuttal. I hope it gets as much exposure in the press as Bhorat’s comments – sad to see this piece at the very bottom of the DM morning newsletter.
A vital rebuttal. It’s disheartening to hear that Bhorat and Gumbi are focused only on the narrow metric of job creation, and disheartening to see familiar middle class groans about an increased tax burden in comments here. If 93% of recipients spend the SRD on food, then as Coleman and Howson point out, it would effectively be unconstitutional to remove the SRD, because this would compromise the right to food (people tend to forget that’s a right in SA), and I hope that any moves to remove the SRD would be challenged in court on that basis.
To expand the tax base in South Africa, we have to create a more equal society. We cannot do that by making inequality worse, which would be the obvious effect of withdrawing the SRD grant.
The fundamental recipe for growing a robust economy is to invest in the fundamentals: people (food, housing, health, education), infrastructure, environmental integrity. In those conditions, honest businesses can thrive and jobs can be created. Focusing on job creation alone ignores the question of what kinds of jobs are created and whether or not they truly add value to society.
Successful economies, like South Korea, often tend to succeed more when they follow common sense and compassion, and ignore the prescriptions of economists.