Ann Bernstein, the CEO of the Centre for Development and Enterprise, has made a praiseworthy attempt to talk sense about a Basic Income Grant. In the face of a great deal of heated advocacy of a BIG from outfits like the Institute for Economic Justice Ms. Bernstein has taken upon herself the far less popular role of showing that a BIG is simply unaffordable and that advocating it merely raises expectations which cannot be met.
Ms. Bernstein rightly points out that given South Africa’s heavy debt load the priority is to achieve higher rates of economic growth and that the vast extra tax burden which would be created by a BIG, costing anywhere between R200 billion and R300 billion a year, would have exactly the opposite effect, slowing growth and causing a fiscal and debt crisis.
A larger picture
There is, however, a larger picture which needs to be sketched in. The rapid increase in the government’s debt had begun to create anxiety even in ANC ranks that this would end with an IMF bail-out and a tough structural adjustment programme. At which point the government got two large lucky breaks.
First, a statistical revision revealed that the economy was actually some 11% bigger than had been thought – which had the effect of lowering the national debt to just over 70% of GDP. And second, the boom in commodity prices saw a sharp increase in tax revenue, thus lowering the amount of fresh borrowing required.
Even so this year’s fiscal deficit is reckoned to be 5.2% of GDP, a figure which will carry the debt above 75% of GDP by the end of this year. By contrast, it should be remembered that when the EU embarked on its common currency it argued that the prudent maximum levels even for developed countries were a national debt of no more than 60% of GDP and budget deficits of no more than 3% of GDP.
Faced with these figures, the finance minister, Enoch Godongwana, has naturally said that South Africa will have to run a primary budget surplus for some years in order to bring down its debt levels.
That really ought to concentrate the mind. Just to balance the budget would require a cut in public spending of R107 billion while an even bigger cut would be required if a primary surplus is the aim. Even a cut of R100 billion would cause a huge political uproar so one can see why a much easier route is to increase the growth rate – though that would mean liberalising the economy and thus reversing a good number of ANC policies.
However, the really striking thing is that the ANC has many other proposals for vastly increased spending, starting with NHI which would also cost somewhere in the R200 billion to R300 billion range, though some estimates are much higher. In addition, there are (uncosted) proposals for, inter alia, a state pharmaceutical company, a state bank, and a sovereign wealth fund.
Moreover, the state is bound to find that it can’t maintain its hard line against SOE bail-outs. It looks very much as if the government is paying for SAA’s no doubt expensive re-launch. And if the country wants to keep any sort of Post Office at all it’s got to do something to stop the one we’ve got from expiring. Prasa is asking for an extra R3 billion. The Land Bank needs a bail-out. The list goes on...
Finally, what will the government do about the many towns and cities that are going bust, with huge unpaid debts to Eskom and the water boards? The Treasury says there are too many such cases for it to be able to do anything. If nothing is done then some towns will indeed die and those that survive will do so only because local business interests – Solidarity/Afriforum, local businessmen or farmers – effectively take them over and run them. As more and more municipalities spend their entire revenue on paying their municipal employees and councillors, more and more ratepayers are bound to stop paying.
The reluctant Treasury
The real oddity here is that as the ANC sinks into a state of decline and decay and faces an increasingly embattled struggle, mocked by the evidence of its dramatic failure on every side, it continues to come up with hopelessly unaffordable projects of every kind. Moreover, it is perfectly clear that the Treasury does not believe in a BIG – Godongwana was even against the extension of the R350 a month grant – and pretty certainly it does not believe in NHI either.
The Treasury has never costed the NHI proposal. None of its forward plans make allowance for NHI and it has pointedly refrained from all comment on the plan. The bizarre result is that although an NHI bill is currently before Parliament no one has any idea how such a project would be funded. And no one has come up with any NHI funding proposals at all, making the current bill a hollow and “in principle” declaration only.
Yet this is by far the most ambitious and costly social programme that the ANC has ever come up with: costing and affordability are of the essence.
Whenever the subject of NHI come up health experts tend to fasten on the abominable state of the public healthcare system outside the Western Cape and say that there can be no move towards NHI until that system is radically improved.
But of course, neither the government nor the provinces do anything to improve that system, so it stays in a dreadful state. Everything suggests that it will stay that way so that when and if NHI begins those who now use private medical care will face having to accept a huge deterioration in the treatment they receive. This, of course, they will not accept.
NHI the Doomsday machine
There is indeed plenty of evidence that NHI is a Doomsday device – that it would simply blow up the whole economy and the political system with it. A survey conducted by the South African Medical Associations shows that the introduction of NHI would result in the emigration of at least half of all medical personnel. This would sink any health system, public or private, on the spot.
South Africa’s public servants – the most powerful pressure group in the country – all have generous medical aid provision. To take that away would create a huge crisis for the government – and Cosatu.
NHI is indeed a case of multiple impossibilities. Its proponents imagine that a central government bureaucracy could manage the details of every doctor and patient in the country even though that would mean dealing with the full variety of medical conditions from A to Z. Given that no state bureaucracy in South Africa has been able to manage far simpler matters this is bound to be a train smash.
Secondly, enormous sums of money are involved and we know from bitter experience that any lump of capital anywhere in the government system immediately becomes a target of opportunity. NHI would be the biggest target of all and large-scale corruption would be inevitable.
South Africa is, after all, a country in which the last Minister of Health had to resign after it was revealed that his family members had benefited from government funds spent on the corrupt Digital Vibes project. Corruption is already endemic in many provincial health departments and in many public hospitals.
South Africa’s professional and managerial class, black, white, Asian and Coloured, are medical aid members to a man or woman. If they lost access to private medical care a huge proportion of them would emigrate. This is, for them and their families, a no compromise issue. If that happened whole sectors of the economy would founder and unemployment would go through the roof. It is difficult to imagine that the country would ever recover from such a blow.
On top of that all the international companies and organisations represented in South Africa would leave. If they were unable to guarantee their key personnel decent medical care they would simply go: this is, again, a no compromise issue. NHI would doubtless have a similarly withering effect on foreign embassies and consulates, international airlines, banks – and tourists. The economic damage would be hideous.
Without doubt the Treasury has looked at this, decided that it’s a no-go area and that since it doesn’t want the responsibility of destroying this ANC dream, it remains in sceptical silence.
Similarly, the medical aids, led by Discovery, are fully aware that NHI would kill them off and send most of their clientele into emigration. But they too have decided that they do not wish to be seen as enemies of NHI so they publicly support it, at least in principle – though they too must be deeply sceptical of it ever actually being introduced.
The same is true of the big private hospital groups. The asset value of their hospitals depends entirely on good quality private medical care being available within their walls. NHI would destroy that asset value and their hospitals would be taken over by a public health sector which would not even maintain them in good condition. Yet these groups too have decided to stay silent.
What of the Presidency? Ramaphosa is clearly naive about many things but he too surely is aware of the situation. He certainly gets good, private medical care and his ministers of finance, over time, must have confided their doubts to him. Yet he remains publicly in favour of NHI.
Almost certainly he has realised that such a gigantic and impossible system as NHI is likely to go from delay to delay and thus will not be introduced – and certainly not in full – before the end of his second term. So facing up to its impossibility will be his successor’s problem, not his.
The result is an almost surreal conspiracy of silence about this Doomsday machine. Presumably the moment of truth will come when proposals for funding are finally put on the table. Godongwana – or whoever the finance minister is then – will have the awkward job of saying that NHI cannot be funded
Un-African objectives
The interesting thing about these social mega-projects, the social welfare grants, the BIG proposal and NHI – as also the RDP housing programme – is how un-African they are. Although these may be seen as an expression of ubuntu, no other African state would dream of providing free housing for its citizenry, let alone a social welfare system, a BIG grant or a national health system.
Even in relatively prosperous African states like Kenya or Cote d’Ivoire the mass of citizens below the elite are left to look after their own housing, health and pension needs. This is accepted without much argument because it is generally understood that these states cannot afford such largesse.
The ANC, however, takes Europeans as its model and wants to generalise whatever privileges were enjoyed by the more prosperous South African whites. In addition, its exile faction enjoyed many years of dependence on the British National Health service or the state medical services of various Communist states. These are clearly the models in its mind.
It is, of course, the same with the Constitution. The abolition of the death penalty, the tolerance of gays and lesbians, the acceptance of abortion and even the emphasis on feminine equality are all more European than African.
The shrinking tax base
The key point about ambitious social programmes like a BIG or a national health service is that the European countries which funded these or analogous programmes all enjoyed full or virtually full employment – at much higher levels of productivity and thus also higher salaries.
This gave them the key advantage of a tax base as broad as their entire society. Even so, financing such programmes has been continuously difficult – they swallow enormous resources and in many cases the state has had to force patients to pay something towards their healthcare via prescription or other charges.
South Africa is not only much poorer than any of the European states who created such social programmes but its tax base is tiny and shrinking. In a total population approaching 60 million there were in 2020 only 5.2 million individual tax-payers (ie. paying personal income tax). This 9 per cent of the population contributes 40 per cent of all tax receipts and just one million people pay three quarters of all income tax.
The ANC government tends to believe that it can always squeeze more resources out of that top 9 per cent but all the evidence we have to hand suggests that the limit has already been reached and that any extra taxation will merely cause the tax base to shrink further.
Hence the remarkable final fact about NHI. If, somehow, the government convinces itself that NHI can be afforded and announces its impending introduction, that very announcement will have the effect of causing large-scale emigration by many of that top 9 per cent so that within a very short time NHI will become unaffordable even in the eyes of ANC ideologues..
R.W. Johnson
