Read the following article and answer the question that follows.

BASIC INCOME GRANT POSSIBLE WITHOUT TANKING THE ECONOMY, ACCORDING TO NEW REPORT IN SOUTH AFRICA

A new report commissioned by the Department of Social Development found that the Covid-19 social relief of distress (SRD) grant can be adopted permanently without sacrificing economic growth.  The SRD grant forms part of Government's social welfare policy framework that aspires to provide support for indigent people, especially during times of crisis such as during the Covid-19 period.  The Expert Panel Report on Basic Income Support (BIS) was launched on Tuesday in Kempton Park, Gauteng and used different models to consider the economic, fiscal, and social impacts of making the SRD grant permanent.  Some critics warn against instituting a permanent SRD grant, arguing that SA's tax base cannot support it and warning that tax increases to fund the grant could encourage taxpayers to emigrate.  The key factor is to ensure that planning occurs in a democratic, consultative and participatory manner, as becomes all policy- and strategy-related design activities.  The end goal is to design an approach that will ensure that both the beneficiaries of grants and the economy in general are mutually advantaged. It is possible for South Africa to implement a basic income support (BIS) grant (which supports an important part of the Government's social welfare policy framework) without sacrificing economic growth, according to a researcher for the BIS "The modelling results show that, depending on how it is financed, the social relief of distress (SRD) grant can be introduced in a manner which is fiscally and economically sustainable," in a new report on Tuesday. This report was commissioned by the Department of Social Development and the International Labour Organisation, and looked at the SRD grant that was rolled out in 2020. It made use of two models to understand what the economic, fiscal, and social outcomes of making the grant permanent would be. These models showed that the SRD grant presented "limited economic and fiscal risks" and that such an arrangement could, in fact, have a positive economic impact. 

This new report built on the work done in the panel's 2021 report on the viability of BIS. These findings seem to counter the warnings of former finance minister Trevor Manual in November this year that the nation's shrinking tax base cannot bear the costs of introducing permanent stipends for the poor. Manuel's warnings are in line with findings from an Intellidex study earlier this year, which showed that implementing a basic income grant would slow economic growth and encourage taxpayers to emigrate. The BIS expert panel acknowledged that the introduction of new taxes could give way to behavioural impacts on the tax system that are not easy to model. To minimise these impacts, the report proposed that "a phased approach be adopted for the progressive enhancement of the SRD benefit over time". Here, again, the SRD grant was used as an example, having not been raised from the initial R350 since its adoption in 2020. The report suggested that the government should prioritise stabilising the SRD grant, while focusing on adjustments to keep up with inflation. In doing so, the government can progressively improve the efficiency of administering the grant over time. "It doesn't pay to assume that you can just magically redistribute overnight," he said. The predominant argument against social grants since the 2000s has been that these grants are an inefficient intervention to address poverty and unemployment, and that it would be "more productive for government to focus on directly creating employment". In this regard some researchers claim that the politics-economics mix now becomes a pronounced factor It therefore implies that Government should consider an alternative policy approach towards eradicating poverty among South African indigents and unemployed, as opposed to welfare handouts. However, "such approaches keep redistributive strategies, such as social grants, to a minimum until such time as growth has provided fiscal space for greater social generosity".

 

The BIS expert group highlighted a counterargument that social grants and wealth redistribution can encourage financial growth, pointing to finding that suggest that "social grants, up to an optimal threshold, yield positive economic and social outcomes" and that "suboptimal transfers below such a threshold systematically distort growth capabilities downward, resulting in structural unemployment, permanent strata of extreme poverty and structural income inequality". The findings of the models showed that the SRD grant "offers significant redistributive opportunities, diminished only by the choice of financing options". In its SRD-focused model, the report worked from the assumption that the grant was entirely unfunded. However, the BIS researcher said "that is not the practical reality that we face". "The grant is being paid for today out of general taxes," he said. "It has been possible to fit this grant into the existing fiscal framework without having to raise the entire amount with a new tax." The report looked at personal income tax (PIT) and value added tax (VAT) as financing options for the grant and found that, when PIT is used, "economic output deviates positively from the baseline, while also achieving material positive distributive outcomes", he said. The Intellidex study estimated that PIT would have to be raised by between 9% and 19% to fund the grant, and that VAT would need to be raised by between 14% and 29%. It is claimed by the BIS researcher that "Negative outcomes result from the use of VAT, which suggests one should be incredibly careful about using VAT increases until there is more information on the dynamics around VAT adjustments,". The Institute for Economic Justice (IEJ) said at the launch that the institute welcomes "this important research to show the bigger picture about the economic and social impacts of the SRD grant and of a BIS grant in the future". It is added that "a lot of what has been highlighted in this report is very consistent and in line with what the IEJ has been arguing and proposing over the past couple of years". While the poverty-reducing impacts of these grants are "clear and very well-evidenced", the IEJ is of the opinion that there are also other positive social impacts that are important to consider, including effects on gender inequality, health, mental health, access to education, and social cohesion. However, a recipe for more appropriate locations and facilities should be considered to bring service delivery to the people. Source: www.news24.com/fin24/economy/basic-income-grant-possible-without-tanking-the-economy-according-to-newreport 

Question 1 (20 Marks) As alluded to in the above article, politics in the public sector greatly impacts on society and the economy, particularly from a developmental perspective. In this regard, proper planning is a key factor in alleviating poverty and ensuring economic sustainability. This ultimately brings into consideration on how to balance the "politics-economics mix"? 

1.1 Critically discuss the notion of participatory planning (10 Marks) and 

1.2 Critically discuss how social development and economic planning can be implemented in a mutually advantageous way. (10 Marks )