How Can South Africa Implement Grant Basic Income

In today’s Sassa News – South Africa wants to extend benefits for jobless people to cover unemployed adults who are not looking for work. The Social Development department is investigating ways it could introduce basic income support for vulnerable adults in a way that is financially sustainable, does not comprise economic growth, and helps people in all areas of life.

A Basic Income Grant (BIG) could be implemented in South Africa to provide support to adults who are not working. The Department of Social Development (DSD) believes that it is possible to implement such a grant without any major trade-offs.

In 2021, the DSD appointed an expert panel to investigate the social and economic implications of introducing a Basic Income Support Basic at scale. The Panel concluded that it would be feasible to roll out such a scheme. The Panel cautioned that this model should replace existing benefits, rather than supplement them.

The first analysis, completed in 2021, examined the social and economic impact of introducing Basic Income Support (BIS) at scale, while the second analysis looked at different funding models for the introduction of basic income grants. The first study found that paying a flat monthly cash grant to all citizens would lift 1.5 million children from poverty.

The second analysis provide a very straightforward answer: it is possible to implement a BIG while protecting economic growth using a balanced budget approach and achieving important redistributive effects.

The report looked at four possible funding models for the introduction of Basic Income Support and simulated their social and economic impacts.

These funding models include

• Financing an SRD grant (R50 billion total budget for 13.1 million beneficiaries) through an increase in Value Added Tax.
• Financing an SRD grant (R50 billion total budget for 13.1 million beneficiaries) through an increase in Personal Income Tax (PIT) of the top three deciles
• Introducing a wage subsidy equivalent to R50 billion, financed entirely through PIT increases on the top three deciles and allocated to the bottom four occupational groups (domestic workers, elementary workers, operators and skilled agricultural workers)
• A hybrid approach combines a wage subsidy at 50% of the cost of the SRD Grant (R25 billion), both financed entirely through PIT.

The results show that reduced poverty and inequality outcomes are material for all four simulations, with the weakest results achieved in the wage subsidy simulation. These results demonstrate that the nature of poverty reduction interventions should be considered alongside their distributional effects on welfare, inequality and fairness.

Experts acknowledged that the findings indicate that a wage subsidy targeted at the four lowest-income occupational categories shows promise for improving economic output but is less effective in addressing poverty and inequality in comparison to the SRD Grant.

The use of subsidies to help individuals find and keep a job is not a substitute for income protection schemes. In fact, it is complementary: both address the problems of joblessness, but along different lines.

The second simulation showed that an SRD grant has important inter-provincial redistributive effects, with a material narrowing of the inter-provincial Gini Coefficient differentials around a lower national result of 0.61.

A narrowing of the inter-provincial Gini Coefficient would indicate that it is a lowering of wealth inequality among provinces.