A new report into a basic income grant (BIG) challenges the widespread view that South Africa cannot afford such a programme, suggesting that in fact it could boost the economy.
The report by Applied Development Research Solutions (ADRS) and the Institute for Economic Justice (IEJ), published this week, says a small wealth tax of 0.5% and a social security tax could fund a BIG for qualifying people between 18 and 59 without any need for hikes in income tax or VAT.
Asghar Adelzadeh, director and chief economic modeller for ADRS, said at the launch that researchers had drafted three scenarios or pathways.
“The BIG pathways are effective in significantly reducing headcount poverty and the depth of poverty,” he said. “They can reduce the current poverty rate by half in the medium-ambition scenario and nearly two-thirds in the high-ambition scenario in the next eight years.”
The conventional wisdom is that a policy that is pro-poor and pro-development is cast as unsustainable and having negative macroeconomic outcomes
— Institute for Economic Justice director Gilad Isaacs
In the high-ambition scenario, the means test for beneficiaries would be set at three times the upper-bound poverty line of R1,558, which means 11.1-million people would be eligible now, and 19.8-million would qualify by 2030.
This would cost the government just over R100bn in 2024, rising to R400bn in 2030, and could be funded by the existing VAT plus a wealth tax and social security taxes. “Higher government spending as a result of this high-ambition scenario is accompanied by a higher revenue-generation ratio,” Adelzadeh said.
According to Stats SA’s “National Poverty Lines” release for 2023, the food poverty line stands at R760, while the lower-bound poverty line is R1,058.
Under the high-ambition scenario, Adelzadeh said unemployment would drop 4.9 percentage points from 32.1% to 27.2%.
The government has been under pressure to introduce a BIG for those without any income and the issue is likely to feature high in the ANC's election manifesto. However, the National Treasury, citing affordability, has rebuffed attempts to introduce one.
In its low-ambition scenario, the report envisages the BIG costing R60bn in 2024, rising to close to R200bn in 2030. The medium-ambition scenario envisages the BIG costing just over R100bn now and rising to more than R300bn in 2030.
The report envisages GDP growth averaging 2.8% in the low-ambition scenario and 3.5% in the high-ambition scenario.
The ADRS and the IEJ said there was no trade-off needed between a support programme of this magnitude and fiscal stability, as the Treasury argues would be the case. They said a permanent BIG would bring broader economic benefits.
“This includes positive real growth of household disposable income and final consumption expenditure, positive growth of investment, employment and GDP, sustainable deficit and debt:GDP ratios, balanced growth of real aggregate demand and supply, sustainable inflation and balance of payments,” the report said.
Adelzadeh said that in drafting the base scenario, “we also looked at the wealth tax and social security tax. The household wealth that is estimated is one of the equations, and then that amount of total tax in the macro simulation uses the individuals in the top quintile to extract that wealth tax.”
Tebogo Phadu, policy research co-ordinator at the ANC, said the new report could inform the party’s manifesto ahead of the elections.
“I think the study could be very useful. As you understand, the ANC conference, together with the allies of the ANC, has taken a strong position in favour of a universal BIG and, currently, there are discussions on how to shape the manifesto in line with those policy commitments,” he said.
Phadu said that in the mainstream South African political discourse, tax cuts for the rich went unquestioned but pro-poor policies always sparked resistance. It was vital, he said, to create an economic case for a universal BIG and a national health insurance (NHI) scheme.
“Research around this is also carried into the alliance process so that we can back up the case for NHI.”
IEJ director Gilad Isaacs said: “We are confronted with a situation where the conventional wisdom is that a policy that is pro-poor and pro-development is cast as unsustainable and having negative macroeconomic outcomes.
“The rhetoric was that if we implemented this, we would have widespread poverty, half a million people in unemployment and economic collapse. The research and modelling on where this was done shows that none of this had occurred.”
He said that as with any policy, “the devil is in the details”.
“We could have the implementation of a BIG and it could have significantly different impacts on South Africa depending on how it is designed. This exercise allows us to play with those design options and see what the projected outcomes might be, based on the modelling architecture and assumptions.”
High inequality and unemployment have raised the case for BIG as a means of providing economic support.
As the elections approach amid signs of waning support for the ANC, President Cyril Ramaphosa has pushed for a permanent support grant to be introduced once the R350 social relief of distress grant aimed at softening the economic blow of the Covid pandemic is discontinued.
Earlier this year, Ramaphosa met Treasury staff on the Spier wine estate, where he was told that to be able to continue paying the R350 grant beyond March, the government would have to raise VAT or close dozens of other state programmes.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.