The government can introduce a Basic Income Grant (BIG) in South Africa in a fiscally and economically sustainable manner.
This is according to the Expert Panel on Basic Income Support (BIS) which released its supplementary modelling report earlier this week. Its first report released in 2021, the panel recommended that the government makes the R350 social relief of distress (SRD) grant permanent because it poses “limited economic and fiscal risks.”
Basic Income Grant in South Africa
The Department of Social Development, in partnership with the International Labour Organisation (ILO), established the panel to examine the social, economic and fiscal implications of a Basic Income Grant in South Africa. Its chairperson is Prof Alex van den Heever from the Wits School of Governance.
In its supplementary report, the panel found that the SRD grant “offers significant redistributive opportunities” for inclusive growth, especially when it is “combined with a wage subsidy that targets the lowest occupational groups.”
“To minimise behavioural impacts on the tax system, it was proposed that a phased approach be adopted for the progressive enhancement of the SRD benefit over time with the objective, together with the overall social assistance framework, of eliminating poverty at the upper bound poverty level (UBPL),” the report stated.
“An entry-level version of the grant, the BIS, should be considered with the starting benefit value set at the lower bound poverty level (LBPL).”
Depending on how it is financed, the BIG “can be introduced in a manner that is fiscally and economically sustainable while at the same having a material impact on poverty and income inequality if implemented at the level of 13.1 million beneficiaries,” the panel said.
Such a grant would have to be financed from new sources of income, with the panel recommending progressive taxation options that are often applied on personal income tax.
It cautioned against using value-added tax (VAT) because this results in “negative outcomes for economic output.”
The government is in discussions to introduce a permanent form of assistance beyond the SRD grant, which was recently extended until March 2024. Options include a work seekers grant that would help unemployed South Africans look for jobs, President Cyril Ramaphosa revealed last month.
“The implementation of such an allowance or grant will depend on the availability of funding, taking into account government’s commitment on the R350 SRD grant that is currently being paid,” Ramaphosa said.
Finance Minister Enoch Godongwana has maintained that a permanent SRD grant extension would have to be supported by a permanent increase in government revenue, a reduction in spending, or both.