A basic income grant (BIG) has been presented as one of the solutions to South Africa’s high poverty and unemployment levels. However, economists remain concerned about its effectiveness and affordability.
Political parties have long been promising the implementation of a BIG, and with the 2024 elections coming up, these promises have resurfaced.
BIG became a notable talking point during the Covid-19 pandemic when the government implemented the temporary social relief of distress (SRD) to support South African households.
The SRD grant is a temporary support grant of R350 issued during the Covid-19 pandemic that has been extended until the end of March 2024.
The continuation of the SRD grant sparked a conversation about implementing a permanent BIG modelled after this grant.
“Work is underway to develop a mechanism for targeted basic income support for the most vulnerable within our fiscal constraints,” said President Cyril Ramaphosa in his 2023 State of the Nation Address.
GOOD Party general secretary Brett Herron has joined the chorus saying that the country can afford a R999 BIG without raising debt or taxes.
Herron told Newzroom Afrika that one of the only viable options to address inequality and poverty in South Africa is to transfer cash to people experiencing poverty.
This will be more effective and efficient than the current methods employed by the government to tackle poverty.
Herron claimed that the government could pay a R999 grant without raising debt if it replaced existing government projects that aim to address poverty with a cash transfer.
He estimated that paying a R999 grant to the unemployed would cost R110 billion a year, which could be raised if the government reduced tax incentives and deductions favouring the rich.
However, an Intellidex study from July 2022 found that, while the grant will improve inequality, “any attempts to expand the budget with the status quo environment will damage debt dynamics further”.
“It will increase the unsustainability of the budget and shorten the runway to a fiscal or economic crisis.”
The study estimated that the cost of a BIG could range from R20 billion a year to R2 trillion, depending on the amount paid to South Africans.
Efficient Group chief economist Dawie Roodt said that despite a R999 grant being a good idea to address poverty in South Africa, it is quite simply unaffordable when considering the government’s precarious fiscal position.
The government would have to significantly cut spending to afford a BIG, which is unlikely, or it would have to raise taxes which would be unpopular just before an election.
Furthermore, a BIG will not solve poverty over the long term.
“It is never a long-term solution. The only sustainable solution is to grow the economy,” Roodt said.
By growing the economy, more South Africans would be lifted out of poverty through employment, and the capacity of the country to support the vulnerable in society would expand.
Economic growth will enable the government to support more people more effectively.
However, government policies in South Africa will not lead to economic growth, and structural constraints such as load-shedding and the Transnet crisis inhibit economic activity in the country.