Government’s plan to give basic income to everyone in South Africa – and it wants tax hikes to fund it

 ·18 Aug 2021

The Department of Social Development has published a green paper on proposed social security and retirement reforms for public comment.

One of the key proposals of the paper is the introduction of a Basic Income Grant (BIG), first mooted in 2002 as part of the Taylor Report.

At the time of the Taylor Report, the BIG was calculated on a per-person basis of R100 per month. A household with six people – the average for the South African population at the time – would have received R600 a month, which the government would pay to the person primarily responsible for childcare.

However, the green paper envisions the BIG working differently – implemented for working-age South Africans only, while maintaining the existing social grants for children, the elderly and people with disabilities.

“In line with the reform proposal for our existing social grant framework, the BIG should be unconditional, individually-targeted and at a level that will at least lift the individual out of poverty. Consideration should also be given to a universal grant for simplicity and ease of administration,” the department said.

While South Africa’s current grants are not universal, this would align with the government’s broader social security reform proposals to make all the grants universal.

Over time, the department said the existing grants might converge into a BIG with ‘top-ups’ for various contingencies. However, in the short to medium term, the main objective will be to provide categorical income support for the population aged 18 to 59.

A key decision 

One of the key decisions that need to be made is whether South Africa should implement a universal or a means-tested grant, the department said.

While a universal grant would be distributed to everyone who qualifies, a ‘means test’ grant would require each recipient to be checked according to their current ‘means’, such as an income threshold.

This decision would be mainly influenced by the pace at which the country wants to implement the BIG and the availability of resources, it said.

The department said a universal grant will be the fastest route, as it could reach almost everyone within a matter of months. The funds going to wealthy households would have to be recovered, however.

“Administratively, it is a lot easier for SARS to recoup the grant paid to a wealthy individual with a technical adjustment to the tax brackets, than for SASSA to interview millions of applicants to determine whether the applicant qualifies based on income,” it said.

A means-tested BIG may prove onerous as it is only provided to those with incomes below a certain threshold. A universal benefit is one that would be provided to everyone within a particular category, the department said.

A universal grant is therefore potentially more efficient, cost-effective and better targeted, resulting in fewer exclusions, it said.

What it will cost

The department said it would be much easier to implement a reform that will require a significant adjustment to taxes, as it will be easier for government to ‘sell’ an increase in taxes on the working-age population with an increased transfer to that same population.

“Microsimulation for universal income support at the level of the food poverty line (R585) suggest that the financial cost will be approximately R200 billion and will require a 10-percentage point increase on income taxes.

“At face value, these amounts appear to be astronomically high and even impossible.

“For the majority of the population, depending on the level of the transfer, it is likely that the benefit received will be larger than their increase in taxes.

“The wealthiest deciles of the population will only see a slight reduction in income on average, and the impact of this may be reduced if phased in over a period of time.”

How much will it pay? 

The department noted that the government has been severely criticised for the value of the Covid-19 R350 social relief of distress grant.

While many appreciated the Covid relief, being 40% below the poverty line, it makes a tiny dent as many people are still experiencing hunger and starvation, it said.

“The options for the value thus depend on what objectives the state would like to achieve first, including, inter alia: reducing hunger, reducing poverty and improving the standard of living of our people.”

The green paper proposes the following options, depending on what objectives government would like to achieve first:

  • Reduce hunger – With this option, the grant value would have to be around the Food Poverty Line (FPL). As of the 2020 adjustments, this is R585 a month.
  • Reduce poverty – This option would require the grant value to be pitched around the lower-bound poverty line (LBPL). As of the 2020 adjustments, this is R840 a month.
  • Improve people’s standard of living –  In this case, the value should be significantly higher, but at least starting at the upper-bound poverty line (UBPL). As of the 2020 adjustments, this is R1,268 a month.

“Studies done on a decent standard of living suggests income of around R7,500 per person, per month. This is an aspirational value that government should strive to achieve through a mix of transfers, labour and economic policies,” the department said.

The green paper is out for public comment. Submissions close on 10 December 2021.

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