How much a basic income grant will cost South Africa

 ·16 Jul 2020

Minister of Social Development Lindiwe Zulu says that South Africa will introduce a universal basic income grant as part of a range of packages to help the country’s unemployed – but this plan is still a couple of years away from becoming a reality, analysts say.

According to Zulu, the basic income grant is already in play in some capacity, with the current Covid-19 Social Relief of Distress grant paying out R350 per month to those affected by the coronavirus pandemic.

This grant only applies to those who are not getting any other form of support from the government.

This grant, which was due to provide cover for six months to October, will be extended beyond that, Zulu said, with her department assessing the feasibility of a more permanent solution in the form of a basic income grant.

Intellidex analyst Peter Attard Montalto said that debate around a basic income grant has been ongoing for around 20 years, and has even been a subject of previous research, which found it could reduce poverty in the country by as much as 75%.

However, the big problem is affordability.

Under the current proposals, a basic income grant would carry the following criteria:

  • It would be payable to anyone aged 18-59, however, it would start from 18-24 and 50-59.
  • It would be around R500 per month.
  • It would not be based on unemployment but would be available to anyone not receiving any other benefit, including UIF support.
  • It would be administered by SASSA who pays the current grants via a pre-paid card-based system.

Assuming the grant was R500 per month, as proposed by ANC policy makers, the maximum cost would be around R210 billion a year for the full age range, or starting at R77 billion for the narrower set of ages.

Stats SA currently defines the food poverty line as R561 a month. The poverty line band, however, is from R810 on the lower end to R1,227 a month on the high end. These suggest R500 a month is arbitrary and actually possibly too low on a needs basis, Attard Montalto said.

This changes the presumed cost base.

“If you assume that many of the employed wouldn’t claim it (say two-thirds of them), then the cost falls to R142 billion per year for the full range or R63 billion for the starting range.

“The employed would be unlikely to claim in large numbers if manual collection by card was still required and is time-consuming. One can see, however, these that these amounts can quickly escalate if, for instance, they are CPI linked or doubled to within the poverty line band,” he said.

How long would it take?

Attard Montalto said that the strong push from government around the basic income grant means that it could become a reality within two years.

“A basic income grant policy, to be properly developed, adopted and extended could then take two years or so, in our view. A basic income grant is the longer-term replacement then for these short-run (Covid-19 Social Relief) measures, though they would have to be extended to bridge the gap,” he said.

However, while the timelines and cost assumptions are numbers that are theoretically doable in a fast-growing economy that has a structural unemployment problem, at present they would totally counteract other forms of cuts required to balance out the budget.

“The continuation of existing support would cost around R30 billion per year at least and so would already have some impact if continued,” he said.

“Overall we do see a basic income grant as likely in the medium to long run, but will be rejected by National Treasury in the short run in favour of employment incentives and job creation support programmes,” he said.

Read: South Africa is getting a new universal income grant: report

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