Ramaphosa to make final decision on basic income grant for South Africa

President Cyril Ramaphosa is expected to make a decision on a new basic income grant in his February 2022 state of the nation address, however, his economic advisors are split over its feasibility.

The Sunday Times reports that a division in the Presidential Economic Advisory Council has formed, with some warning that it is unaffordable. The council includes leading local and international economists, academics and experts on economic policy.

The first group says South Africa does not have fiscal space to incur additional annual spending on a new social grant.

“Our vision must be to promote employment rather than ever-increasing state-funded income support,” the council said in its first briefing note. “We face a real danger of policy error at a macroeconomic level where we will limit our economy’s growth and job-creation potential by increasing the system of social grants payments in an unsustainable manner.”

A dissenting note supports permanent grants for those living in abject poverty, arguing that even when the economy grows, South Africa still has a number of people who will require income support.

“The depth of poverty in South Africa is such that we cannot feasibly grow our way out of poverty in any reasonable timeline, with the current patterns of income distribution,” it reads.

Apart from monthly cash grants, the dissenting group proposes providing bus and minibus transport vouchers for job seekers; free printing at post offices, as well as clothing and connectivity costs to be covered by the state.

Funding 

A report published by the National Economic Development and Labour Council (Nedlac) this week found that the introduction of a basic income grant will make a significant difference in helping to alleviate poverty in the country, but its research shows that it will come at a significant cost to taxpayers.

Nedlac is a social grouping that includes members from government, labour and the private sector.

Based on various scenarios and target groups, the report shows that the cost of such a grant could be anywhere from R95 billion (targeting the unemployed at R350 a month) to R550 billion (universal grant at R1,270) a year, even in the most optimistic circumstances.

Extending the Covid grant alone for a year would cost R35 billion, said BNP Paribas, while the full costs of a basic income grant could range between R157 billion to R519 billion a year, according to a study by Intellidex.

The researchers said that, if funded through personal income tax, a universal BIG at the level of the special Covid-19 Social Relief of Distress Grant (R350) would result in an approximate average increase in effective tax rates at 8.2%. Alternatively, the cost of implementing the grant can be funded through the reallocation of public expenditure, Nedlac said.

“However, reallocating public expenditure comes with trade-offs. Spending on health, education and social development currently accounts for 56% of government expenditure, as per the 2020 Budget Statement.

“Furthermore, the implementation of NHI is a policy priority, which will result in additional demands on the fiscus.”

Ultimately, the introduction of a basic income grant will require trade-offs with other development programmes, including other social security reforms and tertiary education, the group said.

Read: How much more tax you would have to pay to fund a basic income grant in South Africa