Providing a Basic Income Grant (BIG) is possible in South Africa by applying a wealth tax and Social Security Tax, a new study has found.
The study was conducted by Applied Development Research Solutions (ADRS) and the Institute for Economic Justice (IEJ).
ADRS said that the findings were based on the Dynamically Integrated Macro-Micro Simulation Model (DIMMSIM) and targeted South Africans aged between 18 and 59 years for the grant.
Dr Asghar Adelzadeh, chief economic modeller at (ADRS) Global, a modelling software company, said that for the simulation the social relief of distress grant was used as a base.
The study looked at the national poverty lines from Stats SA. The Food Poverty Line (FPL), which is R760, is a monthly amount that an individual needs to afford the minimum required daily energy intake, the Lower Bound Poverty Line (LBPL), which is R1 058, is the FPL plus an austere minimum expenditure on non-food basic needs and the Upper Bound Poverty Line (UBPL), which is R1 558, was obtained by adding the FPL to the average non-food expenditure of the reference households for this poverty line.
Adelzadeh said that they have simulated three pathway scenarios for the BIG. “Pathway 1 is a low-ambition scenario because the value of the grant does not rise above the LBPL, and the means test does not rise above the UBPL. The value of the grant begins at the level of the current SRD grant (R350), rises to the FPL value and then to the LBPL.”
Adelzadeh added that Pathway 2 is a medium-ambition scenario.
“Under this scenario the value of the grant starts with the FPL, which is above the R350 of the SRD, rises to the LBPL and then to the UBPL.”
Pathway 3 is the highest ambition scenario within the medium-term timeframe constraints.
“It follows the same path in terms of increasing the grant to the UBPL as pathway 2, but vastly expands the number of poor and low-income individuals eligible for the grant using a means test at double, 4 times and 6 times the UBPL respectively.”
Adelzadeh said that they had come up with options to fund the BIG.
“We have chosen an indirect channel through the increase in VAT revenue that is enabled not by increasing the VAT rate, but by the scenarios’ positive impact on the gross domestic expenditure, and a combination of a wealth tax and a Social Security Tax.
“As the world’s most unequal society, with the richest 10% of the population owning more than 85% of household wealth in South Africa, using a wealth tax to partially finance a BIG programme seems justified.”
He added that results indicated that the number of individuals who will be direct beneficiaries of the low and medium-ambition BIG scenarios is projected to gradually increase from 9.4 million in 2023 to 13.3 million (low) and 14.9 million (medium) by 2030.
“In the case of the high-ambition scenarios, model projections show that the number of grant recipients will start at 11.1 million in 2023 and gradually increase to 19.8 million by 2030.”
He said the three BIG pathways will have significant implications for government income and expenditure.
“Despite the extent of poverty, unemployment and inequality in South Africa, government spending on social benefits, including social grants, relative to GDP has significantly and consistently lagged behind peer countries during the last 25 years. According to OECD (Organisation for Economic Co-operation and Development) data, between 1996 and 2019, on average, the South African government annually spent 3.7% of GDP on social benefits to households, which was the third lowest among 42 OECD countries.”
The Mercury