The Basic Income Grant: Adding a BIG enough tool to the arsenal?
More than a year since the start of the COVID-19 pandemic, economies around the world have gradually recovered from the worst of this crisis, albeit at varying rates with the developing countries leading the way. The recovery has been accelerated by the unprecedented fiscal and monetary support from policy makers, together with the increasing momentum of vaccination programmes. Though the world will eventually recover from this pandemic, it is highly likely that the long-term effects, both positive and negative, will become a permanent feature as we reimagine a post-COVID world.
For South Africa, in particular the pandemic has highlighted the importance of and need for a well-functioning public health system and comprehensive social protection programmes. In this regard, the grant system has received renewed focus, with broadening discussions of a Basic Income Grant (BIG).
South Africa’s current grant system and COVID-19 relief measures
The South African Constitution tasks the government to provide the requisite social assistance to individuals who are unable to support themselves and their dependents within budgetary constraints. Specifically, section 27(2) of the Constitution provides that the “state must take reasonable legislative and other measures, within its available resources, to achieve the progressive realisation” of this right. Section 28(1) (c) of the Constitution provides that every child has the right “to basic nutrition, shelter, basic health care services and social services.”
In aiming to fulfil these objectives, the state has had reasonable success towards the provision of basic services across the country. By 2017, 84% of households had access to electricity, 74% had access to piped water, and about 82% had access to sanitation provisions. In terms of social security support through the grants system, the number of beneficiaries has markedly increased, from about 4 million people in 2001 to about 18.3 million people by March 2021.
The current annual price tax for total grants stands at R195bn, which accounts for 3.7% of GDP or 10% of total government expenditure. Whereas the Old Age grant accounts for the largest share by value (R86bn or 44% of social grants spent on 3.7 million beneficiaries), the Child Support grant (totalling R73bn in spend) represents the largest segment of grant support in terms of beneficiaries, with roughly 13 million children benefitting from grants (Table 1). This equates to 6 out of every 10 people under the age of 18.
Table 1: Summary of the social grant expenditure allocation for FY21/22
|Number of Beneficiaries||Grant Amount (Rand per month)||Total Grant Value (Rm per year)|
|Old Age Grant||3 714 004||1 890||86 487|
|Disability Grant||953 755||1 890||23 579|
|War veterans Grant||42||1 910||1|
|Care dependency Grant||149 344||1 890||3 658|
|Foster child grant||295 482||1 050||4 338|
|Child Support Grant||12 958 690||460||73 318|
|Grant in Aid||265 045||460||1 600|
|Social Relief of Distress||–||–||2 536|
|Total||18 336 362||195 517|
Source: National Treasury, SASSA
Although the grant system has been able to support a significant number of people, it currently does not account for people aged 19 to 59 who are unemployed and do not have any form of income. This highlights a significant gap in social support coverage. Given the high unemployment rate in the country, which currently sits at 47% under the broad definition, this represents a large proportion of the population that does not receive any form of regular income. This has considerable implications for not only the wellbeing of this cohort, but also for social stability in the country.
To provide relief for this group of people and to address the coverage gap, there have been growing calls from civil society, trade unions, and political organisations for the government to provide social assistance through a BIG.
To mitigate the adverse effects of the pandemic, the South African government, like many others around the world, expanded its social protection system. The Social Relief of Distress (SRD) grant was amongst a series of relief measures introduced in 2020, running from May 2020 to April 2021. Evidence from the NIDS-CRAM study showed that the SRD grant brought millions of people into the social protection system. Yet it also noted that despite the increased access to social support, the value of the SRD grant was too small to lift many of its beneficiaries above the food poverty line. According to the Department of Social Development, “COVID-19 relief measures were estimated to have reduced the number of households with incomes below the food poverty line from 20.6% to 18.8%, and a reduction in inequality from 0.644 to 0.613.”
A World Bank study of policy responses to the COVID-19 pandemic notes that from March 2020 to May 2021, a total 3,333 social protection measures were planned or introduced in 222 countries or regions. The most common social protection responses were in the form of social assistance, social insurance, and labour market programmes. The social assistance measures represented the mostly commonly applied form of support, accounting for nearly two thirds of all interventions. Table 2 below shows the range of introduced social assistance measures.
Table 2: Social Assistance Measures
|Social assistance measures||Number of Measures||Number of Countries|
|Cash transfers (conditional and unconditional)||734||186|
|In-kind food/voucher schemes||279||125|
|Utility and financial obligation support waiver/postponement||701||181|
|Cash for Work||38||29|
Source: The World Bank
A Basic Income Grant: concepts, pilots and constraints
There are conceptual variations of a BIG based on the intended objectives and design. A Universal Basic Income Grant (UBIG) refers to a cash transfer by the state to all of its citizens, irrespective of employment status, age, or other conditionality. A Basic Income Grant (BIG) is a targeted form of cash transfers to citizens, where a defined group of people are eligible to receive this benefit. In the South African context, the proposed group to receive a BIG would be unemployed people aged 19 to 59.
As it stands, no country has fully implemented the BIG model, but there have been various pilot programmes over the years, which have been funded and administered by various non-governmental organisations (NGOs) and/or local or multi-national development institutions. The Black Sash Report looking into Basic Income Support reports on some of the findings of previous pilot studies of BIGs.
In Namibia, the pilot programme took place over two years, starting from 2008 in a rural community 100 kilometres outside of Windhoek. A total of 930 people (excluding people already receiving old-age grants) in the community received 100 Namibian Dollars monthly (without conditions) from the Council of Churches and the Namibian NGO Forum. The outcome from the study revealed that there was a marked increase in economic activity in the area, a reduction in household debt, and a marginal increase in savings. Furthermore, there was a significant reduction in the experiences of food shortages, with poverty being reduced to 37% from 76% when measured against the food poverty line.
In India, three different cash transfer projects were piloted across various low income, indigenous villages between 2010 and 2014. Funding was provided by NGOs, the United Nations Development Programme, and UNICEF. The results showed that households that received cash transfers were associated with an increase in productive activities. Additionally, households that received funds generally increased investment in their livestock. The results also revealed a reduction in hunger, malnutrition, and school absenteeism.
Governments in general seem reluctant to introduce BIG. The commonly cited challenge centres on the affordability of such programmes, as most governments find it prohibitively costly given the precarious fiscal positions of many emerging economies. Instead, many governments continue to prefer orthodox economic policies to address unemployment, inequality, and poverty via the growth lever.
Proponents of a BIG argue for such a programme based on the myriad positive effects it could yield, with a reduction in poverty and inequality being the most important demonstrated benefits. These, in turn, would promote the dignity and human rights of individuals living in destitution. However, it is important to acknowledge that providing cash relief to individuals addresses the symptoms rather than the causes of poverty and inequality. The root causes of these socioeconomic constraints will persist if they are not adequately addressed. In particular, structural reform is required to address: a) poor education outcomes in the schooling system, b) the poor functioning of local governments across the country, c) corruption and gross financial mismanagement in the public sector, and d) the absorption capacity of the labour market.
The BIG trade-offs
The financing requirement is often the most contentious element of a BIG discussion. Can a country like South Africa, with numerous fiscal challenges following a decade of lethargic economic performance, afford to introduce this expenditure item on a sustainable basis? The cost of such a programme will depend on the programme criteria, in particular, the grant amount, and number of beneficiaries. The Black Sash Trust has used 10.4 million beneficiaries in its analysis, while the recent extension of the SRD grant implies 9.5 million potential applicants per month. If we look at the latest Quarterly Labour Force Survey, there are 7.2 million unemployed individuals, 3.1 million discouraged job seekers and the 1.7 million individuals who are classified as economically inactive who are not students, homemakers or have an illness or disability. Taken together, this would imply 12 million potential BIG recipients (even adjusting for some overlap with existing grants). Depending on these variables, the cost of the BIG can vary from as low as R40 billion to as large as R183 billion (Table 3).
Table 3: The calculated annual cost of a BIG under various assumptions
|Estimated Beneficiaries||9.5 million||10.4 million||12 million|
|SRD Grant||R350.00||R39.9 billion||R43.7 billion||R50.4 billion|
|Food Poverty Line||R585.00||R66.7 billion||R73 billion||R84.2 billion|
|Lower bound poverty line||R840.00||R95.8 billion||R104.8 billion||R121 billion|
|Upper bound poverty||R1 268.00||R144.6 billion||R158.2 billion||R182.6 billion|
Source: Black Sash, Stats SA, SASSA
So the question is if the government should choose to adopt a BIG, how would we fund it? Through departmental reprioritisation? Through the increase in Personal Income Tax or Value Added Tax? Is it through the suspension of various tax exemptions and rebates? Or will it perhaps require the government to borrow even more from the capital market? For now, the correct answer is that it may probably have to be funded through a combination of these options. Raising PIT rates is unfavourable given low employment levels and the narrow tax base. Similarly, increasing the VAT rate is an undesirable given that it is often seen as regressive.
Beyond the question of funding, it is equally important to ask ourselves what the risks are to the country if we, as a civil society and government, do not swiftly address the problem of youth unemployment and entrenched challenges of poverty and inequality. Over the past decade, protest action across the country has increased, with a significant portion of these having turned violent as residents take their frustrations to the streets. At the centre of the protests are poor living conditions, the lack of basic services, and rampant crime levels in underserved communities. Figure 1 below reflects the number of protest and public violence incidents on a monthly basis and depicts how common these events have been in the country in recent years.
Figure 1: The number of recorded incidents of protests and public violence in South Africa.
Source: The Institute of Security Studies
Introducing a BIG will be an admission of failure to grow the economy in a manner that promotes job creation and lifts people out of poverty. However, choosing not to contemplate extended social relief for the millions of unemployed adults would lead to greater risk of social unrest and instability. This dilemma represents a crossroad for policy makers and any direction taken represents a challenging path ahead.
- Constitution of the Republic of South Africa, no. 108 of 1996
- Stats SA. (2017). Living Conditions of Households in South Africa. In Living Conditions Survey 2014/15
- Bridgman, G, Van der Berg, S & Patel, L. 2020. Hunger in South Africa during 2020: Results from Wave 2 of NIDS-CRAM. NIDS-CRAM Wave 2 Working Paper 3.
- Department of Social Development. (2021). Announcement Of the Re-Introduction of the Special Covid-19 SRD grant
- The World Bank. (2021). Social Protection and Jobs Responses to COVID-19: A Real-Time Review of Country Measures. “Living Paper” Version 15.
- Black Sash. (2020). Basic Income Support – A Case for South Africa.