‘We will fight, we will soldier on even to the extent that we will ensure that we bring upon the introduction of the basic income grant, we are close to it, we are making steady progress towards it.’ — Social Development Acting Director-General Linton Mchunu.
The Department of Social Development (DSD) and partners on Tuesday released a report into the appropriateness and feasibility of a system of basic income support for South Africa.
The Expert Panel on Basic Income Support Supplementary Modelling report was produced under the supervision of the International Labour Organization (ILO) for the DSD and the South African government. It is a supplementary report looking at possible models and building on the first one released in 2021, in which the BIS Expert Panel examined the social and economic implications of a basic income support (BIS) grant.
Acting Director-General of the DSD Linton Mchunu said the report answered some crucial questions on basic income support, such as where the money would come from, whether it would help or hinder the economy, and the feasibility of such support.
Mchunu also seemed to point a finger at the National Treasury for challenges in implementing the Social Relief of Distress (SRD) grant and ironing out bumps in its provision.
He said: “The reason why we’re having the difficulties we’re having now with the R350 grant… we’re currently paying about eight million people — yet in the first iteration we were paying about 11.5 million — because we introduced the means testing, and you know why? We were told that if we don’t introduce the means test, we will not receive the money.
“So, we grappled with finding a balancing act… it’s a difficult thing but, as the Department of Social Development, I want to say we will never deviate from this fight. We go into meetings and say we need a sense of certainty in the long term, can we extend the grant to the next three to five years while we sort out the policy side of this? And we’re told, no, you will only get one [year].”
Challenges in reaching the intended recipients
Mchunu said the DSD was restricted by red tape, which delayed processes and left millions in limbo.
Panel chair Professor Alex van den Heever said the report looked at the R350 SRD grant as a more permanent model because there was already data around this to analyse, while there wasn’t any for a basic income grant (BIG).
The idea is for a “gradual phasing for the progressive enhancement of the SRD benefit over time with the objective, together with the overall social assistance framework, of eliminating poverty at the upper-bound poverty line, UBPL [the average non-food-related spending that’s added to the poverty line created by economists and often used by DSD in creating means tests for grants],” said Van den Heever.
The analysis concluded that a gradual phasing-in of a basic income grant would curb the “economic and fiscal risks” and impacts on the tax system. An entry-level version of the grant, basic income support, should be considered with the starting benefit value set at the lower-bound poverty line (the average spending on essential non-food items by households whose food expenditure is below, but close to the food poverty line).
Van den Heever is the chairperson of Social Security Systems Administration and Management Studies at the Wits School of Governance. The panel of experts was made up of specialists in microsimulation, modelling in the field of social protection, computable general economic modelling and public finance. The deliberations also involved staff from the Social Security division of the DSD and the ILO regional office based in South Africa.
The modelling results show that “depending upon how it is financed, the SRD grant can be introduced in a manner that is fiscally and economically sustainable while at the same having a material impact on poverty and income inequality if implemented at the level of 13.1 million beneficiaries,” the report states.
The report posits four different simulations for how the grant will work and which simulations have the most positive outcomes during analysis.
The first simulation of the Social Relief of Distress grant spending of R50-billion is financed primarily using an increase in Value-Added Tax (VAT) in the early years of the simulation.
The second option is financing it entirely through an increase in the principal, interest and taxes (PIT) of the top three deciles (a decile is 10%) of high-earning South Africans.
The third simulation involves a wage subsidy, where R50-billion is financed entirely through PIT increases on the top 10% of earners and allocated to the bottom four occupational groups (domestic workers, elementary workers, operators and skilled agricultural workers).
The fourth option is to collect R50-billion along with a wage subsidy that will cost 50% of the cost of the grant (R25-billion) and finance both entirely through PIT.
“A wage subsidy targeted at the four lowest-income occupational categories shows promise for improving economic output but is less effective in addressing poverty and inequality in comparison to the SRD grant. When the interventions are combined, however, there are potential gains for economic output, poverty [reduction] and [decreasing] inequality,” Van den Heever said.
“Replicating the modelled wage subsidy with an equivalent programme in practice, however, may prove difficult. While more work is needed to better identify an effective government-subsidised employment intervention, such approaches are not substitutes for income protection. They are instead complementary, as they have distinct, although related, social objects,” the report read.
Accepting the report, Brenda Sibeko, the deputy director-general of Comprehensive Social Security, acknowledged the challenges grant recipients have had in accessing grants and said that the DSD and civil society were working tirelessly to secure an income for the impoverished.
“As so many have said, the BIG is an idea whose time has come,” said Sibeko