New Research Suggests Viable Options for a Basic Income Grant in South Africa

In the wake of the COVID-19 pandemic and the subsequent economic downturn, the topic of a basic income grant (BIG) has been front and center in South African socioeconomic discourse. A document leaked from Treasury several months ago presented stark options for the funding of the R350 social relief distress grant. Among these options were proposals that hinted at austerity measures, such as cutting various government programs or increasing the Value-Added Tax (VAT) to 17%. This was particularly concerning in a country grappling with low economic growth and high inequality.

Amidst the debates, a recent study by Applied Development Research Solutions (ADRS) and the Institute for Economic Justice (IEJ) sheds new light on the matter, portraying a more hopeful outlook. The research provides a fresh counterpoint to the prevailing narrative — which often presents the pursuit of a BIG as fraught with dire financial consequences for South Africa.

According to ADRS director Asghar Adelzadeh, previous models used for evaluating a BIG have been constrained by certain macroeconomic assumptions that do not account for dynamic changes and eligibility variations over time. Neoclassical economic models, such as Computable General Equilibrium and Dynamic Stochastic General Equilibrium, are often critiqued for their inability to factor in dynamic social and economic complexities.

ADRS and IEJ's model diverges from this traditional approach, suggesting that a BIG can catalyze positive economic spin-offs, such as reducing poverty and inequality, without the need to raise VAT or income tax. Their approach includes innovative revenue measures, like a modest wealth tax and a social security tax on formal employment wages, bypassing the pitfalls of increased borrowing or counterproductive budget restructuring.

The ADRS-IEJ model proposes that a BIG would increase economic demand, leading to higher investment, output, and employment. This ripple effect is projected to raise VAT revenues naturally, thereby establishing a sustainable funding mechanism for the grant. Moreover, the research draws analogies to the successful implementation of a national minimum wage in South Africa, which similarly faced skepticism but did not result in the forecasted negative economic impacts.

At the report's unveiling, IEJ’s Gilad Isaacs pointed out the critical need to reconsider entrenched economic paradigms. He highlighted that transformative policies aimed at poverty alleviation and development are often dismissed prematurely based on a narrow economic lens that does not consider their broader, long-term benefits.

This new research invites South African policymakers and stakeholders to widen their analytical horizon. Embracing expansive, evidence-based perspectives could indeed pave the way to a more prosperous and equitable future for all South Africans.