Feasibility of a basic income grant for SA

In the evolution of social welfare policies over the past three decades it has become clear that the state’s role in providing social protection to those in need has become an imperative — and a human right — in virtually all countries. It is not a choice. This was tragically highlighted during the global rock bottom of the Covid-19 pandemic.   

In SA the horrendous economic effects were particularly severe for the lower income groups, spurring the adoption of the Social Relief of Distress Grant, which has proven to be fiscally affordable despite the need to keep a watchful eye on the stability of the country’s public finances, and has given new impetus to the debate on a Basic Income Grant (BIG).   

Several studies have been undertaken to gauge the likely poverty-reducing effects of SA’s welfare grant system, which is widely acknowledged to be one of the most effective in the developing world — though a grant targeting the unemployed is still not a permanent feature. A survey conducted by Stats SA found that grants constitute nearly 25% of total household income in SA, whereas in Sub-Saharan Africa the ratio is closer to 20%, and for upper-middle-income countries it is only about 6%. SA also ranks in the top four regarding the indicator for per capita job creation via public works programmes. 

Impact studies have nevertheless mostly been restricted to poverty reduction and lowering income inequality. Recognising the dearth of empirical economic analysis of social protection policies in SA, the Inclusive Society Institute (ISI) commissioned such a study early in 2022. The study was based on a comprehensive evaluation of social protective programmes implemented by governments about the world, with emphasis on upper-middle-income countries (SA’s peer group).

The main objective was to determine the macroeconomic impact of a BIG that is fixed at the food poverty line (R624 per month at the time). According to a report by the World Bank, these programmes are making a substantial contribution to combating poverty. For the 79 countries with sufficient monetary information that were surveyed, social protective programmes reduced the incidence of absolute poverty ($1.90 at purchasing power parity per day) by 36%, whereas relative poverty (the bottom 20%) was reduced by 8% (on average). 

Locally, the SA system of social protective programmes is extensive in terms of both the number of people it covers, and the number of fiscal resources required for its funding. In fact, SA is the standout performer among its peers for virtually all of the social protective programme indicators. It is ranked second among upper-middle-income countries for the ratio of government expenditure on social protective programmes and second among all developing countries for the percentage of the population that receives social grants. 

However, it is evident that, notwithstanding SA’s success in expanding its social protection system over the past decade, the number of poor people has steadily increased since 2015. This coincides with a persistent deterioration in the country’s economic performance, which resulted in a progressive decline in the real GDP per capita. Between 2012 and 2015 the food poverty headcount declined by 35%. Over the same period the real value of social protection spending per capita rose by 6%, but real GDP per capita only rose by 1%. Between 2015 and 2021 the headcount increased by 37%, while social protection spending per capita increased by a further 9% and GDP per capita decreased by over 6%.  

This suggests that — apart from any fiscal affordability and sustainability considerations — devoting progressively higher proportions of government revenues to social protection transfers will not, by itself, succeed in reducing poverty. It needs to be accompanied by a supportive environment. 

A new approach towards the state’s role is increasingly gaining traction globally as a sensible and socially responsible welfare policy option, the essence of which is that beneficiaries now have obligations as well as rights. It incorporates the view that traditional cash benefits fail to support a proportion of recipients in becoming self-sufficient, and therefore passive implementation has been substituted by more active labour market policies or workfare (temporary employment). From a political perspective, a shift towards workfare programmes is tantalising, as it would include prospects for greater fiscal stability, increased self-sufficiency of beneficiaries, the prevention of social exclusion and an increase in employment. 

Good examples are Brazil and India, which have had widely acclaimed success with initiatives to combat poverty based on either conditionality in grant payments or workfare arrangements. Brazil’s Conditional Cash Transfer programmes aim to reduce poverty in a multidimensional manner by requiring beneficiaries to comply with conditions aligned to enhancing human capital. The country’s success boils down to a partnership approach between civil society and the state; a decentralised system that avoided undue political influence; sound governance standards; a registry of beneficiaries, based on reliable and accurate data; and political appeal (due to its significant impact on poverty). 

India has also achieved significant progress, but with the implementation of workfare programmes, especially in the areas of part-time employment to unskilled rural dwellers via the National Rural Employment Guarantee Act. Its emphasis is on water-harvesting initiatives, supplemented by other infrastructure-related projects. Another flagship social protective programme is the subsidisation of rural housing, with the requirement that the beneficiaries have to build their own houses. 

These two examples show that it is possible to lower poverty in a sustained manner by integrating millions of people into the economic and social mainstream of the country without compromising other economic development goals. Policymakers in SA would do well to consider introducing some of their elements into the future refining of domestic welfare programmes. 

In the absence of a welfare system that is aligned with a pragmatic growth and development strategy, long-term poverty reduction will remain elusive. To reverse the cycle of poverty that characterises many poor communities, a broad-based strategy is required that ensures the sustainability of the fiscal resources required for immediate poverty reduction (such as cash grants) as well as policies designed to enhance the income generation potential of poor people. 

Due to the existence of empirical evidence supporting a positive causal effect between welfare grant payments and economic output, including the fiscal backflow (in terms of a broadening of the taxation base), it is not anticipated that a targeted BIG will place undue pressure on the public finances. 

Based on the conclusions arrived at in the Inclusive Society Institute’s BIG study, it stands to reason that in the event of limiting the payment of the Child Support Grant to unemployed primary caregivers, the implementation of a BIG at the food poverty line can comfortably be afforded by National Treasury, while simultaneously lowering the extent of income inequality and poverty. And that the most effective way to combat poverty is by creating jobs at remuneration levels above the national poverty line. Every job thus created obviates the need for a welfare payment to the relevant person.  

Such initiatives, which will eliminate food poverty in SA, will also serve to significantly reduce socioeconomic unrest in the country. Both directives remain in urgent need of attention. 

• Dr Botha is an independent research economist, and Swanepoel CEO of the Inclusive Society Institute. This article draws on the content of the institute’s recently published report ‘The Feasibility of Establishing a Basic Income Grant in SA.’