The Department of Social Development (DSD) believes that it is possible to implement a Basic Income Grant (BIG) without any major trade-offs. This comes after a report commissioned by the department trialed several possible implementation strategies for a new grant to support unemployed adults.
In 2021, the DSD appointed an expert panel to investigate the social and economic implications of introducing Basic Income Support Basic at scale.
The first analysis, completed in 2021, examined the social and economic impact of introducing Basic Income Support (BIS) at scale, while the second analysis looked at different funding models for the introduction of basic income grants.
Results of the second analysis indicate that it is possible to implement a BIG while protecting economic growth using a balanced budget approach and achieving important redistributive effects.
The report looked at four possible funding models for the introduction of Basic Income Support and simulated their social and economic impacts.
These funding models include
- Financing an SRD grant (R50 billion total budget for 13.1 million beneficiaries) through an increase in Value Added Tax.
- Financing an SRD grant (R50 billion total budget for 13.1 million beneficiaries) through an increase in Personal Income Tax (PIT) of the top three deciles
- Introducing a wage subsidy equivalent to R50 billion, financed entirely through PIT increases on the top three deciles and allocated to the bottom four occupational groups (domestic workers, elementary workers, operators and skilled agricultural workers)
- A hybrid approach combines a wage subsidy at 50% of the cost of the SRD Grant (R25 billion), both financed entirely through PIT.
Outcomes show that the reduced poverty and inequality outcomes are material for all four simulations, with the weakest results achieved in the wage subsidy simulation.
Experts acknowledged that the findings indicate that 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.
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 objectives.
The second simulation showed that an SRD grant has important inter-provincial redistributive effects, with a material narrowing of the inter-provincial Gini Coefficient differentials around a lower national result of 0.61.
A narrowing of the inter-provincial Gini Coefficient would indicate that it is a lowering of wealth inequality among provinces.