SA should institute basic income support for adults with no income in a phased approach, beginning with the institutionalisation and stabilisation of the Covid-19 social relief of distress (SRD) grant, according to a new report drawn up for the government.
Once this is achieved, a targeted entry level for the proposed grant, set at the food poverty line, or R595 a month, should be implemented. After that, it should increase in “sustainable increments determined by affordability” over time.
The report, released on Monday, was written by a panel chaired by Alex van den Heever, who is also the head of social security systems, administration and management studies at the Wits School of Governance.
The report tackles the hotly debated need for a basic income grant, spurred on by the devastating effects of the Covid-19 pandemic.
Though the need for greater income support is clear, its affordability is hotly contested given the government’s constrained financial position, which persists despite a surge in commodity prices, which has helped provide a temporary boost to tax revenues.
There has been mounting political pressure to turn the R350 Covid-19 SRD grant — launched to help adults without income cope during the pandemic and extended until March next year — into a more permanent feature of SA’s welfare net.
But analysts and economists have warned of locking in permanent spending off the back of a temporary upswing in the commodity cycle.
In the recent medium-term budget policy statement, finance minister Enoch Godongwana deferred any announcement on the matter until next year’s February budget.
The Treasury emphasised that any decision would be weighed up against other spending priorities.
The panel found, however, that in SA’s context — where unemployment, as measured by the expanded definition, is now flirting with 50%, and more than half of households live in poverty — there are “no alternative measures” other than a form of basic income support.
The report outlined a number of means-tested scenarios, which, depending on the level of the grant and the number of qualifying beneficiaries, ranged in cost from R56bn to R429bn a year. A scenario equivalent to the initial design of the Covid-19 SRD grant — with a strict zero-income means test and maximum annual spending of R56bn — largely affects poverty at the food poverty line and has a marginal effect on SA’s Gini coefficient, which improves from 0.65 to 0.63.
The Gini coefficient is a widely used measure of inequality where 0 represents perfect income equality and 1 extreme inequality. SA is considered one of the most unequal societies in the world by this yardstick.
A grant paid at the level of the food poverty line would make a more significant impact on income poverty and reduce SA’s Gini-coefficient to 0.6. The cost, however, is in the order of R181bn, assuming 25.4-million adults are eligible.
“As it is recognised that the cost of the entry level version of the [basic income support] is significant, it is proposed that it be implemented only once the Covid-19 SRD grant has been stabilised and appropriately institutionalised,” the report said.
The panel was, however, of the view that an entry-level version of the basic income support grant can be safely implemented using “a mix of financing approaches, including limited debt financing, tax revenue improvements arising from any demand stimulus, and carefully calibrated tax increases where required”.
The report argues that it is possible to rely on “existing and well-established taxes with a demonstrated capacity to raise the necessary revenue in a reliable fashion such as [personal income tax] and VAT”.
Aside from explicit tax increases, it said that additional financing options such as a review of tax expenditure subsidies that are of “lower social value” than the basic income support should be considered. These include the tax subsidy framework for private pensions.
New taxes, such as an equally contested wealth tax, could be considered over time if required as part of the financing mix, the report noted. But they should be introduced gradually “to minimise adverse behavioural responses and to ensure they can develop as permanent and reliable elements of the tax system”.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.