The Department of Social Development (DSD) in South Africa has formed a panel of experts to investigate whether a permanent basic income support (BIS) grant would be economically viable.
Last Tuesday, the panel released its second report on the subject, which examined the various economic, fiscal, and social implications of making the Social Relief of Distress (SRD) grant permanent until 2045. According to the report, the SRD grant could be made permanent in a fiscally and economically sustainable manner while also reducing poverty for 13.1 million beneficiaries.
However, questions have been raised about how the department intends to fund the grant in a way that is both sustainable and does not harm the economy.
The report proposes four possible grant funding models, including an increase in Personal Income Tax, Value Added Tax, a wage subsidy for low-income individuals, and a hybrid model that includes both a wage subsidy and a personal income tax.
According to Alex van den Heever, chair of the panel investigating the feasibility of the BIS, South Africa can implement the grant without jeopardizing economic growth. However, he acknowledged that the imposition of new taxes could have unpredictable behavioral effects on the tax system.
To mitigate any such effects, the report recommends a phased approach for gradually increasing the SRD benefit over time.
Before it is ready for implementation, the DSD intends to go through several processes over the next three months, including presenting the policy document to the Cabinet, hearing public comments, and amending the regulations.
This comes amid growing calls for a long-term solution to South Africa’s high unemployment rate and high cost of living, as many citizens struggle to make ends meet. The SRD grant, which provides temporary financial assistance to those in need, has been criticized as a band-aid solution, with many arguing that a more long-term solution is required.
According to the panel’s report, the SRD grant has significant redistributive opportunities, which may be reduced depending on the financing option chosen.
When the SRD grant is combined with a wage subsidy targeted at the lowest occupational groups, inclusive growth options appear particularly strong. However, the report notes that the grant’s feasibility is dependent on how it is funded, and that the financing option chosen will have a significant impact on its overall sustainability.
Overall, the panel’s report provides a nuanced assessment of the potential advantages and disadvantages of implementing a permanent BIS grant in South Africa. While it emphasizes the potential for such a grant to reduce poverty and inequality, it also emphasizes the importance of careful planning and funding to ensure long-term sustainability.
As the DSD moves forward with its grant implementation plans, it is critical that the government consider the panel’s recommendations and engage in transparent, evidence-based policymaking.