A ‘Basic Income Grant’ as the solution to South Africa’s social security crisis?

Posted: 29-May-2015

Daniel McCarthy

Dan is currently an intern with DNA Economics. This may explain why his own views are perhaps more radical than the rest of ours.



Since the end of apartheid, the South African government has had to face the almost insurmountable challenge of addressing intense poverty, unemployment and inequality that, through many years of racial segregation, have become deeply ingrained in society. In doing so, policymakers have largely adopted (or attempted to adopt) a ‘developmental’ and ‘growth driven’ policy framework with the likes of the RDP under Mandela[1], the Mbeki driven GEAR and AsgiSA[2] strategies and finally, Zuma’s NGP[3]. While these strategies have put economic growth at the epicentre of their objectives, they have also crucially been combined with a social security system that seeks to identify and assist those who are impeded from entering the labour market, such as children, pensioners and disabled persons, as they are said to be unable to fully benefit from the supposed fruits of these growth driven strategies.

Yet, despite these efforts, South Africa is still plagued by many of the same societal deficiencies that the newly democratic government inherited in 1994. Now, in 2015, the official unemployment figure sits at 24%, however unofficially this figure is closer to 40%[4]. Similarly, just over 20% of the population are said to live below the poverty line and the country has a Gini co-efficient of 0.65; making it one of the most economically unequal societies in the world[5]. So, in hindsight, has the policy framework that has been favoured by the new democratic government for the past 21 years been the most appropriate?

The fundamental ideas behind the macro-economic policies that have been implemented have been for the most part sound, with their shortfalls largely the result of poor implementation and other global issues which have negatively influenced their effectiveness. But what of the social security system? How appropriate has it been at complementing these macro strategies and addressing the triple challenges of unemployment, poverty and inequality?

The current system is, for the most part, identical to the one employed by the old National Party; there has been no radical reform, but rather an extension of the old system as existing privileges were merely extended to non-white persons impeded from entering the labour market[6]. However, considering South Africa’s history, was this justified? What of those who are not ‘classified’ as being impeded from entering the labour market, but yet still find themselves as victims of South Africa’s segregated past?

Youth unemployment in the country has been quoted as being as high as 55%[7]; yet, as a result of the design of the social security system, most of the people in this category do not qualify for any social assistance at all. In 2000 over 3,5 million South Africans received some kind of social grant, however 12 million of the poorest 24 million people in South Africa lived in a household that received no social assistance[8]. Is this fair? Could it be that the design of the system, to exclude those not impeded from entering the saturated labour market is in fact ill-suited to addressing the key challenges of poverty, unemployment and inequality?

COSATU represented one of the first voices to raise these concerns[9]. During the 1998 Presidential Jobs Summit, the union advocated a complete overhaul of social policy as they argued that the social security system was not aligned with the constitution, which states that "everyone has the right to access social security”[10]. Accordingly, at the summit, they submitted a proposal with 21 different programmes that were all aimed at aiding job creation. One of these programmes advocated for the introduction of a ‘basic income grant’ for all citizens. This was the first time this idea was officially tabled in South Africa’s policy subsystem; the programme suggested that all existing grants be nullified and each citizen is afforded a monthly stipend of R100 a month[11].

History tells us this idea was rejected, and many would argue rightly so. The idea that every citizen is automatically paid R100 a month might sound absurd to many. However, there are several reasons why maybe it is time that this idea is reconsidered.

Firstly it is evident that the existing system is failing a lot of people. There are numerous gaps in the system as a large portion of the population receive no state support and have very few opportunities to further themselves. A grant of this nature would provide ALL citizens with appropriate support as the constitution intended.

Secondly, in an administrative sense, a basic income grant is a lot simpler to implement and monitor than a means-tested social grant system. No-one would need to ‘qualify’ for a grant; a process which is in itself an administrative burden and opens the door for corrupt activity.

Thirdly, it is argued that the grant would be more effective than the existing system at mitigating poverty. Michael Samson, who has extensively advocated for a basic income grant in South Africa, argues that this grant would reduce the poverty gap (an index that measures the intensity of poverty) by 74%; a vast improvement on the potential 37% offered by the current system if it is effectively managed, which it is not[12].

Fourthly, it is affordable. The grant is expected be offset by the cost of existing social grants[13]. The difference would be accounted for by an increase in income taxes, which leads to the fifth point;

It is redistributive! Although a grant of this nature is ‘universal’, an effective tax mechanism to help subsidize the cost of the grant would mean that the grant rightly favours and benefits the poor. An increase in income taxes would effectively mean that higher income earners end up subsidizing the grant for lower income earners. Like all redistributive measures, this might prove unpopular with the rich. However, a Gini coefficient of 0.65 is proof of the need for redistribution in South Africa, and such a grant may represent one of the best methods to make this happen.

Lastly, the redistributive quality of the grant would effectively bolster aggregate demand and stimulate the economy. The rationale behind this is that those in higher income brackets are argued to have a higher propensity to save and spend their disposable income on imported luxury goods while, on the other hand, those in lower income brackets have a lower propensity to save and generally consume more locally produced goods.

While many may not agree with these sentiments and simplification of economic problems, surely most can acknowledge that it may be time for something as radical as this to be seriously considered. South Africa’s population displays increased frustration in the face of poverty, unemployment and inequality as evidenced, for example, by the recent xenophobic attacks. While it is possible that there are better alternatives to the basic income grant, the merits of the grant, such as its ease of implementation, redistributive nature and its alignment with the goals set forth in the constitution, should certainly warrant this solution being seriously considered.