Working Paper | Macroeconomic and Developmental Impacts of Selected Basic Income Grant Pathways for South Africa

This working paper explores the macroeconomic and developmental implications of implementing three selected Basic Income Grant (BIG) pathways in South Africa. It does so using the Applied Development Research Solutions‘ Dynamically Integrated Macro-Micro Simulation Model (DIMMSIM™). Departing from neoclassical economic perspectives, the model incorporates heterodox economic views, challenging the conventional market economy framework. Contrary to prevailing notions, our simulations reveal that funding a BIG is achievable without altering income tax or VAT. Instead, a combination of a modest wealth tax and Social Security Tax (SST) can effectively fund a BIG, ensuring its sustainability over time.

BIG pathways to addressing gaps in social security

The post-apartheid social grants system in South Africa, while successful in aiding children and the elderly, has left a significant portion of the population without guaranteed income support. The campaign for a BIG dates back to the post-apartheid era, gaining momentum with the 1997 White Paper on Social Welfare and the Taylor Commission Report of 2002, which recommended its introduction. Despite opposition on grounds of affordability, the recent introduction of the Special Covid-19 Social Relief of Distress (SRD) grant has reignited the discourse on BIG.

Changing landscape and global perspectives

The Covid-19 pandemic has reshaped political possibilities, prompting renewed interest in BIG globally. Pilot projects and cash transfer programmes worldwide have highlighted the potential benefits of such interventions. Evidence suggests that a BIG can not only alleviate poverty but also address gender and racial inequalities, enhance labour market participation, foster sustainable livelihoods, and contribute to economic stability.

Objectives of the working paper

To quantify the potential impact of a BIG in South Africa, this paper reviews recent local studies, introduces the DIMMSIM™ model, and presents non-technical insights into basic income grant pathways. Sections on model analyses and results, along with concluding remarks, follow. By challenging traditional economic perspectives, our findings aim to contribute to informed policy discussions and reshape the narrative around the feasibility and benefits of a Basic Income Grant in South Africa.