South Africa is taking steps to a new universal income grant in 2022 – what to expect

Social development minister Lindiwe Zulu says that introducing a new basic income grant in South Africa will likely be phased in over several years, with her department currently pushing for an extension of the R350 Social Relief of Distress (SRD) grant as a baseline.

Zulu was responding in a written parliamentary Q&A in which she was asked about the government’s plans to introduce a basic income grant for adults between the ages of 18 -59.

The social development minister said ‘she is of the view’ that the R350 SRD grant will provide a basis to introduce the Basic Income Grant, but that an amendment of existing legislation is required to formally introduce the new scheme.

“Depending on costs and the fiscal position of the country, it may take a few years to progressively implement. Until then, the department is, however, currently motivating for the extension of the Special Covid-19 SRD Grant, preferably over the medium-term period,” she said.

“This should provide the much-needed income support to cushion against the economic hardship occasioned by the advent of Covid-19 pandemic for the 18- 59 years.”

The R350 social relief of distress grant is set to conclude at the end of March 2022.

Expert recommendations

Zulu’s comments align with recommendations made by a panel of experts in December 2021, with the group proposing that the country gradually implement a basic income grant beginning with the institutionalisation of a monthly welfare payment.

The panel was appointed by the Department of Social Development, the International Labor Organisation and the United Nations-backed Joint Sustainable Development Goals Fund.

“There is no alternative to a system of income support for income-compromised adults from the ages of 18-59 as a permanent part of the social protection framework,” said Alex van den Heever, the chair of social security systems administration and management studies at the University of Witwatersrand and a member of the panel.

While the exact amount of funding will be dependent on how much support government plans to offer to disadvantaged people, it will likely be taxpayers who fit the bill for these additional grants – either through increases or adjustments.

In a presentation in mid-December, the experts said that an entry-level version of Basic Income Support (BIS) could 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.

A report compiled by the group found that 20% of households – nearly 12 million people – fall below the food poverty line (FPL), equivalent to a monthly value of R595.

40% of the population – equivalent to a population of 29 million in 8 million households – fall below the upper-bound poverty line (UBPL) equivalent to a monthly value of R1,300. Among the poorest 10% of the population, income from social grants makes up 95% of disposable income.

The experts ascribed this disparity to the country’s very high level of unemployment – 48.9% for the broad definition as of April to June 2021, or approximately 12 million people, and very unequal pay scales for those employed.

Data published by the World Bank in September showed that a third of citizens are beneficiaries of a social grant directly, which rises to close to two-thirds when those who benefit indirectly are included.

The World Bank recommended the basic income grant take the form of a “jobseekers’ grant, targeted at the unemployed. It said that a job-seekers grant, set at R350 a month, could cost R16.2 billion a year.

Who is going to pay?

South Africa’s high level of poverty and the government’s plan to introduce new grants is one of the key risks to the country’s fiscus in 2022, said Momentum Investments economists in a research note on Tuesday (4 January).

While addressing the country’s high levels of inequality is necessary, the group cautioned that this will become increasingly challenging in the context of South Africa already spending 3.3% of its GDP on social expenditure – compared to 1.5% in India and 1.4% in Brazil.

Momentum cited data from investment bank JP Morgan which shows that a basic income grant of R624 a month (the food poverty line) would cost the fiscus an additional R30 billion a year, while raising living standards to the lower-bound poverty line of R890 a month will cost an additional R60 billion a year.

An official decision on the basic income grant is expected to be made by the National Treasury in its February budget, it said.