What is the Basic Income Grant?

The Basic Income Grant (BIG) is a monthly grant that would be paid by the state to everyone legally resident in South Africa, regardless of age, income, family status, or other factors. It has been proposed by a wide range of groups-including the government's expert panel on comprehensive social security-as one way of giving effect to the right to social security, guaranteed by the Constitution. Supporters of the grant have recommended that it be set at R100 a month at first, but that it increase as prices rise.

Why do we need a BIG?

More than half of all South Africans, including two out of three children, live in poverty. But we are not a poor nation. Income and wealth are just unequally distributed. In fact, South Africa is one of the most economically unequal societies in the world. Such enormous differences pose a grave threat to the stability of our society. The patchwork of social grants inherited from the apartheid era are unable to meet the basic needs of the majority of our people. Nearly 12 million of the poorest South Africans live in households that currently receive no social assistance because they do not have members eligible for a state old age pension, a disability grant, a child support grant or unemployment benefits.

What are the benefits of the BIG?

The main benefit of the grant is its ability to improve everyone's life by reducing poverty and inequality. People have suggested a number of ways that government could ensure that all in South Africa have access to social security. Of all the schemes proposed, the BIG seems likely to liberate the most people from severe poverty. In addition, a BIG would support overall development by enabling the government to deliver social services more efficiently and by stimulating consumer spending and economic growth. A fairer, more prosperous society is in everyone's interest.

How much would the BIG cost?

The cost depends on the amount of the grant, the way in which it is paid out, and the way in which the government finances the grant. A number of affordable plans have been proposed. Paying R100 a month to everyone in South Africa would cost about R48 billion a year. But a large portion of this would be recovered through the tax system. Depending on the way the money is recovered, the net (additional) cost to the government is likely to be between R15 billion and R24 billion extra a year. This must be seen in the light of the government's excellent capacity to collect tax and the fact that the government has cut income taxes by nearly R50 billion since 1995. The BIG would also allow government to save money in other areas. Health care costs go down, for instance, if people can afford better food and are able to maintain a better level of general health. So the final cost of the grant would be even less.

How could a BIG be funded?

The government could use a combination of methods to raise the money necessary to finance the BIG. It is likely that one method would be to increase taxes-in a manner that places the largest burdens on those most able to pay. This would also strengthen the redistributive effect of the BIG. It should be noted, however, that more effective tax collection also increases the money available to the state. Over the past five years, the South African Revenue Service has consistently collected more tax than predicted, even though the tax rates have been cut. (In other words, companies and individuals are required to pay less, but fewer are able to evade taxes altogether.)

How would people get the BIG?

There are a number of ways the grant could be delivered. The most promising is the planned Home Affairs National Identification System (HANIS). HANIS will ensure that every South African has an ID card with a 'smart chip' on it. The 'smart chip' will enable people to access their social grants through places such as ATMs, spaza shops and post banks. Government has already decided that social grants will be the first application loaded on the smart cards. If a BIG were introduced, it could easily be delivered in this way.

Will people become dependent on the BIG?

Poverty causes dependency. The very poor usually depend on assistance from relatives and friends who have some source of income. But these people are often poor themselves. So the present system acts like a tax on the working poor, reducing wages and productivity. A BIG would distribute this burden more fairly. It would fight dependency by enabling the very poor to gain more control of their lives. Research suggests that as people's incomes go up, both their capacity to look for work and their success in finding work increase. So the BIG would not just be a safety net. It would be more like a springboard, providing the "lift" to enable people to reach for better lives.

It is important to remember that the BIG is not a "dole" because it is not means-tested-in other words, you do not need to prove that you are poor in order to claim it. Means-tested grants penalise people for getting a job or earning money in other ways because you lose the grant if your income rises above a certain level. A BIG would not discourage people from looking for work.

What evidence is there that it will really reduce poverty?

Since the BIG would be paid to everyone, it would be of particular benefit to the very poor, who are often unable to access grants that involve complicated application or collection procedures. Studies show that the BIG would lift more people further out of poverty than other options. Economists often measure the extent of poverty by looking at the "poverty gap". This is the difference between people's incomes and the amount they need to meet their most basic needs. Using information about current income patterns in South Africa, economists have shown that the BIG would do the most to close South Africa's poverty gap. It would also eliminate extreme poverty, enabling all South Africans to live with dignity.

How would the BIG encourage economic growth?

A BIG would enable people to improve their living conditions. They would have a little bit more money to spend on food, health care, making improvements to their homes and so on. Increased spending would mean more economic activity and more jobs. As people become happier and healthier, worker productivity also improves. More importantly, people would be better able to plan for the future and to take small risks, such as investing in education, looking for work or even starting their own businesses. By promoting greater equality and giving everyone a stake in the society and economy, the BIG would also produce a more stable society, which is likely to attract further investment.

What are the disadvantages of the BIG?

The main disadvantage is the initial cost. In the first few years, government would need to spend additional money to set up systems to finance and pay out the grant. After this, the cost is expected to go down as the grant should be relatively inexpensive to administer. At the same time, the grant is likely to stimulate the economy and improve people's living standards. This will generate more tax income for government and decrease the cost of providing other services.

There have been many problems with the payment of existing grants. Would the BIG also be affected by these problems?

Most of the current problems are associated with means-testing, which requires officials to collect and check information about applicants' incomes. This is time-consuming work that takes a large number of staff. The BIG would not involve a means test, so it would be much simpler and less costly to administer.

How can you prevent people from wasting the grant on alcohol, lottery tickets, etc.?

You can't-just as you cannot prevent people who currently receive old age pensions, child support grants and disability grants from doing this. But the overwhelming majority of people use their resources responsibly. Presently, South Africa's poorest households spend more than 90% of their income on food, education and transportation. An extra R100 per person per month will enable most households to buy a bit more of these basic goods. As with any large national programme, there will inevitably be a small number of irresponsible people who abuse the system. But these people should not become an excuse for withholding social security from responsible households.

Would people who currently receive grants of more than R100 a month get less if a Basic Income Grant was introduced?

No, not under current proposals. Although the exact relationship between existing grants and a new universal income grant would still have to be worked out, supporters of the grant have said clearly that no one should receive less than they do now.

Are there better alternatives to a universal grant?

There are less expensive alternatives, but they are far less effective in reducing poverty. And there are more expensive alternatives-like "workfare", which requires people to work in order to get a grant. However, such programmes have not been very effective in other parts of the world, and they tend to be very expensive and biased against women. Some initiatives, such as public works programmes and other job creation schemes, should not be seen as alternatives to a BIG, but rather as complementary.

Shouldn't the social security system target people who are most affected by poverty?

Absolutely. Children, women, and rural residents are the most likely to be trapped by poverty. However, it can be wasteful and ineffective to try to limit social assistance to specific groups of people. By giving a grant to everyone in South Africa, then reclaiming the money from those who don't need it, the government can actually do a better job of ensuring that social assistance reaches most of the people who do need it. And this assistance can be delivered in a way which doesn't diminish people's dignity by labelling them "poor".