Basic Income Grant: how it would work

Research shows the grant can help end hunger and also contribute to economic growth

By Carilee Osborne

31 August 2022

A Universal Basic Income Guarantee set at the right level could eliminate poverty in South Africa, writes the author. Archive photo: Vincent Lali

South Africa is one of the most unequal countries in the world, with extremely high rates of poverty and unemployment. Large numbers of people are excluded from the economy without the means to ensure that their basic needs are met. Recently there has been a lot of debate about the introduction of a Universal Basic Income Guarantee (UBIG) in South Africa and its potential to address poverty and ensure that all people have an adequate standard of living.

But what the introduction of a basic income grant means and what it looks like is not always clear. In this three-part series from the Institute for Economic Justice (IEJ), we cover the basics of a basic income grant. This, our first article, covers the overview of what a (U)BIG is, what different types exist and what transformative potential it may have. Our second piece covers the debate in South Africa and our final piece focuses on how we could finance it.

What is a (U)BIG ?

A basic income guarantee is a commitment by government to ensure that everyone has a minimal level of income to meet their basic needs. This is done through a regular cash transfer or grant.

Not all basic income guarantees are the same. A major point of difference is whether a guarantee is universal or targeted.

A Universal Basic Income Guarantee is something that all people (usually within a certain age range, for instance: all adults or all working-age adults) qualify for, regardless of their income or employment status.

A targeted basic income on the other hand is only paid out to those who meet some kind of qualifying criteria, usually that they are unemployed and/or have income below a certain level, typically referred to as a means-test threshold.

In a targeted grant the level of this threshold is an important decision and determines the impact of the grant. If a threshold is set too low, for example, people who need the grant will not receive it. Advocates of a targeted grant argue that since only those who most need the grant receive it, this is the best use of scarce resources.

With a universal grant, everyone qualifies for the grant regardless of their income. Advocates of a UBIG argue that this reduces the administrative burden on the state because government officials do not have to go through difficult and time-consuming assessments of whether an applicant qualifies or not. A universal grant would mean there is less chance that people who need the grant won’t receive it (due to something called “exclusion errors”). Research shows that targeted grants are difficult to administer, and always involve some level of accidental exclusion of rightful beneficiaries. Many previous recipients of, and current applicants for, the current R350 Social Relief of Distress (SRD) grant can attest to this.

In addition to whether a grant is targeted or not and how any targeting is designed, the value of the grant is also an important design decision as it is important to ensure that the grant is set at a high enough level that it improves people’s life choices, rather than trapping them in poverty and dependency.

What can a UBIG do?

Many countries have introduced basic income support in some form, often to test its impact, and there is a lot of research that shows what the effects can be.

• Basic income support can end hunger: Government estimates suggest that 18.3 million people in South Africa do not have enough income to meet their basic food needs, and more than half the population lives in poverty. A UBIG set at the value of the highest poverty line would, by definition, eliminate poverty and end hunger in South Africa.
• Basic income support can improve health and education outcomes: Poverty produces unjust and costly social consequences, including poor health and barriers to education. This makes it harder for people to escape poverty, and can trap generations in a cycle of poverty. Extensive evidence shows that basic income support (if it is accompanied by public healthcare and education) can improve people’s nutrition, health, and education, and help them escape intergenerational poverty. Studies also show that income support reduces stress and improves people’s psychological well-being. Evidence from Alaska, Kenya and South Africa shows the impact of cash transfers on child nutrition and health outcomes. Other research points to the fact that cash transfers help keep young people in school for longer.
• Basic income can help grow the economy: Critics of basic income support often think about grants as a financial drain on the state or the economy, but research shows they can play an important role in growth. This is partly because people spend the money they receive in local communities. Research also shows that basic income support helps people to join the formal labour market because it takes away the stress of trying to ensure basic needs are met and/or gives people the money to cover the costs of looking for a job. Finally, research shows that basic income can also help support people to build sustainable livelihoods through self-employment or starting businesses.
• Basic income can help address gender inequality: Women perform the bulk of unpaid domestic and care work in the home, and are also disadvantaged in the labour market. This means they are more likely to be poor, and are also more likely to be dependent on men. Basic income support gives women more autonomy and independence, and can also reduce their vulnerability to gender-based violence.
• Basic income can improve social cohesion: A UBIG is a fairer way of sharing the wealth in our society, and this can help to improve social solidarity, stability, and democratic participation. A basic income trial in Namibia led to a reduction in crime.

What about South Africa?

South Africa does not have any permanent income support for able-bodied people between the ages of 18 and 59. The Covid-19 SRD grant is a temporary measure which targets some people in this group but it has many limitations. There have been debates about the introduction of basic income support since the 1990s.

In our next article we go into details about the history of the debate in South Africa and discuss what a UBIG in the country could look like. We argue that a UBIG can have transformative effects in South Africa helping to shift structural poverty, alleviate some of the impacts of deeply entrenched unemployment and end hunger in the country. Rather than being a drain on the economy, a UBIG can contribute to growth as more people spend money in their local communities and have the means to better their economic position.

Osborne is a research associate at the Institute for Economic Justice (IEJ). This is the first of a three-part series produced for GroundUp by the IEJ.