Government should invest in basic income grants to fight poverty and help economic growth
In a highly unequal society like South Africa, with half the population or close to 30 million people living in poverty, a basic income grant (BIG) is a means of limited redistribution to the poorest.
A new report, unveiled by Applied Development Research Solutions (ADRS) and the Institute for Economic Justice (IEJ), states that implementing a BIG can reduce poverty and inequality and boost economic growth and employment.
The report, “Macroeconomic and Developmental Impacts of Selected Basic Income Grant Pathways for South Africa”, highlights the transformative impact of a BIG for South Africa.
The study, which models three new basic income scenarios, shows there is no trade-off between a BIG and economic growth and fiscal sustainability. Instead, it produces win-win outcomes, significantly reducing poverty and inequality while fostering positive macroeconomic outcomes.
This is counter to mainstream economic models, which often predict that implementing a BIG would negatively affect the economy.
“These models are built to closely reflect a particular view of a market economy that suffers from a number of inter-related irremediable flaws such as full employment, perfect competition, perfect information and rational expectations assumptions,” says Dr Asghar Adelzadeh, ADRS Global CEO and author of the report.
“Our Dynamically Integrated Macro-Micro Simulation Model of South Africa (DIMMSIM) reveals that with reasonable funding pathways, BIG can be a catalyst for positive outcomes – reducing poverty and inequality while enhancing economic growth and employment.”
Think BIG, act local
The BIG pathways outlined in the study showcase the potential to reduce the national poverty rate by up to two-thirds by 2030, presenting a promising avenue for poverty alleviation that is often overlooked.
The study proposes a funding strategy involving a small wealth tax and social security tax, demonstrating that a BIG can be implemented without changes to income tax or VAT regimes.
The outcomes would be significant, and have a whole of society impact, potentially reducing child mortality, hunger, crime and a cyclical poverty trap.
“The study’s findings are a testament to the transformative potential of a basic income grant in reshaping our economic landscape. They provide evidence that challenges existing norms and opens new possibilities for inclusive growth,” says Dr Gilad Isaacs, IEJ’s executive director. “If we implement a BIG, it can substantially reduce income poverty, contributing to a more equitable society.”
The study emphasises the need for policymakers to reconsider preconceived notions about the economic impact of social assistance programmes.
The full study is available for download on the IEJ website, providing a comprehensive exploration of the DIMMSIM model and its implications for South Africa’s economic future.
Executives and policymakers interested in training on ADRS Global economic modelling tools can now register for certificate level courses via the Economic Modelling Academy at the Gordon Institute for Business Science, specifically in macro-economics, poverty and inequality, green economy modelling and more.
