Basic income grant gains momentum
Over the past year more than a dozen research reports have explained in detail how the government could finance and implement a basic income grant (BIG).
The latest documents are the department of social development’s superb green paper on comprehensive social security and retirement reform, and a report by the ANC’s joint economic and social transformation BIG task team.
The green paper proposes a three-pillar social security system. The first refers to social assistance that is funded from the fiscus and does not require beneficiaries to make any contributions.
The government would phase out means tests and introduce universal child and old-age grants. To close the gap in social assistance, which mostly provides grants for people who are too young or too old to work, there would be income support for the working age population who are between 18 and 59 years old.
“Over time, the existing grants may converge into a BIG with top-ups for various contingencies,” the paper says.
The second pillar would have a National Social Security Fund (NSSF), funded by mandatory contributions by all employed people. Because free markets are designed to cherrypick prime customers, private schemes exclude 6.2-million workers. The new fund, which is based on the US model, is meant to address this market failure. That is why most countries have such mandatory funds. SA’s Wild West system of capitalism, which has private schemes, is an anomaly. Despite fearmongering by journalists and others who have not read the green paper, there will be no new tax of 8%-12%.
Private schemes have an average contribution rate of 15.8%. These contributions are not a tax. They are savings. With the NSSF people earning less than R23,320 a year will not make contributions. Others will make contributions on income of up to R276,000 a year.
Assuming a 10% contribution rate, the average Business Day reader who earns R600,000 a year would contribute 2.3% of this income. The employer would contribute the other 2.3%. There would be protection of vested rights in existing schemes. On retirement the average reader would get the old age grant and 40% of their previous lifetime earnings. If they want more they could top up with supplementary products within the third pillar.
Last week I made a presentation on the BIG to the ANC in Gauteng. There was overwhelming support for the idea. I am told the same applies within the party’s task team on the BIG. “I do not think it will be the finance minister’s call whether there should be a BIG,” one member said.
Opposition to the BIG is crumbling. There are fewer than a handful of naysayers who write on these pages. An ANC member says: “The key issue now is to decouple the debate on how to implement the BIG from broader issues that relate to restructuring the retirement industry. The BIG does not need the social security fund before it can fly. It should not be caught up in a debate that has been going on for at least a decade.”
The task team report said: “A developmental approach takes into account that social grants are an economic investment in people, that these grants have a multiplier effect that generates local economic development and promotes livelihoods.”
The recommendation was that the government should immediately reintroduce the Covid-19 social relief of distress grant at the food poverty line of R585 a month. The grant should form the basis for a transition to a targeted grant for 13.5-million people who are without paid work, which would cost R90bn a year. The grant could then be expanded to benefit 28-million people at a cost of R200bn.
The BIG must be part of the government’s economic recovery plan.