Basic income grant can reduce poverty, boost economic growth – Study

A new report titled 'Macroeconomic and Developmental Impacts of Selected Basic Income Grant (BIG) Pathways for South Africa' by Applied Development Research Solution (ADRS) and the Institute for Economic Justice (IEJ), says implementing a basic income grant can reduce poverty and inequality and boost economic growth and employment.

Speaking at the launch, ADRS director and chief economic modeller Dr Asghar Adelzadeh said the study aimed to use economic modelling techniques to quantify the macroeconomic and developmental impact of selected BIG scenarios and their implementation pathways.

South Africa has almost half its population, or close to 30-million people, living in poverty and relying on grants to survive. The situation has become exacerbated by the Covid-19 pandemic as many people have lost employment.

Adelzadeh said their initiative was based on the fact that the model used by the Department of Social Development and National Treasury closely reflected a particular view of a market economy that suffered from "several interrelated irremediable flaws" such as perfect competition and full employment.

Secondly, these earlier studies do not include BIG scenarios in which eligibility and entitlement evolve over time.

More realistic BIG scenarios (pathways) should include periodic adjustments of the programme to make sure that within a certain period, the programme covers all poor adults and pays a decent grant amount.

Thirdly, there are several possibilities to fund a BIG programme, beyond using income tax and value added tax.

“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,” said Adelzadeh.

Outlining the initial impact using the DIMMSIM and looking at the initial impact of a BIG policy on government expenditure and household income will reverberate throughout the economy, Adelzadeh said, adding that the overall increase in household income would stimulate production response from economic sectors that would, in turn, lead to higher investment, employment and income.

IEJ executive director Dr Gilad Isaacs said the study's findings were a testament to the transformative potential of a BIG in reshaping our economic landscape.

“They provide evidence that challenges existing norms and opens new possibilities for inclusive growth. If we implement a BIG, it can substantially reduce income poverty, contributing to a more equitable society,” said Isaacs.

The study also emphasises the need for policymakers to reconsider preconceived notions about the economic impact of social assistance programmes.

Full Report Attached.