Can a universal basic income contribute to breaking structural poverty in South Africa?

10 September 2022
Publication Type: Discussion Document
Economic Theme: Public Finance
JEL Code: D69, E62, I38

Much of the debate about the introduction of a universal basic income grant (UBIG) in South Africa is concerned with its feasibility and sustainability. This paper asks important questions, but they can only be understood in relation to the long-term social and economic benefits of a UBIG. In a wide-ranging review of local and international evidence, the authors demonstrate that these benefits can go beyond the immediate relief of income poverty, to disrupt many of the underlying drivers of unequal and exclusionary outcomes in our economy over time. Because the benefits of a UBIG are likely to accumulate and multiply, they can form an important component of an inclusive and redistributive development agenda. However, to pursue a UBIG in isolation as a silver bullet answer to South Africa’s complex and intersecting problems would be misguided. It must be integrated into a comprehensive policy programme of social provisioning, to achieve just outcomes. In this environment, we show that a progressively-designed UBIG has the potential to greatly assist in addressing our immediate humanitarian crisis of deprivation, whilst also disrupting the structural conditions which continue to produce poverty. This reveals the myriad ways in which the upfront costs of income support are justified and offset by its long-term benefits.

The authors find that a UBIG in South Africa would significantly and rapidly reduce the numbers of people living below the national poverty thresholds, and depending on the level of the transfer value could effectively eliminate income poverty by providing regular cash payments to supplement people’s income. While this would raise living standards in the short term, it would also have profound longer-term effects, such as on employment.

The paper reviews the impact of income support in South Africa and in other countries on people’s ability to participate in the labour market. The body of evidence suggests that the security and autonomy provided by income support does not diminish—and may even have the effect of increasing—people’s motivation to do rewarding and productive work.

Finally, the paper shows that the myriad intersecting social and economic benefits of a UBIG can have dramatic macroeconomic implications, which serve to offset the fiscal costs of the programme. These macroeconomic benefits include increased aggregate demand in the economy which in turn flows into government revenue through tax. However, the macroeconomic impacts of a UBIG are not limited to the value of the transfer being spent back into the economy (and especially local businesses in depressed areas).

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