The Impact of the Proposed Basic Income Grant on the Western Cape

Despite that fact that South Africa is classified as a middle income country it is estimated that at least 22 million people -well over half the population -live in poverty. In 2001, the South African Council of Churches (SACC) joined a broad coalition of civil society organisations calling for the introduction of a Basic Income Grant as a key intervention in the struggle against poverty and inequality. It was envisaged that a monthly transfer of R(and)100 would provide rapid and sustained relief to all South Africans. The analyses reported in this paper seek to provide an ex ante assessment of the impact of the Basic Income Grant on the socio-economic conditions of households and industries in the Western Cape. The analyses are conducted using a computable general equilibrium model that is calibrated to a Social Accounting Matrix for the Western Cape Province. The results indicate, ceteris paribus, that when funded exogenously a BIG will achieve substantial reductions in poverty and inequality, but that the universal BIG scenario is only marginally superior to a targeted basic BIG and achieves less poverty alleviation than an enhanced but targeted BIG. If the transfers are funded by increase in tax rates the degrees of poverty alleviation achieved are greatly reduced, especially if the transfers are funded by an increase in the sales tax rate. When a BIG is funded from tax revenues the degrees of poverty alleviation from targeting increase enormously such that under some scenarios targeting can nearly double the estimated extent of poverty alleviation.