South Africa’s Institute for Economic Justice (IEJ) and the Applied Development Research Solutions have proposed implementing a wealth tax on the country’s top income earners to fund a Basic Income Grant (BIG). Dr. Asghar Adelzadeh, co-director of the Economic Modelling Academy at GIBS Business School, presented three funding models during a recent webinar.
The primary proposal involves a 1% wealth tax targeting the wealthiest households, who hold up to 90% of the country’s wealth. This tax, estimated to generate approximately R70 billion in revenue, would be based on net wealth in terms of income and assets. Adelzadeh emphasized the importance of including the wealthiest households to ensure equitable financing.
Additionally, alternative funding methods include a social security tax and an increase in the Value Added Tax (VAT). The social security tax would apply a flat rate of up to 2.5% on wages/salaries, providing a straightforward approach to funding the BIG. Adelzadeh highlighted the possibility of combining increased VAT revenue with the introduction of a half-percent and 1% wealth tax to cover the program’s costs.
Models presented at the webinar explored different scenarios for the BIG’s implementation, considering factors such as poverty levels, food poverty, and the upper poverty line. The gradual introduction of the BIG, starting at 60% eligibility in the first year and increasing by 20% annually until 2030, aims to ensure a sustainable and effective rollout. Adelzadeh emphasized that recipients of the BIG should be excluded from receiving other adult grants.
Despite ongoing debates about the affordability of the BIG, the IEJ challenges the notion that the country cannot bear the cost. Some critics estimate the BIG could range between R200 billion and R300 billion annually, contingent on the number of beneficiaries. The IEJ argues that a carefully planned wealth tax targeting the affluent could generate sufficient revenue.
The discussion surrounding the BIG coincides with the extension of the R350 social relief of distress grant, originally introduced to mitigate the impact of the Covid-19 pandemic. The IEJ has taken the government to task over the exclusion of certain unemployed individuals from receiving this grant based on current means tests.
Dr. Gilad Isaacs, executive director at the IEJ, emphasized that concerns about the BIG were similar to those expressed during debates about introducing a minimum wage. Adelzadeh suggested that, despite economic constraints, the BIG could boost aggregate demand and potentially increase the GDP growth rate to an average of about 2.22%.
However, Isaacs noted that the impact of social transfers on growth has been limited due to grant increases not keeping pace with inflation. The proposal aims to address poverty levels, economic stagnation, and high unemployment rates, providing a comprehensive approach to improving South Africa’s socio-economic landscape.