How to pay for an annual Advancement Grant

An Advancement Grant is a once in a lifetime grant intended for every South African citizen to advance their lives through whatever means the grant can purchase. For example, education, training, travel, investment, opening a business, helping to purchase a home. There are no restrictions on how it can be used. It is intended to be the equivalent of paying for a professional tertiary degree (four years of university). In the post There is no such thing as a free lunch Part ll, we postulated an Advancement Grant to satisfy the Fees must fall demands. We indicated that we would sharpen our pencils to determine costs and the means of payment. This is it.

If one assumes an Adult Population of 35 million and a working life of say 47 years (18 to 65) and for the sake of simplicity assume that each year there would be 1/47th of 35 million school leavers qualifying for an advancement grant, that would be 745 000 (say 750 000) school leavers each year. Assuming an advancement grant of R200 000 each that would be R149 Billion a year.

TEAL can fund this as follows.

If we assume a R2.8 Trillion GDP for 2017 that would equal a Total Economic Activity of 2.8 X 30 or R84 Trillion flowing through the banking system. Each Rand of that flow represents both a deposit and a withdrawal from the banking system so the actual Tealable amount would be R168 Trillion. R149 Billion as a percentage of R168 Trillion = 0.089% or about 0.09% (=151.2 Billion)

So, an annual TEAL of about 0.09% on R168 Trillion will pay for a R149 Billion Advancement Grant granted to 750000 school leavers (each school leaver receiving R200 000) each and every successive year.

What of the 34 250 000 who will not receive the Advancement Grant in year one of the scheme (The Left Behinds)?

If each of these ‘Left Behinds’ received R200 000 that would cost R6.825 Trillion. If that were paid out to them evenly over 20 years at an interest rate of say 6% pa, that would be about R10.920 Trillion or R546 Billion per year. Paid out to 34.25 Million each month over 240 months would be 10.92T/240months/ 34.25 Million// per month, or R1328.47 per month per person left behind. R546 Billion as a percentage of R168 Trillion is 0.325% .

So the annual Advancement Grant of R149 Billion and the annual Left Behind Grant of R546 Billion (in total R695 Billion) could be paid annually by a TEAL of 0.09% + 0.325% or 0.415%.

0.415% of R168 Trillion is R697.2 Billion

In Table Form:

Grant

R168 Trillion TEALable amount

TEAL

Total Grant Amount pa

Advancement

‘0.090 % of R168T

R151.2 Billion

R149.00 Billion

Left Behind

‘0.325 % of R168T

R546.0 Billion

R546.00 Billion

Annual Total

‘0.415 % of R168T

R697.2 Billion

R695.00 Billion

NB: This is an exercise. The GDP and the Tealable amount will vary from year to year as will the number of persons qualifying as may the payouts as also will the population, so these numbers are not to be taken as absolutes, merely an indication of what is possible.

Have a look at DDF policy on the Basic Income Grant (BIG) and DDF policy on the Total Economic Activity Levy (TEAL).

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