Basic Income Grant: What is the debate about?

The possibility that a Universal Basic Income Guarantee (UBIG) could be introduced in South Africa has sparked a lot of debate over the last two years.

Its advocates say this grant could address our extremely high rates of poverty and ensure that all people have an adequate standard of living. Its detractors say it would bankrupt the country.

In this three-part series from the Institute for Economic Justice (IEJ), we cover the basics of a basic income grant. In our first article, we gave an overview of what a universal basic income guarantee is and what transformative potential it could have.

In this, our second piece, we cover the evolution and current state of the debate in South Africa. Our final piece will focus on how we could finance it.

The birth of the debate in South Africa

The idea of a basic income grant (BIG) in South Africa goes back to the late 1990s, when organised labour proposed that the idea should be investigated by the government at the 1998 Presidential Jobs Summit. In 2002, the report of the Taylor Committee of Inquiry into a Comprehensive System of Social Security for South Africa proposed a basic income grant of R100 per person, per month.

But then the debate disappeared for two decades. The recommendations of the Taylor Committee were ignored. The ANC was largely opposed to the UBIG during this period, influenced by concerns about “hand-outs” and dependency.

As successive governments pushed different growth agendas, there was less political interest in social security as a developmental strategy. It took time for the ineffectiveness of these growth agendas to become clear: massive unemployment persisted, inequality worsened, poverty deepened.

Covid restarts the debate

When the Covid pandemic hit, the UBIG debate re-emerged.

The temporary Social Relief of Distress (SRD) grant of R350 a month was introduced by the government as a response to the impact of the pandemic and related lockdowns.

This was the first grant that able-bodied adults between the ages of 18 and 59 could receive. Until then, even though a large proportion of this group had no other income and were shut out of paid work due to South Africa’s structural unemployment crisis, they were not covered by the social grant system.

Civil society organisations began to call for a permanent UBIG to replace the temporary SRD grant, and the government listened.

In December 2021, a panel of experts commissioned by the Department of Social Development and the International Labour Organisation found that while the SRD grant had provided a lifeline for many, it had not made a sufficient impact on poverty because it was too small. In South Africa, four million households, comprising 11 million people, have income below the food poverty line (FPL), which was R595 per month in 2020.

According to the panel, a BIG introduced at scale, worth at least the FPL, would almost eliminate poverty in South Africa. The panel recommended that the SRD grant should be made permanent, and progressively increased over time. They said that “no alternative measures could reasonably address the widespread and urgent income support needs” of South Africans.

In January 2022, a coalition of civil society organisations met President Cyril Ramaphosa to argue that the SRD grant should be made into a universal basic income guarantee. They said that it should be increased first to the FPL and then by 2024 to the upper bound poverty line (R1,335 per month in 2021). These proposals were recently supported by a resolution of the ANC Policy Conference in July this year.

But support for a UBIG has not been unanimous.

Opponents of the grant, which include some groups in business and the National Treasury, have variously claimed that it is unaffordable, that its costs would overshadow any benefits, that it is a “populist’” party-political tactic and that it would further a “culture of dependency”.

A boost for the economy?

Critics of the UBIG say that it will cause the economy to slow down. The Centre for Development and Enterprise (CDE), for instance, argues that while the UBIG will “raise beneficiaries’ consumption”, causing a boost to the economy, this will come “at the cost of reduced consumption elsewhere”.

This argument does not account for the extent to which a UBIG can boost local economies. It is not just increased spending that will result, but it can allow more people to become active participants in the economy, which would grow as a result.

UBIG beneficiaries will spend the money in their local communities, which stimulate these industries and increase tax revenues through increased VAT payments.

Informal sector workers would use a portion of their basic income to invest in self-employment and productive activities.

These types of positive spin-offs can, over time, resolve South Africa’s pressing challenges such as inequality, unemployment and poverty. This means that the net cost to the government decreases.

The benefits of a UBIG are far greater than the initial cost of its implementation.

Populism or for the people?

The CDE also says that the only reason why a UBIG is now on the national agenda is that the governing party needs to shore up support.

But in a democratic system we should expect parties to pursue policy platforms that they expect to have widespread support, and benefit their constituency. We should also respect voters’ rights to judge the merits of such policies. The popularity of a policy is by no means an inherent argument against it.

This argument also ignores the pronounced and profound economy-wide impact of the Covid pandemic that led to the introduction of the R350 SRD grant. It also ignores the large number of civil society organisations and social movements that are calling for the adoption of a UBIG.

Dependency debates

Another line of attack from UBIG detractors, including the Minister of Finance, is to claim that providing grants will create a cycle of dependency. This argument is not based on evidence.

The evidence of a large number of studies on cash transfers in Africa and other low- and middle-income countries demonstrates that UBIGs make people more productive.

Studies have shown that even meagre basic income support for vulnerable people increases autonomy and enables job-seeking, investment in productive assets, a transition from poor quality and exploitative jobs to more decent work as well as self-employment, small business creation, and women’s economic empowerment.

As we mentioned in our previous article, basic income support helps people to join the formal labour market as it gives people money to look for a job.

The reality is, given the chance, people consistently seek ways to increase their economic participation and security.

Can we afford a UBIG?

Concerns about the affordability and sustainability of UBIG proposals have also come from the business lobby. The CDE and Intellidex argue that paying for a UBIG would require income tax increases or taking on debt that South Africa cannot afford. Income tax increases would lead to emigration and other destabilising economic effects, and South Africa already has a high debt-to-GDP (gross domestic product) ratio, they say. CDE and Intellidex argue that tougher taxes on the wealthy would compound the economic problems in South Africa.

They conclude that a UBIG is unaffordable.

But UBIG will act as a stimulus to the economy. Part of the cost associated with it will be recouped by the government through VAT. The remaining net cost can be sustainably financed through progressive taxation.

South Africa’s income and wealth inequality is a destabilising factor in the economy. Taxing and redistributing income more progressively using a UBIG could shift persistent structural inequality in the economy, as argued by IEJ director Gilad Isaacs in response to the Intellidex report.

This argument has found unusual supporters. In August this year, the historically conservative Organisation for Economic Cooperation and Development (OECD) came out in favour of a UBIG as a safety net, and a more redistributive tax system.

The IEJ’s analysis suggests that UBIG is achievable in South Africa in the short-term and would carry little risk if it is phased in carefully and responsibly. We have proposed an initial UBIG valued at R624 per month (the food poverty line at September 2021) that would overtime be increased.

In the final part of this introductory series, we will look at how we could finance this.

Vuyisiwe Mahafu is a budget policy intern at the Institute for Economic Justice.

© 2022 GroundUp. This article was first published here.