EXPLAINER | Basic Income Grant: What is the debate about? | Fin24 – News24

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

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

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

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

The birth of the debate in South Africa

The idea of a basic income grant (BIG) in South Africa goesback to the late 1990s, whenorganisedlabour proposedthat the idea should be investigated by the governmentat the 1998 Presidential Jobs Summit. In 2002, thereportofthe Taylor Committee of Inquiry into a Comprehensive System of Social Securityfor South Africa proposed a basic income grant of R100 per person, per month.

But then the debate disappeared for two decades. Therecommendations of the Taylor Committee were ignored. The ANC was largelyopposed to the UBIG during this period, influenced by concerns about "handouts"and dependency.

As successive governments pushed different growth agendas,there was less political interest in social security as a developmentalstrategy. It took time for the ineffectiveness of these growth agendas tobecome clear: massive unemployment persisted, inequality worsened, povertydeepened.

Covid-19 restarts the debate

When the Covid-19 pandemic hit, the UBIG debate re-emerged.

The temporary Social Relief of Distress (SRD) grant of R350a month was introduced by the government as a response to the impact of the pandemicand related lockdowns.

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

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

In December 2021, apanelof expertscommissioned by the Department of Social Development andthe International Labour Organisation found that while the SRD grant had provideda lifeline for many, it had not made a sufficient impact on poverty because itwas too small. In South Africa, four million households, comprising 11 millionpeople, have income below the food poverty line (FPL), which was R595 per monthin 2020.

Accordingto the panel, a BIG introduced at scale, worth at least the FPL, wouldalmost eliminate poverty in South Africa. The panel recommended that the SRDgrant should be made permanent, and progressively increased over time. Theysaid that "no alternative measures could reasonably address the widespreadand urgent income support needs" of South Africans.

In January 2022,acoalition of civil society organisationsmet President Cyril Ramaphosato argue that the SRD grant should be made into a universal basic incomeguarantee. They said that it should be increased first to the FPL and then by2024 to the upper bound poverty line (R1,335 per month in 2021). Theseproposals were recently supported by aresolutionof the ANC Policy Conferencein July this year.

But support for a UBIG has not been unanimous.

Opponents of the grant, which include some groups inbusinessandtheNationalTreasury, have variously claimed that it is unaffordable, that its costswould 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 toslow 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 reducedconsumption elsewhere".

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

UBIG beneficiaries will spend the money in their localcommunities, which stimulate these industries and increase tax revenues throughincreased VAT payments.

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

These types of positive spin-offs can, over time, resolveSouth Africa's pressing challenges such as inequality, unemployment andpoverty. This means that the net cost to the government decreases.

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

Populism or for the people?

TheCDEalsosays that the only reason why a UBIG is now on the national agenda is that thegoverning party needs to shore up support.

But in a democratic system we should expect parties topursue policy platforms that they expect to have widespread support, and benefittheir constituency. We should also respect voters' rights to judge the meritsof such policies. The popularity of a policy is by no means an inherentargument against it.

This argument also ignores the pronounced and profoundeconomy-wide impact of the Covid pandemic that led to the introduction of theR350 SRD grant. It also ignores the large number of civil society organisationsand social movements that are calling for the adoption of a UBIG.

Dependency debates

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

The evidence of a large number ofstudieson cashtransfers inAfricaandother low- and middle-incomecountriesdemonstratesthat UBIGs make people more productive.

Studies have shown that even meagre basic income support forvulnerable people increases autonomy and enables job-seeking, investment inproductive assets, a transition from poor quality and exploitative jobs to moredecent work as well as self-employment, small business creation, and women'seconomic empowerment.

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

The reality is,giventhe chance, people consistently seek ways to increase their economicparticipation and security.

Can we afford a UBIG?

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

They conclude that a UBIG is unaffordable.

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

South Africa's income and wealth inequality is adestabilising factor in the economy. Taxing and redistributing income moreprogressively using a UBIG could shift persistent structural inequality in theeconomy, asarguedby IEJ director Gilad Isaacsin response to the Intellidex report.

This argument has found unusual supporters. In August thisyear, the historically conservativeOrganisationfor Economic Cooperation and Development (OECD) came out in favour of a UBIGasa safety net, and a more redistributive tax system.

The IEJ's analysis suggests that UBIG is achievable in SouthAfrica in the short-term and would carry little risk if it is phased incarefully and responsibly. We haveproposedaninitial UBIG valued at R624 per month (thefood poverty line at September 2021) that would overtime be increased.

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

Vuyisiwe Mahafu is a Budget Policy Intern at theInstitute for Economic Justice.

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EXPLAINER | Basic Income Grant: What is the debate about? | Fin24 - News24