A BIG ask

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Neil Coleman
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There is growing support for a Basic Income Grant (BIG) as one measure to cushion the devastating effects of Covid-19 and the unrest in July 2021. However, how it is designed and implemented will determine its effectiveness warn numerous researchers.

SALB put a number of questions to Neil Coleman, Senior Policy Specialist at the Institute for Economic Justice (IEJ) on their recent policy brief – Designing a basic income guarantee Policy Brief #3 and their earlier policy brief – Financing options for a universal basic income guarantee in South Africa Policy Brief #2

Access these documents here:
DESIGNING A BASIC INCOME GUARANTEE Policy Brief #3
FINANCING OPTIONS FOR A UBIG IN SOUTH AFRICA Policy Brief #2
 

 

Why is there such a divide between those who believe that the BIG is doable and those that don’t?

It depends who you are talking to in terms of the economic interests that they represent. So in government, Treasury traditionally represents interests of the financial sector and the financial markets and is very opposed to a BIG but would want to have something which accommodates the huge pressure within government, the ruling party and the country more generally.

So they would look for the option which is least costly, most circumscribed and precisely as we outline in our policy brief, one which is limited to the most extreme poor, is the most stingy, and is most exclusionary, like the R350 model.

In the business community, it’s the same thing – the financial sector who tend to oppose it are linked to the very strong, macro-economic austerity type of agenda as against those in the manufacturing and retail sector who, crudely speaking, tend to recognise that there is a social crisis and that there has to be a market for their goods.

What about political parties?

Interestingly the BIG has had the most cross-party, cross-sectoral support of probably any policy that one can think of. So when it came to the debate in parliament, every single party supported the idea of introducing BIG. But when people are forced to look at – what does it mean, how are you going to finance, etc. etc., then the support quickly vanishes and you revert to the old sort of divide.

Apart from the ANC and its allies and GOOD which has adopted support for BIG, the others have become very quiet. Interestingly you don’t hear the EFF even speak about it, certainly not the DA. I’m not hearing any of the political parties speak about it even though they supported it in parliament.

Is there a danger in implementing a BIG?

There is a lot of scare-mongering, a lot of talk about what will happen, it’s an ‘irreversible commitment’, it will ‘lead to economic implosion’ but this represents a very narrow characterisation of what a BIG would be, firstly as a social investment and in terms of its multiplier impacts. A host of international literature which we refer to in the IEJ Design Policy Brief (as well as another brief on impacts), basically show that investment in grants, in poor communities has all sorts of positive spinoffs in education, health and local economic development.

Can you give some examples of positive spinoffs where it’s been implemented?

The pilots that have been done in Namibia, Kenya, large-scale grants in Brazil and a number of other countries have shown the developmental impact in terms of supporting the growth of small businesses, employment in local communities once that grant money is pumped in. It’s not rocket science, in communities which have virtually zero demand, if you pump billions in, that’s going to have those sorts of multipliers.

Analysing eight case studies, Development Pathways found a multiplier effect of between 0.7 and 1.9 on GDP, meaning that for every rand spent, GDP increased by between 0.7 and 1.9. There was also an increase in total tax revenue, employment opportunities, and reductions in poverty, gender and income inequalities.

Some are arguing that it’s better to put the BIG money into public works programmes or employment promoting programmes.

The treasury structural reform document, the document they released about a year ago, proposed a set of micro economic reforms. They calculated that their reforms would create 1m jobs in 10 years. In other words, 100 000 jobs a year. If you include the new jobseekers on the labour market such an outcome – after the ‘structural reforms’- would actually result in an increase above the current levels of unemployment of a couple of hundred thousand a year.

So the idea that jobs by themselves is an alternative in this scenario is just laughable. The best you can do with the amount of money that it would cost to provide a universal BIG at the food poverty line (FPL) of R585 per month is to provide, at an absolute maximum, 2m public works jobs.

Is a UBIG affordable?

We think so. Through a mechanism such as the social security tax (SST), everybody who is earning  contributes but everybody also receives a benefit. If you look at the Brief #3 (page 10 Table 4) it shows what the net benefit/ contribution is. And what you see is that everybody earning up to R350 000 gets a net benefit, in this design. It could be changed. But it is a progressive form of taxation and ultimately the larger net contributors are those earning over R500 000 a year. Everybody contributes according to their ability.

The SST would be complemented by other taxes detailed in IEJ’s tax proposals. And you would have to include an element of a tax on wealth, etc. and obviously the Schussler’s and others are not going to like it. But the issue is that it is a very equitable way of financing.

[see Table 2 page 3 of Brief #2 here for a detailed description of how IEJ proposes funding]

[Note: Applied Development Research Solutions published a similar document in May 2021 – Fiscally Neutral Basic Income Grant Scenarios: Economic and Development Impacts It proposes increases in income and wealth tax of the top two quintiles to fund a UBIG which ‘translates to concurrent increases of both the expenditure-GDP ratio and the revenue-GDP ratio, with no deterioration of the deficit-GDP ratio and the debt-GDP ratio’. ]

You are against targeting for the BIG. For example, paying just those that are unemployed, or only those that are earning below a certain threshold, or paying to certain poor households. Can you explain why?

Targeting needs a much more complex system like means-testing and it is the most expensive. Even the Bolsa Familia scheme in Brazil which is regarded as one of the best, uses a simple means-test but still excludes 44% of its intended recipients.

Closer to home, of the COVID R350 grants, there are about 13m that applied. This very closely mirrors the expanded unemployed, but only around 8m have successfully applied. The register that they are using, the database that they are using, is 3 years out of date. A prominent researcher doing work in this area says there is roughly a 35 per cent error in these databases. Therefore nearly all those that have been excluded, roughly 4-5 m of the applicants are as a result of faulty databases. This demonstrates one of the many problems with targeting, which we document extensively in the IEJ Design brief.

The current R350 grant stops at the end of March next year. What do you think is going to happen then?

So we de facto now have an unemployment grant, the question is whether that is going to be converted into a BIG, what the level of it will be and who the beneficiaries will be. That’s where we expect the contestation.

Treasury favours a household grant replacing the SRD Grant. This would be a disaster. They don’t have the registry. There’s no clear identification of what constitutes the household, it will intensify GBV, you can imagine ‘heads’ of households insisting on keeping the money, it’s just riddled with issues. It would also radically reduce the number of beneficiaries.

Recently the World Bank has proposed a work-seekers grant to the narrow unemployed – i.e. all those not actively looking for work, won’t get it. So again, it’s purely fiscally driven, completely illogical – how do you determine who qualifies? What they propose is that 3.8m get the grant and that you keep the amount at R350. The R350 is already a non-starter, people are so angry at this amount, which is way below the Food Poverty Line. It’s going to be an absolute outrage if they extend it at R350 in April next year. They’re proposing that R16bn a year is spent on these 3.8m people at R350, a fraction of the cost of the SRD, let alone a universal basic income. It’s possible that if the household grant doesn’t fly treasury might look at this as a fallback type position.

“Treasury favours a household grant replacing the SRD Grant. This would be a disaster.” 

Perhaps the question shouldn’t be is the BIG affordable, but can we afford not to do this?

Imagine if you asked what would happen in a country facing a crisis of extreme proportions in which a couple of million people had lost their jobs; in which there is extreme hunger amongst 10m of the population with 3m children; what would happen if we withdrew the tiny R350 grant that we offered those people, following the withdrawal of the caregivers’ grant? Bearing in mind that together, those grants directly or indirectly benefited close to half the population.

Well that’s exactly what happened, the grants were withdrawn; then in July 2021 political dynamics of a parasitic faction fighting to defend their ill-gotten gains, combined with this desperate social situation to create massive destruction and looting (R50 billion rands worth in two weeks). A lot of it, not all of it, was related to hunger, looting of food and basic household goods. Interviews conducted in the media with people expose that hunger and desperation, and the termination of the grant played a significant role in these events.

So the notion that you can stabilise our society after the so-called return to normal, following these events, without a serious response to this underlying crisis, is unbelievable. People thinking that a gradualist response along the lines of more supply-side measures and ‘structural reforms’ can work , are living in a bubble of denial, or self-delusion. This is particularly true of those who represent interests opposed to a meaningful intervention along the lines of a UBIG. They seem to be oblivious to the social and economic cost which will be exacted by a failure to act.

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