Basic income grant is needed to avert social upheaval

By: NEIL COLEMAN

Views are sharply polarised, with unions and civil society campaigning for the introduction of a BIG starting at a minimum of the food poverty line (currently R624), and sections of the government — particularly the Treasury — and organised business strongly opposing it, despite conflicting signals from the president on the matter (“Treasury cites fiscal stability as it seeks to pare down income grant”, September 9).

Recently the ANC policy conference resolved to propose a universal BIG, supported by union federation Cosatu and the SACP at this week’s congress. In contrast, the Treasury has made proposals to limit income support, largely to a small grouping of the unemployed who can prove they are looking for work, thereby appearing to close off the possibility of extending and expanding the current social relief of distress (SRD) grant into permanent basic income.

Academic research shows the importance of the R350 SRD grant in combating worsening hunger and poverty in the Covid-19 crisis, which continue to be widespread. Government statistics suggest more than half the population live in poverty and about 18-million in dire poverty, with income below the food poverty line. This means one in three fellow South Africans is food insecure and faces daily hunger, while more than half of the population cannot afford to buy basic necessities. For millions the SRD grant, tiny as it is, is all that stands between them and total destitution.

Now the country faces the question of what happens when this grant expires in March 2023. Organisations working on the issues of poverty and hunger reacted with shock and disbelief to the Treasury’s proposals to terminate the grant. The Institute for Economic Justice (IEJ) published a statement and memo extensively analysing the details of the Treasury’s proposals. In essence, these proposals are rejected because:

• They would exclude millions of beneficiaries previously receiving the SRD grants. The IEJ estimates that at least 5.5-million SRD beneficiaries would be excluded under the new proposals;
• Many grants would be limited to “active jobseekers” — frustrating in a labour market where jobs simply do not exist, and marginalising for those who can’t look for work;
• Apart from being exclusionary the proposals would be expensive and impossible to administer;
• The proposals, including limited jobseeker, caregiver and household grants, are discriminatory and probably unconstitutional; and
• They are based on a false understanding of the relationship between social protection and jobs, namely the myth that attaching job-seeking conditionalities to grants is necessary to avoid dependence. This is contradicted by international evidence.

In the run-up to the medium-term budget policy statement the finance minister has stated that he will announce proposals to replace the SRD grant. But the Treasury has no policy authority or expertise in the area of social protection and seems to be driven by narrow fiscal considerations and a determination to block the introduction of a system of basic income, despite the obvious need for it in response to our social crisis.

Two research papers released this week by the IEJ summarising the international and local evidence, show that:

• Social grants, and a system of basic income, far from creating dependence and withdrawal from the labour market, activate and support job-seeking and economic activity by beneficiaries, give women greater economic independence, and increase rates of self-employment. There is a complementary, reinforcing relationship between jobs and basic income; and 
• A review of the effects of basic income on poverty reveals wide-ranging beneficial ones, not only on income poverty but also on labour market participation, health, education, social cohesion and sustainable livelihoods. In addition, it has various beneficial macroeconomic effects as a result of the economic stimulus from injecting resources into local economies.

Official statistics, including this week’s Quarterly Employment Survey, show that the economy continues to shed jobs, with employment around 800,000 below the pre-Covid-19, March 2020 level.

The evidence suggests that, particularly in this situation of economic crisis, basic income could create a bridge to economic activity and employment, stimulating demand. Grant rollouts are rapid high-impact interventions, whereas deep economic transformation, investment and employment creation — as critical as they are — are more medium-term in nature.

However, the Treasury’s document says the grants cannot be afforded, and that the tax overruns of more than R200bn achieved since 2021 should rather be used to retire debt. Yes, revenue overruns can be used to pay off debt rather than to tackle poverty and hunger. But making such choices based on narrow calculations of “affordability” can have costly social and economic ramifications. Fiscal space needs to be used wisely.

People should be worried about social upheaval if the crisis is not dealt with — the price, in human lives and rand and cent, can be extremely high, as we saw in July 2021. Estimates now suggest the looting cost more than R100bn (R70bn in eThekwini alone), double the amount previously thought. A repeat is likely if nothing is done to tackle peoples’ hunger and desperation.

It has been observed that a low-intensity version of July is happening all the time, at significant cost to society — looting of infrastructure and selling of cables is rampant in communities where people are increasingly desperate. And social devastation is loading as grants are withdrawn, including the phenomenon of children turning to prostitution.

We are told by the Treasury and conservative think-tanks that a BIG will be economically damaging and unaffordable. However, they don’t seem to have fully applied their minds to the evidence. Research shows that a basic income set at a reasonable level is both affordable and would have beneficial social and economic effects.

• The economic multiplier benefits and associated rise in demand and revenue resulting from a large injection of income into poor communities is significant;
• The net costs of a BIG are substantially lower than the gross costs (often used as a reference) once the recouped tax (including via VAT), an income tax clawback, the stimulus impact and partial uptake are considered; and
• There are multiple financing options available. These need to be carefully selected and sequenced, avoiding unintended consequences either on revenue or on the intended beneficiaries.

Clearly the grant will be a significant commitment, and the wealthy in society will have to be prepared to make a moderate sacrifice to make it happen. A BIG is not a silver bullet, nor is social welfare a substitute for development. It must be combined with an investment and jobs policy.

But we also need to acknowledge that as economies are changing, jobs are becoming more difficult, not easier, to create, and that a basic income floor will increasingly become part of the social contract. This is a growing discussion internationally.

We have the opportunity to take a visionary decision to uplift our people, or to allow excessive fiscal caution to accelerate our downward spiral. The choice should be clear.