Beyond R350 grant: Universal basic income could benefit all of SA, but not without challenges

A universal basic income grant (UBIG) could serve the purpose of not only assisting those with no income at all, but also help push general wages and salaries upward.

This according to the Institute for Economic Justice, who have joined a chorus of calls for the urgent implementation of a universal basic income grant, with the proposed amounts varying. The proposals are aimed at alleviating the growing inequality and giving the poor a fighting chance at becoming independently employed or finding a job.

Stagnant salaries equal weaker buying power

For decades south African salaries have remained stagnant, throughout bouts of economic growth and stagnation, and despite the steady decline of the value of the rand and economy, leading to vastly shrinking consumer buying power.

According to the International Labour Organisation (ILO) ‘s Global Wage Report 2020-2021, 19% of all wage earners globally, amounting to around 327 million people, are paid at or below the applicable hourly minimum wage. Of these sub-par earners, 152 million are women.

The loss of over a million jobs and growing inequality as a result of the Covid-19 pandemic has raised the stakes for those who are either one salary away from financial ruin and those already languishing in poverty.

UBIG won’t encourage people to stop working

According to IEJ spokesperson Aliya Chikte, providing a basic income for those who don’t have jobs may improve equitable wage growth for the employed as well.

“Most proposals for a universal basic income guarantee (UBIG) are unfortunately below the minimum wage. If an income floor is introduced through a UBIG then, of the employed, predominantly precarious and informal workers will benefit.

“This might increase wages for individuals who earn below the minimum wage per month, but are unlikely to significantly drive up wages across the economy. The amount of a UBIG is more likely to aid job search and encourages self-employment than discourage people from working.”

The IEJ proposes a basic income grant of R585 per month, for 18-59 year old unemployed people. According to its recent report, this would require R158 billion in funding.

Now more than ever?

According to shack dwellers association Abahlali Basemjondolo spokesperson Mqapheleli Bonono, domestic workers are among the poorest employed groups of people in South Africa, a phenomenon which has worsened during the pandemic. ” There is an informal settlement in Durban near where I live, which has mostly women living there. Everyday they wake up to find piece jobs or go to their employer, but what makes them even more tired and despondent at the end of the month is the salary they earn, which is often less than R2000.

But faith in the government’s ability to adequately spend funds set aside to help the poor has declined significantly since the first proposal of a universal income grant in South Africa in 2004. Bonono says Abahlali are worried that even the Covid-19 relief grant has not reached many people who desperately need it and members are reluctant to believe the proposed basic income grant would be distributed any differently.

The introduction of the R350 Covid-19 relief grant last year bolstered an existing call for a basic income grant from civil society organisations and political parties including the ruling African National Congress.
The department of social development is in the process of drawing up documents to present to parliament on the development of a basic income grant policy for South Africa. Says DSD spokesperson Lumka Oliphant,” It is not possible to comment on this matter at this stage as the we are engaging government stakeholders… It is still being discussed with government and when the time comes we will reveal that information to the public.”

But concerned parties are nevertheless discussing with increasing publicity, the risk and benefits as well as the urgency with which the government needs to make a decisive pronouncement on the matter.

On the 22nd of July this year, The Institute for Economic Justice released a policy brief detailing the outcomes of research it collected on the best ways a basic income grant can be financed and how it should be valued. The institution has done extensive work over the last year on the design and financing of a Basic Income Grant (BIG). The document combines the work by IEJ with a Report we commissioned from DNA Economics, an independent economics consultancy.

Will it get support in Parliament?

Opposition parties have warned against using state resources to provide an unsustainable safety net when government institutions are already struggling to account for billions of misspent and misappropriated state funds.

Democratic Alliance lawmaker and finance spokesperson, Geordin Hill-Lewis says the party has always supported a basic income grant, but is concerned about government putting an unjustified burden on taxpayers.

Congress of the People (Cope) is less supportive of a basic income grant. Cope spokesperson Dennis Bloem says yet another grant would only bring temporary relief and negative long term economic implications.

“The government is playing with fire, all these grants that they are talking about, is temporary measures. All of us know that the government is bankrupt, were will the money come from? The country is in Junk Status. The government itself is speeding up this ticking time bomb to explode.”

Outspoken one-seater the African Transformation Movement ATM says it will support a basic income grant, but is concerned about how this would open up state coffers to further abuse of the system and corruption.

“The grant should not be used though as an escape goat (sic) or an answer for bad decisions that have been done by politicians. When politicians use the basic income grant to paper the cracks of corruption, maladministration, capture then we have a problem,” says ATM spokesperson Zama Ntshona.

“The biggest problem with us allowing the situation stated above is that it will soon get to a point that is unsustainable… We want a developmental state and not a failed state.”

Too high a price

According to Dr Peter Baur, Associate Professor at the University of Johannesburg (UK) School of Economics, a basic income grant is a ‘great initiative’ that is currently without a solid financing plan. He rates the potential of this initiative leading to higher wages as possible but not probable. In fact, proposed ways to fund the grant through further taxes could have the opposite effect.

Baur is concerned that the IEJ’s policy brief relies heavily on putting more tax pressure on corporates and income earners, whom he says are already paying a hefty tax burden. South Africa is already facing a tax avoidance burden with Sars having upped its ante this year with a new unit which focuses on chasing high income earners who avoid paying their dues,in a desperate attempt to generate revenue in a growing economic vaccum.

Added pressure on high earners and corporates could have the adverse effect of encouraging more tax avoidance and increasing costs on production, warns Baur. This could also ultimately trigger inflation.

Also Read: Black Sash still wants R350 Covid-19 grant increased

Nevertheless, Baur highlights the possible social benefit of spending into an economy, especially through such an expansionary fiscal policy system proposed by the Universal Basic Income Grant (UBIG).

“Such an initiative would usually have a very fast measurable impact, such as through economic growth, resulting in creating additional jobs, inciting higher levels of business confidence, and possibly alleviating some of the stress experienced by households experiencing both real poverty and relative poverty. The reality of growing poverty in South Africa is a true catastrophic event.”

Dr Peter Baur

Youth unemployment is at over 40%, and the rate of those without work under the age of 21 is over 60%. The impact of Covid has further forced hundreds of businesses to close down.

According to non-profit finance company Beyond-Covid, only 13% of small to medium businesses had recovered full operation by March 2021, compared to 71% of larger enterprises. Many have not managed to fully recover, resulting in scaling down jobs, which has been adding towards increasing unemployment levels.

As such, this type of grant, on the surface seems to be quite a plausible solution, says Baur. It would play the dual role of alleviating household poverty related stress, and calming the angry spirits of the youth who are, at this stage, possibly experiencing unprecedented anger at the gross income inequality they are experiencing.

“The contrast is even more stark when we see vast informal settlements living on the fringes of wealthy neighborhoods. The growth of the informal sector is playing a huge role in taking some of the pressure off government, but the loss of tax income is possibly quite noticeable, ” he argues.

It doesn’t come without challenges

But on other side of the coin, are the challenges the government will experience in both finding the capital to spend on the grant, and the impact of inflation which will be accompanied by the initiative.

The magnitude of resources required to implement a basic income grant in the current state of the economy would require either a substantial burden on taxpayers, or further debt if the government seeks more credit to pay for initiative.

Drawing additional debt would add to the already large debt burden of the country, which amounts to 71% of the gross domestic product (GDP). This will ask have the effect of weakening weaken the value of the currency and drive up inflation.

“It’s literally a matter of how to finance such an initiative, given the already huge difficulties experienced within the economy. The benefits are quite obvious, by giving additional support to those living in poverty, we may be able to initiate growth and reduce some of the income inequality that we are experiencing.

But the economy is already so strained by the large fiscal burden, that it may be quite a challenge to manage this initiative,” concludes Baur.

Simnikiweh@citizen.co.za