Basic income grant is needed to avert social upheaval

Neil Coleman

First published by Business Day on 29 September 2022.

Overcoming poverty is not a gesture of charity. It is an act of justice. It is the protection of a fundamental human right, the right to dignity and a decent life.
— Nelson Mandela

A national debate is raging in these columns around the introduction of a basic income grant, in the face of rising levels of poverty and hunger. Views are sharply polarised, with unions and civil society campaigning for the introduction of a basic income grant starting at minimum at the Food Poverty Line (currently R624), and sections of government, particularly Treasury, and organised business, strongly opposing it, despite conflicting signals from the President on this matter. Recently, the ANC policy conference resolved to propose the introduction of a universal basic income grant- supported further by COSATU and the SACP at this week’s Congress. 

In contrast, 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 SRD grant into permanent basic income.

Academic research shows the importance of the SRD R350 grant in combating worsening hunger and poverty in the Covid crisis, which continue to be widespread. Government statistics suggest that over half the population live in poverty, and around 18 million live in dire poverty, with income below the food poverty line. This means that one in three fellow South Africans are food insecure, and face daily hunger, while over half the population can’t afford to buy basic necessities. For millions, the SRD grant, tiny as it is, 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 Treasury’s proposals to terminate the grant. IEJ published a statement and memo extensively analysing the details of Treasury’s proposals. But 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;
  • 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 in order to avoid dependence. This is contradicted by the international evidence.

Now in the run-up to the Medium-Term Budget Policy Statement the Minister of Finance has stated that he will announce proposals to replace the SRD grant. But Treasury has no policy authority or expertise in the area of social protection, is seemingly driven by narrow fiscal considerations, and a determination to block introduction of a system of basic income, despite the obvious need for this in response to our social crisis.

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

  • 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.
  • A review of the impact of basic income on poverty reveals wide-ranging beneficial impacts 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 impacts, as a result of the economic stimulus effects of injecting resources into local economies.

Official statistics, including yesterday’s Quarterly Employment Survey, show that the economy continues to shed jobs, with jobs around 800 000 below their pre-COVID, 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 roll-outs 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 Treasury’s document says that the grants cannot be afforded, and that the tax overruns of over R200 billion achieved since last year, should rather be used to retire debt. Yes, revenue overruns can be used to pay off debt, rather than to address poverty and hunger. But making such  choices, based on narrow calculations of ‘affordability’ can have very costly social and economic ramifications. Fiscal space needs to be used wisely.

“Poverty is the parent of revolution and crime.”
— Aristotle

People should be very worried about social upheaval if the crisis isn’t addressed- the price of this, in human lives and rands and cents, can be extremely high as we saw in July 2021. Estimates now suggest the looting cost over R100bn (R70bn in Ethikwini alone)- double the amount previously thought. A repeat of this is likely if nothing is done to address peoples’ hunger and desperation. It has been observed that a low-intensity version of July is happening all the time with massive costs 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 sex work.

“The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little.”
— Franklin D. Roosevelt

We are told by Treasury and conservative think tanks that basic income 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 & economic impacts. 

  • 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 basic income grant 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.

Basic income 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.