IEJ and HSRC Symposium on the Macroeconomics of a UBIG for South Africa

On 20 February 2023, the Institute for Economic Justice (IEJ) and the Human Sciences Research Council (HSRC) held a symposium titled Understanding the Macroeconomic Implications of UBIG in South Africa: Taking stock of current debates, and presenting new insights. This symposium formed part of the HSRC’s Macroeconomic Policy Dialogue Series and presented an opportunity for the IEJ to share its preliminary research with Applied Development Research Solutions (ADRS) on the macroeconomic impact of a UBIG.

Amidst the intersecting crises of hunger, exclusion and disruption in the wake of the Covid-19 pandemic, there has been a widespread call for increased social protection measures. The most far-reaching and ambitious proposal for expanded social protection which is currently being debated is the UBIG. This juncture has raised critical questions and concerns relating to where social protection fits into the macroeconomy, and particularly its complex linkages to GDP growth, fiscal policy and the cost of living crisis. The question of whether the economy and the tax base can sustain a UBIG has been hotly debated, as has the question of possible negative macroeconomic impacts of new, progressive taxation measures such as a wealth tax.

Proponents of UBIG have suggested that it can spark a virtuous cycle of economic growth, whereas opponents have argued that it is ultimately unaffordable and will trigger further fiscal crises. The answers to these questions are complicated by specificities of design—what would the transfer value be set at? What are the intermediary steps on the path to realising a UBIG?

At this critical moment for social security in South Africa, this symposium brought together key voices engaged in social protection policy, to further debates on the macroeconomic implications of UBIG. The symposium featured policy makers and experts who addressed a diverse range of issues relating to the macro economics of a UBIG. In addition, the results of original modelling were presented and discussed. The modelling assessed the macroeconomic impacts of three different pathways to achieving a basic income grant in South Africa. Below you can find a brief summary of each input, and their presentations.

Watch the symposium below:

Part 1: Introduction to Basic Income Grant debates in South Africa

Brenda Sibeko (Deputy Director General at the Department of Social Development)

Ms Sibeko made the case for a BIG in the context of South Africa’s structural unemployment and inequality. In our context a high proportion of the population is chronically unemployed and many South Africans are deeply impoverished. Research on the use of Covid-19 SRD grants attests to this – as 90% of the SRD beneficiaries spent their grant on food. Ms Sibeko dispelled the claims that grants encourage laziness, and instead argued for consistent income support alongside structural changes in the labour market. DSD believes that the SRD grant should be converted to a Basic Income Grant which progressively includes more people over time. This was raised due to the complexities of means-testing and its resultant exclusion rates, as well as the pervasiveness of poverty. Ms Sibeko firmly stated that a Basic Income Grant is a constitutional obligation.

Brenda Sibeko’s Presentation

Part 2: Macroeconomic impacts of a UBIG – strengths and shortcomings of existing analyses and models

Dr Stephen Kidd (Development Pathways) on the international experience.

Dr Kidd provided a broad outline of the immediate, medium-term and long-term impacts of social security on economic growth. While Dr Kidd outlined 11 ways that social security spurs economic growth, he expanded on 3 particular impacts. Firstly, increased social spending by government stimulates demand and builds markets. Secondly, because social security guarantees income, it allows beneficiaries to engage in riskier market activities like investment. Specifically, this enables greater investment into productive sectors and incentivises entrepreneurship. Thirdly, social security has the effect of strengthening human capital through improving health and educational outcomes. Dr Kidd refers to this social security spending as “investing in families”, as social protection forms the foundation for effective economic engagement by households. It was further stressed that the design of the grant and its financing is pivotal to ensuring its success. Various studies show that  social security spending has greater multiplier effects than other important spending areas including infrastructure spending, and that funding social security through progressive tax measures can promote economic growth.

Stephen Kidd’s Presentation

Macroeconomic impacts of a UBIG – strengths and shortcomings of existing analyses and models

Dr Gilad Isaacs (Institute for Economic Justice) on macroeconomic methodologies.

Dr Isaacs presented on the theoretical foundations of modelling the macroeconomy. He began by discussing the reliance on models for informing policy. He explained that the assumptions underlying the models are crucial to the eventual interpretation of a model’s results. Different modelling approaches have been influential in policy in South Africa. The neoclassical models of General Equilibrium are preferred by National Treasury and the South African Reserve Bank, while Macro-Econometric Keynesian models are used in the ADRS model by Dr Asghar Adelzadeh. Dr Isaacs explains that Equilibrium models suffer from poor design and an inability to be applied to real-world contexts. This was evident in the modelling regarding the National Minimum Wage. Macro-econometric modelling has linked a UBIG to inclusive economic growth and South African-specific models have emphasised that the benefits of a UBIG are accrued if the design is appropriate. Finally, Dr Isaacs reflects on the micro-evidence relating to cash transfers, arguing that this mechanism is “the most direct and effective mechanism for reducing income poverty.” This is an addition to several other benefits of a UBIG.

Part 3: Presenting new modelling of pathways to a UBIG in South Africa

Zimbali Mncube (IEJ) – Pathways to UBIG: Overview of three scenarios modelled

Zimbali Mncube’s presentation gave some background to the Pathways to UBIG modelling undertaken by ADRS and commissioned by the IEJ. The modelling focuses on three scenarios:

  1. A low ambition Basic Income Grant starting at R350 and increasing over time to the Upper Bound Poverty Line (UBPL), with a means-test, starting at the Food Poverty Line (FPL) and increasing to the UBPL.
  2. A medium ambition Basic Income Grant starting at the FPL and increasing over time to the UBPL, with a means-test starting at Lower Bound Poverty Line (LPBL) and increasing over time to double the UBPL.
  3. A high ambition Basic Income Grant starting at the FPL and increasing over time to the UBPL, with a means-test starting at double the UBPL and increasing over time to six times the UBPL.

Each of these scenarios model a basic income grant that differs in grant value, means-test level, the mix of a Wealth Tax and Social Security Tax that will be necessary to finance the grant, and the incremental changes to the grant from 2023 to 2030. These pathways are expanded on in the model presented by Dr Adelzadeh.

Zimbali Mncube’s Presentation

Presenting new modelling of pathways to a UBIG in South Africa

Dr. Asghar Adelzadeh (UBIG scenarios author, ADRS) – Results of modelling macroeconomic impacts of alternative pathways to UBIG

Dr Adelzadeh introduces the foundations of the model, which aims to quantify the macroeconomic and developmental impact of UBIG from 2023-2030. The model used is the Dynamically Integrated Macro and Micro Simulation (DIMMSIM), developed by ADRS. This model is informed by heterodox theoretical foundations and incorporates time series estimations.

The model begins by establishing a “Base Scenario” which describes the macroeconomic situation if no substantive changes are made to macroeconomic or social policy. In this base scenario, the GDP growth rate is projected at 2.2% and the unemployment rate is 32.1%. Further, in this ‘business as usual’ scenario, the poverty rate will be reduced by 21.8% and inequality will decrease by 9.8% by 2030. The model then estimates the macroeconomic indicators in this scenario.

Dr Adelzadeh then ran the different scenarios in the model and recorded the macroeconomic indicators for three BIG pathways. This method  allows for easy comparison on headline indicators between the low, medium and high ambition pathways and allows a comparison to the Base Scenario.

In the model’s low ambition pathway: The findings include an average GDP growth rate of 2.8% from 2023 until 2030, and an unemployment rate of 29.7%. We also see a decrease in the poverty rate of 29.1% as well as a reduction in inequality of 15.2%

In the model’s medium ambition pathway: The results show an average GDP growth rate of 3.2%, with the unemployment rate falling to 28.2%. The medium ambition pathway shows a reduction in the poverty rate by 55.3% and a reduction in inequality of 17.7%.

In the model’s high ambition pathway: We record a GDP growth rate of 3.5%, an unemployment rate of 27.2% and a reduction in inequality of 19.1%. The high ambition pathway shows a phenomenal decrease in the poverty rate, a reduction of 61.0%.

The results of each pathway were presented by Dr Adelzadeh and further detail, including the fiscal and macroeconomic impacts can be found in the attached slides.

Asghar Adelzadeh’s Presentation

These slides present the initial findings on selected UBIG pathways. A paper is being drafted on the modelling by ADRS and IEJ, and will be released in due course.

Part 4: Panel discussion on report’s findings, and macroeconomics of UBIG  

Moderator:        Dr Basani Baloyi (IEJ)

Panellist: Rudi Dicks – Presidency
Mr Dicks reflected on the SRD and the significant impact, in conjunction with the Presidential Employment Stimulus (PES), it has had on low income households. The caregivers grant had also had a phenomenal impact. These outcomes provide the impetus for extending social protection measures to youth and others who are currently ineligible for social security. He raised important questions to consider, such as the role of food and oil prices, the effect raising taxes will have on the existing tax base and the linkages between social security and the National Health Insurance.

Panellist: Rachel Bukasa – Black Sash
Ms Bukasa emphasised that a UBIG is a feasible and necessary intervention. The current path of high unemployment and chronic poverty is untenable, with widespread suffering and multiple barriers to stable livelihoods. She urged the Presidency to continue engaging this issue and reiterated the urgency of garnering political will to implement a UBIG.

Panellist: Roy Havemann – Economist
Dr Havemann focused on how to finance the UBIG and contemplated the high costs of a UBIG in each pathway of the model. In terms of financing options, he  cautioned that a Social Security Tax may overburden portions of the tax base. However, a Wealth Tax may be more feasible. He suggested exploring a tax on wealth-derived income as opposed to a tax imposed on the stock of wealth.

Panellist: Dominic Brown – Alternative Information and Development Centre
Mr Brown began by foregrounding the overwhelming evidence of the positive impacts of cash transfers, and emphasising the role of cash transfers in the progressive realisation of rights. He noted that we must consider the risks of implementing and designing a UBIG, but in the context of a real decrease in social protection spending we must pay attention to the risks of not implementing a UBIG. Mr Brown also warned against adopting dogmatic approaches to the tax-GDP ratio, while raising the view  that a Presidential Employment Stimulus without basic income support would be a regressive and unhelpful approach. Both basic income and public employment programmes are needed.


Feb 20 2023


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