Talking poverty: Can a BIG [Basic Income Grant] help alleviate the problem?

Main speaker: Neil Coleman (Cosatu Parliamentary Office and BIG Coalition)

Respondent: Prof Jeremy Seekings (Departments of Sociology and Political Studies, University of Cape Town)

Harold Wolpe Memorial Trust forum meeting

Institute for Democracy in South Africa, Cape Town, 15 April 2003

 

SUMMARY NOTES

 

 

NEIL COLEMAN

Poverty and social security in South Africa

Severe poverty affects over half of South Africa’s people, combined with gross income inequality. About 22 million or 53% of our people live on an average of less than R144 per month. An estimated 3.1 million African households have no employed people in them. Two in three children live in poverty. Poverty is deep-rooted and structural: our apartheid legacy and structure of the economy locks the majority into a poverty trap, which is reinforced by the current growth path. The problem cannot be handled in a welfarist way. In the period 1995–2000 there was consistent economic growth, but this was accompanied by worsening inequality. Statistics South Africa says that official unemployment went up from 17% in 1995 to a current figure of 30%(these statistics exclude people who have given up looking for work).

The social security system is fragmented. It is arbitrary, and it has no rationale or fairness. The 1996 white paper on social welfare merely tinkered with the apartheid-era system. The government-appointed Taylor Committee of Inquiry into a Comprehensive Social Security System for South Africa sought to overhaul the system. It found that the social security system totally excludes the majority of poor people:

There is no income support for children between 7–18 years, adults between 18–59 years, [or] general household assistance where no-one is employed. Over 13 million live below the poverty line and have no access to social security… SA’s social security system is neither comprehensive nor adequate.

Comprehensive social protection (CSP)

The structural character of poverty in South Africa requires a holistic developmental response, there is no one magic bullet. The Taylor Committee proposals address this head on with the concept of concept of CSP. This is ‘broader than the traditional concept of social security, incorporating developmental strategies designed to ensure, collectively a minimum acceptable living standard for all citizens’ (Taylor report, page 40).

Taylor therefore proposes an integrated package to address three core areas of poverty: income poverty; services or ‘capability’ poverty; and asset poverty. This CSP package should be a ‘universal as possible package of income transfers, services and access provided in a non-work related manner and whose availability is not primarily dependent on an ability to pay’ (Taylor report, page 42).

The measures the report proposes for each kind of poverty are as follows:

       Income poverty: A minimum income throughout the life cycle of people – childhood, working age and old age. The core proposal is a Basic Income Grant which ‘has the potential, more than any other possible social protection intervention, to reduce poverty and promote human development and sustainable livelihoods’ and is ‘easier to roll out in the short term than ...[other] poverty programmes’.

       Capability/services poverty: The provision of basic services including lifeline water and electricity provision, free healthcare, education, affordable housing and transport.

       Asset poverty: Access to productive and income-generating assets such as land and credit.

What is a Basic Income Grant?

BIG is an idea whose time has come. In 1998 at the Jobs Summit I put this proposal to one of the committees and by 2000 it had become a popular idea in organisations. It has now captured the public imagination and is a key issue on the national agenda. Jeremy Seekings found that 75% of people in Khayelitsha knew about BIG. This is a very large proportion of the people living there. The key elements of the BIG Coalition platform are:

       Universal coverage: Coverage from cradle to grave and no means test

       Expand the net: No individual should receive less in grants than he or she did before the introduction of BIG.

       Amount: No less than R100 per person per month on introduction.

       Delivery mechanisms: Payment should be facilitated through public financial institutions; and registration through the Hanis (Home Affairs National Identification System) smart card system. The card would serve both as identification, and as a medium onto which the payment could be made.

       Financing: The net cost is about R24 billion a year, which is less than recent income tax cuts gave back to taxpayers. Over half the cost of the grant would be recovered progressively through the tax system. Some people would pay the grant back while others would subsidise payment to poor as a gesture of solidarity. The remaining cost would be borne by the fiscus, achieved through such means as clawing back the BIG through tax, reprioritising expenditure, and foregoing future tax cuts.

Objections to the BIG

1.   ‘It will create dependency.’ The opposite is true. BIG would assist people to break out of the poverty trap, thereby empowering the poor. International experience bears this out. Everyone would be entitled to BIG as a right. It is a very small amount and it is not a dole, so it is not a disincentive to work – the fact that you may be working would not exclude you from receiving it. It will improve the position of the working poor. In Brazil they found an income grant encouraged women to go out to participate in the economy because it enabled them to pay for transport. The Brazilian partial income grant was so successful, the government wants to extend it.

2.   ‘It is unaffordable.’ Economists researching for the Taylor Committee found that there is fiscal space for BIG, and relatively low administration costs. In the medium to long term, the developmental effects of BIG would lead to a progressive reduction in the fiscal burden.

3.   ‘It will be impossible to implement.’ New technology opens up enormous possibilities. Abolishing the means test radically simplifies administration; reduces corruption and bureaucratic interference; simplifies access, particularly for the rural poor and the most vulnerable; and slashes the cost of administration. Nevertheless, there are practical questions of implementation which must be addressed. I will return to this.

Imperatives for a BIG

1. The constitutional imperative

Section 27 of the Constitution entrenches everyone’s right to social security and section 28 entrenches the rights of children. The Grootboom judgment sets out clear standards for the realisation of socio-economic rights. There are huge gaps in the existing social security system, which arbitrarily discriminate against the majority falling through net. It is questionable whether the government could survive a Constitutional Court challenge on this issue, despite having increased in the upper age limit of the Child Support Grant. The morality of discriminating against millions of poor people cannot be defended.

2. The economic imperative

South Africa’s growth path remains skewed against the poor. It results in redistribution to the rich. The Economic Policy Research Institute shows that poverty is a tax on the working poor because working people constitute the social security system for the unemployed poor. The stagnation of the economy is directly connected to the marginalisation of the majority – surveys show that high interest rates and low domestic demand are the major obstacles to investment. The introduction of a BIG is an important part of a developmental strategy to mainstream the poor, create an economic stimulus, and promote local economic development, since money available at local level is disproportionately ploughed back into local economies. It is a direct redistributive transfer – the kind of measure which underpinned the Reconstruction and Development Programme. Government knows the power of direct transfers – it keeps repeating how important its Old Age Pension is to the survival of millions of poor people in South Africa.

3. The social imperative

As Taylor shows, advances in certain areas of delivery such as water, housing and telecommunication are unsustainable, given the degree of poverty. Any anti-poverty strategy has to be holistic. The improvement of health (especially HIV/Aids), education and other social indicators requires the elimination of the worst forms of poverty. The situation is similar for a meaningful employment strategy. Crime, moral degeneration, and the potential for major social instability cannot be addressed without this type of intervention. The business sector recognises the importance of stability – in the Millennium Labour Council, industry objected to proposed amendments to the labour law amendments on the grounds that they would create social instability.

4. The political imperative

South Africa’s political settlement is not sustainable if it is not accompanied by an ‘economic settlement’. BIG would be an important element of such a national agreement. This will be the critical focus of the 2004 elections, and it is a critical test of the government 10 years down the line. This requires political vision and leadership to avoid jeopardising or reversing many of the important gains made since 1994, or even risking a social implosion.

Will BIG alone resolve these issues?

We accept that:

       BIG is not by itself a panacea for the crisis of poverty and inequality in South Africa.

       BIG must be seen as an integral part of an overall development strategy. Some people counterpose public works programmes against BIG but it is not a matter of one or the other, it is about a package of measures that will achieve the goal.

       BIG needs to be aligned with appropriate socio-economic strategies to achieve maximum impact.

There is no coherent government strategy to deal with poverty at the moment. Comprehensive strategies to address poverty need to include employment creation measures; a comprehensive social wage including BIG; asset redistribution; access to affordable public services; and the alignment of other government departments in such areas as trade policy and industrial policy. We hope that we can reach agreement on this at the upcoming Growth and Development Summit.

The developmental impact of BIG

As part of a broad development strategy, a Basic Income Grant would:

       empower the poor and help to break the poverty trap

       empower the poor, especially women and other vulnerable sectors

       totally eliminate the worst forms of poverty (destitution) and close the poverty gap by 75% by providing everyone with a minimum level of income (this according to the Taylor Committee report)

       promote redistribution and equitable development

       assist the poor to engage in economic activity and pool their resources

       improve key social indicators and raise economic productivity

       boost economic demand and local development

       assist in promoting employment

       increase the bargaining power of the working poor and assist in combating the worst forms of exploitation

       assist in fighting HIV/Aids

       promote family and economic stability

       take forward the Constitution’s commitment to basic socio-economic rights for all.

Practical questions which need to be addressed

If there is the political will to engage BIG and the Taylor Committee’s proposals, practical questions can be resolved jointly by government and civil society. To this end we have proposed a joint forum.

Practical questions include:

1.   How to phase in BIG and over what period.

2.   Its relationship to the Child Support Grant.

3.   Its relationship to other grants and poverty alleviation measures.

4.   Systems of administration.

5.   The details of financing and taxation and appropriate cut-offs.

Retaining the status quo is not an option

A year after the Taylor Committee submitted its report, there has been no response from government and no engagement with civil society. The BIG Coalition has made a presentation to Parliament’s portfolio committee on social development. We have requested meetings with government. Government should engage with civil society so that many solutions could be found to problems which have been raised, particularly with regard to how to phase BIG in and its relationship to the Child Support Grant. It is not clear why some sections of government are saying public works programmes should be implemented instead of BIG. The two are complementary. Taylor correctly excluded option of retaining or fine-tuning the existing social security system as being both unconstitutional and irresponsible. Further, the committee held that the social and economic cost of inaction were far greater than the financial costs of bold action.

The way forward

       The situation requires a combination of strategies to win broad social and governmental acceptance that the approach proposed by the Taylor Committee is correct. There has been a hiatus since the ANC congress in December, but civil society needs to take the issue up again.

       Civil society leaders need to drive engagement with government at the top.

       Engagement with the ANC and with the Alliance is necessary, as well as with the community chamber of Nedlac in the run-up to the Growth and Development Summit.

       Agreement should be secured so that BIG can be part of the ANC’s 2004 election manifesto.

       Continued mobilisation of society is required.

       Further serious academic work must be done on this issue.

       A government/ civil society forum must be established to engage on practical questions, including current initiatives such as the proposed Social Security Agency.

BIG will increase the bargaining power of the working poor. If a domestic worker who earns R500 has eight dependants, it is difficult for her to leave her job in the hope of finding a better one. If all the adults in the household get R100 a month from government, she is in a better bargaining position because her household earns three times as much. This enables her to leave and look for a better job because her household is not as dependent on her.

The Taylor Committee’s recommendations were due to be discussed by Cabinet in July last year, then in January this year, and now they will be discussed in the July lekgotla.

 

JEREMY SEEKINGS

BIG is a splendid idea. It is not a particularly excessive way of providing for the poor. But I have some doubts about 10% of what Neil says.

We often lose sight of historical precedents and international experience. Half of the poor do not benefit from the welfare system in South Africa. But the most important thing about welfare in South Africa is not that it provides so little: it provides a lot, but unevenly. South Africa is the only major country in the middle income South which has a generous non-contributory Old Age Pension. In a civilised society, the state must take responsibility for the poor, the elderly, children and disabled people. The problem in South Africa is that the welfare system never made any provision for those not able to work not because they were too old or too young or disabled but because there were not jobs available. BIG aims to fill the gap in the social security safety net. But government has shut down debate on this issue, and Vivien Taylor, chairperson of the Taylor Committee is now in New York. She has not been heard from since the report was submitted and has played no active part in promoting BIG. I now turn to the objections that Neil raised in his presentation:

The ‘creation of dependency’ argument

Neil correctly casts doubt on this argument. Nobody would argue against old age pensioners being ‘dependent’. With 40% unemployment, the dependency argument is a red herring. But we should ask: If the welfare system entails a social contract, what kind of responsibilities might society expect of recipients of a BIG? Public works programmes offer a low income in return for being able to work on public works. Does society have a right to expect something in return for a universal grant system?

The unaffordability argument and the ‘impossible to implement’ argument

Every time an attempt has been made to introduce a grant in South Africa, someone has always said ‘we can’t afford it’. The same debates were heard in 1928 when the Old Age Pension was being introduced by Finance Minister Havenga. Now we take it for granted that South Africa can afford fairly generous pensions. Neil says ‘economists researching for Taylor found that there is fiscal space for a BIG’. This is vague. Tax may go up if a BIG was to be introduced, but what about the costs this would entail for economic growth? He says the money given back to taxpayers through recent income tax rebates could have been spent on this, but BIG is not the only claimant on the fiscus. Providing antiretroviral drugs for people with HIV/Aids through the public health system less administered costs would cost more or less the same as BIG. We need to look at public finance more holistically and think of the various claims on the fiscus. Should BIG be preferred over the provision of antiretrovirals? Administration costs for BIG are relatively low compared to public works programmes, but the costs of providing BIG to 40 million people are immense. According to a recent Mail & Guardian article, it costs the state R20–R30 or more to administer each grant. The Taylor Committee equivocated on this matter – it said the costs were so immense that implementation should be done in a phased way. The ‘impossible to implement’ argument is mainly a problem of administration costs.

The most comprehensive costing of BIG has been done by Pieter le Roux. He proposes a 7% increase in VAT, taking it to 21%, and a 50% increase in sin taxes (alcohol and tobacco) and fuel prices. These are the sums we are talking about without taking administration costs into account. Everybody agrees the government should take care of the poor, but substantial increases in tax diminish economic growth. This needs further debate.

Alternatives to a grant to address poverty

Maybe the costs and benefits of BIG should be compared not to the cost of doing nothing, but to what the impact would be if the same amount of money were spent on public works or other programmes. This has not yet been done. There are real trade-offs that need to be made. Money spent on BIG is money not spent on other things.

Who is going to benefit? One of Neil’s points is that poverty is a tax on working people because unemployed poor people are their dependants. This is true. If we, through the government, were to give all people a BIG, this could have a ‘crowding out’ effect on the support that working people give to their dependants. It might relieve some of the responsibility that the working poor feel for looking after their dependants. Relatives may say ‘we are no longer responsible for you’. The effect of BIG will not only be to shift money into the pockets of the poor, some of its effect will be to benefit some of the less poor.

I am the editor of the journal Social Dynamics. The latest edition is Vol. 28 no. 2 and it focuses on welfare reform, including articles on BIG.

 

DISCUSSION

Is the BIG Coalition pushing the government too much?

       The objections are made in business terms, not in social terms. The citizens depend on government.

       The BIG Coalition is pushing the government into a position of defensiveness.

Government is in a defensive position – it is being forced to confront the issue. We need to engage government, but not be confrontational. We have tried to be as reasonable as possible, we have asked for meetings, but some say we are too nice. Government is battling to spend money to reach the poor, we have one of the lowest budget deficits in the world, but remain one of the most unequal societies in the world.

Why focus on only one issue?

       BIG focuses on only one issue, but there are many issues that need to be dealt with.

Like it or not, the BIG Coalition is focused on a single issue.

Why the lack of information on this subject?

       Why does the BIG Coalition not provide enough information to people?

The Coalition did a submission on BIG to Parliament and engages in advocacy and lobbying on this issue. Is it really the job of the Coalition to act as the educator of the public around the Taylor Committee? Government appointed the committee, it should make information available about the report.

Smart card payments

       How is the mechanism of the smart card actually going to work, particularly in rural areas?

The South African Reserve Bank and the Department of Home Affairs are already working on the Hanis smart card. It will allow offline transactions, and even spaza shops will have the technology, via a cell phone link, to deduct money from the card for purchases. Cell phone penetration in rural areas is quite substantial. People would need to be educated about the system, but it is quite feasible.

No progress a year after the Taylor Committee report

The Taylor Committee released its report a year ago, but the Cabinet will only look at this issue in July. The BIG Coalition is disappointed that there is no coherent approach to tackling poverty. There are poverty alleviation funds, but nobody takes responsibility for ensuring they are coherently managed and spent.

Joblessness is a fact of life, yet people oppose BIG

       Very few economists have questioned that there will never be full employment again. Joblessness is a fact of life internationally, yet people ask the unemployed to spend a lifetime looking for a job without any real chance of finding one. Even people who are skilled, experienced and educated struggle to find jobs. Yet, when we propose putting purchasing power into the hands of people by means of BIG, there are all kinds of objections. Why?

The government speaks about skills development, but skills are not a panacea. The profile of unemployed is virtually the same as that of the employed in the African community. Hundreds of thousands are out of jobs because of the policies of this government and its predecessor. A full 40% of people are unemployed. If we don’t want to go the BIG route, what is the alternative? We are not against public works programmes, we want a comprehensive package.

What about the responsibility of business?

       The financing of such assistance should not only be left to government – what about making business play a part?

Economic growth seriously dented poverty in China

       Is there anything anywhere that shows that a BIG has been more effective than public works programmes? Nowhere in the world has a bigger problem than China, but in the ten years from 1989 they moved from communal land tenure to individual tenure and they achieved an 8% per annum growth and a 17% reduction in poverty.

BIG should be a notional grant

       In a survey of 6 000 people, most said they would rather have a job than a BIG. The money you want to give people as cash should be a notional grant, with a certain amount allocated to water, another amount to electricity and so on. If a cash BIG is implemented, how much of it will achieve welfare gains, and how much of it will go to multinational corporations?

       Money is allocated for basic services through the equitable share allocation.

Study what people will use the money for

       We are assuming the money will be used on good consumption, but we don’t know if it will go on such things as alcohol. We need to do some more in-depth research on the consumption patterns of the poor. The research we have done on grants shows that they have not been well targeted.

We can’t dilly dally around what people are consuming. There is extensive research which shows that 90% of pensions spent on basic consumption. Decisions must be based on debate and research, there will never be total agreement on this. People will always find reasons why these things cannot be done.

BIG Coalition contact information

The South African Council of Churches website www.sacc-ct.org.za or call Black Sash national on 021 461 7804.

Additional Information: There is a special issue on Welfare Reform in the journal Social Dynamics, Vol 28 No.2 (Winter 2002). It includes articles on the current welfare system, the impact of a basic income grant, how to finance the grant (by Pieter Le Roux), provision for children, the private maintenance system, youth employment programmes and the challenges posed by the growing informal sector. It can be bought for R50 from the Centre of African Studies at UCT and is also available at Clarke’s Bookshop in Long Street, Cape Town.