by Apr 27, 2022All Articles, The Economy

IT IS COMMON FOR THE STATE OF THE Nation (SONA) to begin with a poetic quote or reflection on the fearlessness of the late Nelson Mandela, and our journey into freedom. In 2020 for instance, the President eloquently reminded us of Madiba’s spirit of fearlessness and our march to freedom. In this year’s SONA, we were reminded of Thabo Mbeki’s words that tough times need courage and resilience, which we will have to show to address the challenges of hunger, unemployment, and inequality.

These are noble sentiments, but they have rarely been followed by a bold progressive agenda and vision to usher in structural changes that will enable us to confront these challenges. Any sustainable and inclusive developmental project has to be premised on a clear plan that gives policy direction for the government. It goes without saying that such a plan rests on the collaboration of all stakeholders in society. That is civil society, business, government, and its departments. But it must be led by the needs of the poor and marginalised.

UBIG an obligation not charity

The nature of South Africa’s structural unemployment requires a number of macro and micro interventions, some of which will take a long time to show results. The over 12 million unemployed in South Africa need urgent intervention in the form of a Universal Basic Income Guarantee (UBIG) to close the gap that has not been filled by the labour market and support their livelihoods. 

A UBIG is the type of state intervention that embodies the “courage” and “fearlessness” that our current socio-economic crisis needs.

According to the International Labour Organisation (ILO) “universal social protection, indeed, lies at the core of societies’ social contract and sustainable development. It guarantees that all members of society are well-protected … on a basis of social solidarity and collective financing.” Our Constitution also states that everyone has the right to social security, including if they are unable to support themselves and their dependents. 

This means that universal social protection is not a charity but a state obligation, one that is central to a sustainable developmental agenda. A UBIG is the type of state intervention that embodies the “courage” and “fearlessness” that our current socio-economic crisis needs. However, it has not received the support it requires from all stakeholders in South Africa. 

Progressive civil society, academics, and activists have championed the UBIG, providing evidence-based proposals on how it can be designed and financed. A UBIG, complimented with job creation programmes and quality public services are essential elements of a sustainable development agenda. Implementing a UBIG will stimulate demand in the economy, and generate economic activities that will contribute to job creation. This will particularly benefit local informal businesses, as poor people spend a high proportion of their income on locally produced goods. 

In addition, a UBIG will also support livelihood strategies. Job-seeking costs money – a survey by Youth Capital found that young people estimated they spent R550 a month job seeking – mainly on data and travel. Most importantly, it will support unpaid care and domestic work, freeing up women’s time to participate in other activities. 

Therefore, a UBIG will restore the dignity of people, improve living standards and stimulate economic growth.  

Outdated neoliberalism against UBIG

Despite such evidence on the benefits of UBIG, within the government, there are departments that support it, such as the Department of Social Development (DSD), but others, like the National Treasury, that have opposed it, claiming that it is unaffordable. The Minister of Finance, Enoch Godongwana, has gone a step further, arguing that not only is it unaffordable, it is also undesirable because it creates dependency. He claims to be concerned that people will choose to remain within the social security system rather than look for jobs. Most recently, the Director-General of National Treasury, Dondo Mogajane, stated that he would rather have invested the R44 billion allocated to the extension of the R350 Social Relief of Distress (SRD) grant “and done more on the infrastructure side, do more incentives. Because it is through those that government can partner with business and business can create more jobs”. 

This line of reasoning can be linked to the Treasury’s outdated, neoliberal, supply-side reforms that see the role of the state as only a facilitator and creator of a conducive environment for business; in this view, perpetuated by the State of the Nation speech, it is only business that can create jobs. 

The arguments against grants and UBIG are based on two things: the regressive fiscal strategy of austerity and anti-poor sentiments. Austerity – the cutting of expenditure to stabilise debt – results in budget cuts to essential public services and below-inflation increases to social grants, as we have seen with the Child Social Grant and Foster Care Grant in the 2021 and 2022 Budget. It is also rooted in anti-poor paternalist reasoning that the poor are without any capacity to manage their finances or take care of themselves. This is despite a number of studies and evidence-based arguments that show that grants have been important in alleviating poverty, supporting livelihood strategies, and job-seeking activities. 

This regressive posture by the National Treasury is not new. As Neil Coleman, senior policy specialist at the Institute for Economic Justice has shown, Treasury has previously opposed the introduction of the UBIG when it was recommended by the Taylor Committee in 2003. More recently, Treasury has tried to block the extension of the SRD and the possibility of the introduction of a UBIG by considering a household/family grant. The latter was opposed by civil society, forcing another extension of the SRD grant.

In the latest budget, the Budget Review (2022) states that any similar type of grant beyond the SRD will mean spending cuts and increased taxes. It would need to be limited to a narrowly targeted pool of beneficiaries, and attached to job-seeking (or “labour market activation”). The president has stated that government will engage civil society on the options available for basic income support. But this process will be threatened and stifled by the Treasury’s conservative ideological orientation, rooted in arbitrary macroeconomic targets that have little effect on unemployment, poverty, and hunger experienced by many people in South Africa.  

Yes there is money

Despite claims that there is no money to finance the UBIG, several progressive civil society organisations, including the IEJ, have shown that a UBIG may be financed through progressive taxation. Given the high levels of wealth inequality in the country, tax should play a redistributive role and transfer wealth from the minority of people with wealth to the majority of the people without either wealth or income. There has been a revenue windfall of R181 billion, for instance, mainly from the recent minerals boom. This should have been used to expand the SRD grant to at least the Food Poverty Line of R624 for a year, with a UBIG being introduced thereafter. Existing taxes that are regressive should be removed to raise resources, while new forms of tax should be considered. 

Members of Women on Farms demand a wealth tax. A wealth tax at a rate of 1% for the top 1% wealthiest individuals, and a 3% tax rate for the top 0.1% wealthiest individuals, would raise about R59 billion.

A Social Security Tax (SST) for instance could ring-fence revenue from income that would fund a UBIG. The SST should be progressively levied upon all income earners – ranging between 1.5% and 3% of taxable personal income. In this proposal, those who earn less will be the net beneficiaries and those who earn more will be the net contributors. A higher rate of VAT at 25% for luxury goods has the potential to raise about R8.4 billion. A wealth tax at a rate of 1% for the top 1% wealthiest individuals, and a 3% tax rate for the top 0.1% wealthiest individuals, would raise about R59 billion. However, a wealth tax can be implemented in the medium- to long-term as data on wealth ownership is still insufficient. 

These proposals have to be thoroughly reviewed and the necessary administrative infrastructure put in place for their implementation. But the proposals show that there are innovative ways that should be considered, beyond just spending cuts and increasing regressive taxes such as Value Added Tax, which would disproportionately impact the poor and low-income households the most. 

The current realities that confront us mean that fiscal policy needs to be grounded in people’s reality. It cannot just be about arbitrary targets that do little to fundamentally change people’s lives, especially the majority poor and marginalised Black people in South Africa. The President needs to take leadership and coordinate all stakeholders, including regressive elements within government, towards investigating how a UBIG may be designed and financed to protect and advance human rights and unlock sustainable development.  

Zimbali Mncube is a researcher with the Institute for Economic Justice

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