Time for the revival of the BIG coalition

Time for the revival of the BIG coalition

Amandla Online | May 2020

An idea whose time has come

“There’s nothing more powerful than an idea whose time has come”,  said Victor Hugo. This quote helps us understand the growing calls from all spheres of society worldwide for the introduction of a universal basic income (also known as a basic income grant). A UBI (or BIG) is the unconditional income transfer to all citizens. The calls for the implementation of such a measure has intensified following the outbreak of the COVID-19 pandemic. The outbreak of the pandemic has led many countries including Brazil, Namibia and Singapore to implement some form of emergency income transfer measure. Spain intends to go a step further in its bid to implement a basic income grant permanently. Despite many calls for a basic income grant during COVID-19 in South Africa and around the world, winning a basic income grant that is able to combat inequality and restructure work in a positive way, as a means to an end and not an end in itself, will require massive struggles from below.

A protracted struggle

Despite its recent resurgence, the BIG has long been a topic of debate in South Africa. The idea was first raised in the 1997 White Paper on Social Welfare, and then again in a discussion between COSATU and government ahead of the Presidential Jobs Summit in 1998. Following on from this, in 2000, the SA government appointed a committee, known as the Taylor Committee, to investigate ways to extend “the social security system to provide comprehensive coverage for all”. The committee report (2002) proposed the implementation of a basic income grant of at least R100 to address different aspects of poverty, to stimulate local consumption driven economic growth and job creation, and to lay a foundation for sustainable livelihoods.

The demand was taken up by the Basic Income Grant (BIG) Coalition initiated in 2003 by COSATU, Black Sash and the South African Council of Churches (SACC), and also included others such as the South Africa New Economics Foundation, South African NGO Coalition, Treatment Action Campaign and the Women on Farms Project among others. The Coalition was based, in part, on the government’s constitutional obligation to protect and advance socio-economic rights.^[1] The R100 to R150 amount was adopted by the Coalition given that COSATU thought that it was winnable, but was turned down by the Finance Minister at the time – Trevor Manuel – because the grant would “bankrupt the country” and would “lead to dependency”.

The re-emergence of BIG under lockdown

Moving to the age of COVID-19, the lockdown measures required to flatten the curve of the outbreak, and the increased precariousness related to that, has meant that the need for a basic income is more relevant than ever. Almost twenty years since the BIG Coalition and the demands for a basic income grant have resurfaced. Now the demand is made by many others (some of whom seldom agree), including the ANC, business, NGOs, social movements and academics. Almost a month into national lockdown, the South African government, under pressure from many on the brink of starvation, and additionally fearing the loss of political legitimacy, introduced an emergency COVID-19 grant.

Besides being too little and too late, there are a number of additional problems in relation to the establishment of this grant.  Not least is that the grant excludes those receiving an existing grant – effectively excluding women with children and all those on a disability grant. Of the 4.5 million people who have applied for the grant, only 2.6 million have been verified, and more than 3 weeks since its inception and only 10 people received the grant. Moreover, the grant itself amounts to less than a loaf of bread a day. Nonetheless, could this be the basis for the permanent implementation of a real basic income grant?

Think BIG beyond the lockdown

There are good reasons for the implementation of a permanent income transfer in South Africa. Before the outbreak of the coronavirus, the socio-economic conditions in South Africa were already particularly extreme. Millions are in informal work with no income or job security; many more millions are unemployed. As a result, more than half of South Africa’s population were already unable to afford food and other basic necessities. For these reasons, it’s important to situate the discussion on a basic income grant in the context of the structural problems of the South African economy. These problems relate to mass unemployment, increased precarious work, and declining real wages for the majority of the working population.

South Africa’s unemployment rate is among the highest in the world. Each year the amount of new entrants into the job market far exceeds the number of job opportunities provided, this means ever increasing unemployment. South Africa’s population is young, with a median age below 30 y/o.  The unemployment rate among this age group is, indeed, the highest in the population at more than 60%. Making matters even worse is that unless you have a child or a disability you will not receive social security of any kind, even if you are unemployed.

New jobs that are being created are increasingly precarious. Increased outsourcing of work and the rise of labour brokers are predictable consequences of a world ruled by the maximisation of profit. Alongside this is a growing informal sector that comes with no secure income, benefits or social protection, and the state’s Extended Public Works Programme (EPWP) introduced in 2003.  The EPWP should be the basis of a decent state employment scheme, however, the working conditions and remuneration of EPWP workers is nothing but hyper exploitation – R11 per hour when the National Minimum Wage was R20 per hour when first introduced.

The increasing precariatisation of work is also reflected in the declining wage share that goes to workers in comparison to what goes to profit as a percentage of gross value added. This manifests itself in growing income inequality and occurs as a result of a number of factors including: the weakening of the trade union movement (as a result of internal and external factors); growing unemployment and the willingness to accept even lower wages – just to earn some income given the deep desperation; and rising automation in some sectors – including the mining sector.

These changes to the structure of work have resulted inincreased food insecurity. The problem is widespread, with hunger being a common South African experience. A quarter of children in South Africa is malnourished and stunted, this due to millions of children living below the food poverty line

In South Africa (as in most countries in the world) it is predominantly working-class women who carry the biggest burden. In the first instance, it is predominantly women who do care work (including community health workers, and unpaid reproductive work). Most working class households are headed by women who are at the pinnacle of all the forms of exploitation and oppression. BIG, while also assisting men, would enormously improve the standard of living for the majority of women – both in terms of income, as well as in terms of greater independence; in a society with extreme gender based violence, this is a critical benefit.

Other BIG benefits

The introduction of a basic income grant of at least R1280 (upper bound poverty level) would effectively reduce absolute poverty to 0% in the country, where absolute poverty is the income level below the level necessary for a household to meet basic needs. But equally as important, it could also help to restructure work in a variety of positive ways. It could lead to the improving quality of jobs. It is also an important step to recognising the unpaid social reproductive work (generally done by women). Recognising all the forms of work is a critical step, even if unrealisable without fundamental changes. For now, a BIG would enable increased demand as many of the poor would at last be able to buy the essential goods they cannot currently afford.  This, over time, would result in using some of the currently idle productive capacity and thereby result in job creation – what some refer to as the multiplier effect.

Further benefits from direct income transfers include improved nutrition and other social determinants of health as well as improved education. Furthermore, there is also evidence suggesting that, contrary to conservative positions that income transfers make people lazy, there are many cases where in fact they have resulted in increased productivity, as well as the development of small scale businesses. All this not only increases the productive levels of the individual receiving the grant but also those in the community employed directly by them.

BIG: far from a silver bullet

Notwithstanding all the potential advantages of the BIG, it is not a silver bullet and there are a number of challenges. Firstly, it is essential that the demands for a BIG extend beyond a technical or pragmatic intervention, instead to ensure its positive transformative potential the fight for a big has to be part of a much wider programme calling for much greater social reforms.

Secondly, the basic income grant may result in increased poverty, with very little reduction in inequality, if the introduction of the grant comes at the expense of cutting other social wages such as child or pension grants. Therefore, it is critical that in campaigning for a BIG, it is essential that this grant does not replace other forms of social security provisions. It is also critical that the provision of adequate and efficient public services such as health care, education and transport for example are not undermined. Failure to protect these services would undermine the grant as essential services are increasingly commodified and privatised in line with the drive for profit maximisation. In such a scenario human needs cannot be adequately met. Thus, it is important that the BIG is one of, rather than the only, social security payment.

The BIG must exist alongside other forms of institutionalised social protection in the move towards the provision of universal public services where government. Further, the gaining of employment should not remove eligibility to receive the grant. Instead, all those with incomes above a certain threshold should be taxed to ensure that the grant doesn’t contribute to income inequality.

A third potential aspect of a BIG that needs safeguarding against is feeding the ulcer. Charity, in other words. Charity perpetuates the poverty and inequality the system produces by its own internal contradictions. These contradictions, as we have seen, include the tendency to stagnation – with consequent increases in poverty – for there isn’t enough purchasing power for enough people to buy back the products they’ve collectively made. For example, increasing constraints on the prospects for consumption (as a result of mass unemployment and growing inequality – income and wealth) make it harder for profits to be realised. This is the very reason why it should not surprise us that many among the ruling class have begun to support the call for a universal basic income. It’s not out of a sudden benevolence and the development of a good heart. Instead its aim is self-preservation and for the preservation of the unequal structures of the system. In light of this, it is evident that if the BIG is not coupled with other reforms, like increased taxes on the rich and government acting as the employer of last resort (in line with advancing the right to work), it may end up enabling the continuation of a consumer culture, based on production based profit maximisation not need.

Tax the rich

Given wealth inequality in this country (most of which is accumulated over decades), it seems common sense that this wealth should be redistributed among the rest of the population. The implementation of a wealth tax is long overdue, and, like the BIG, should be permanently implemented. Besides the implementation of a wealth tax, it is also prudent to increase personal income tax on high income earners, and high net worth individuals. SARS itself reports that 20 000 high net worth individuals – those with incomes in excess of R1.5 million per annum – pay no income tax at all (they have managed to avoid SARS!). There are other sources of revenue that can be harnessed through the implementation of a general anti-tax avoidance act that is properly enforced. This may put an end to the more than R300 billion in profits leaving the country to tax havens (illicitly) each year, at a loss of more than R100bn in revenue because of transfer pricing alone.

Increasing Personal Income Tax rates of high income earners:

For the majority of South African citizens, a regressive taxation policy has the dual effect of ensuring poor levels of social services, as well as the perpetuation of inequality. The Davis Tax Committee argued that implementing the concept of “vertical equity” would imply that those who earn more income should pay more tax in accordance with the ‘ability to pay principle of taxation’. Increasing personal income tax of top income earners can raise tens of billions each year.

Historically, South Africa had much higher personal income tax rates. For example, between 1971 and 1979, the PIT was 60%. Progressively hiking tax rates on those earning between R500 000 per annum and more than R1.5 million per annum may raise more than R90bn based on the number of individuals in each tax bracket.

Taxing the Missing High Net Worth Individuals:

High net worth individuals (HNWIs) have investible property in the range of R7 million to R70 million a year. There are at least 7000 HNWIs currently not on SARS tax registers, but there are potentially as many as 96 000 HNWIs in South Africa. Putting an end to the tax dodging practices of HNWIs could yield a tax revenue of well over R100bn per annum.

Borrowing Against the Surpluses of the UIF and the GEPF at Concessionary Interest Rates:

Notwithstanding the critically high unemployment rate, the UIF has still managed to accumulate large sums of assets which continue to grow on an annual basis, partly due to the fact that the UIF underspends between R8bn and R12bn annually. Equally, before the outbreak of the coronavirus, the GEPF had accumulated more than R1.7 trillion in reserves. Borrowing against some of these reserves at concessionary interest rates would provide safe returns on investment for the pension fund, as well as provide the government with additional funding for all sorts of programmatic spending, especially the UBIG.  

Combating Illicit Financial Flows:

Combating illicit financial flows, base erosion and profit shifting will not only recover huge amounts of resources every year,but it will also mean that workers can be paid better wages as companies would retain more of their own profits, as opposed to sending them offshore. A necessary inclusion in this would be regulations for increased financial transparency and the implementation of a general anti-tax avoidance act. According to SARS, combatting BEPS alone will allow the state to raise an additional R100bn per annum – not to mention the added advantage that improved wages will have through the multiplier effect.

Breaking the Tax Revenue Ceiling:

The tax revenue to GDP ratio is a good way of indicating what governments ambitions are for the quality and size of public services. A policy of low tax to GDP ratio hinders the potential for financing a social wage. It’s unusual for a country to sanction that the tax revenue to GDP should not exceed a certain ratio. Nonetheless South Africa did in 1996 and again in 2012, where it explicitly states that the ratio of tax revenue to GDP is maintained at a level of 25%. This phenomenon is known as tax-pegging. When this rule was broken it was to increase debt service costs, whilst decreasing public spending.

The Macro-Economic Research Group (MERG, a group of progressive economists) suggested that government revenue as a percentage of GDP should gradually increase to approximately 32% by 2002, or else the government would not be able to sufficiently address the wrongs of apartheid.

Tackling corruption

Ending corruption and the looting of state resources amounting to more than R50,3 billion.

Even though the implementation of these tax reforms are long overdue and should therefore be enacted immediately, the time taken in the current recessionary environment to raise the revenue and the amount of revenue that would be raised would not be sufficient to make up the shortfall now. Utilising the central bank more effectively has, therefore, to be considered. There is growing consensus that the South African Reserve Bank (SARB) can buy bonds directly from the government and thereby increase the state level of spending. A former treasury official estimates that R20 billion to R30 billion could be printed by the SARB per week. A grant of R1280 paid to 10 million people, for instance, would require approximately R13 bn per month, which is easily doable within the constraints of the SARB.

For the government to enact any of the aforementioned policy measures requires the implementation of more stringent exchange rate and capital controls. Without these measures, the wealthy would quickly transfer their money to safer places, which means countries that give higher priority to protecting the sanctity of wealth.

Time for the revival of the BIG Coalition

In the meantime, it is time for the revival of the BIG Coalition. Many social movements and trade unions, with the support of some progressive NGOs and academics, have all once again recognised there is nothing as powerful as an idea whose time has come. The problem is that history tells us that great ideas, no matter how powerful, are not enough to produce the changes we want and need. Without the social forces from below, an income transfer feeding the ulcer – or no income transfer at all – is on the cards. Let’s hope that the Cry of the Xcluded, and all other progresive forces combine their collective efforts to advance the implementation of a basic income grant. The BIG we advocate, let it be emphasised, is one that doesn’t delay the future that frees everyone from the poverty unavoidably produced as a by-product of wealth.

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^[1] Basic Income Grant Reference Group, 2004