Volume 10, No.5 - August 2001

Privatisation

Trade union news

South Africans for a Basic Income Grant

COSATU and eleven other civil society organisations have come together to endorse a proposal for a Basic Income Grant and commit themselves to working with government to make it a reality.

Why we need a Basic Income GrantThe greatest threat to South Africa's new democracy is the unacceptable level of poverty and inequality in our society. A bold initiative is urgently needed to address this situation. Twelve organisations, including COSATU, believe that the introduction of a universal Basic Income Grant (BIG) is required as a key intervention to alleviate the conditions in which the majority of South Africans live.Twenty-two million people in South Africa - well over half the population - live below the poverty line, spending less than R200 a month to survive.
Even in the new South Africa, poverty remains strongly correlated with race and urbanisation. Of those people living in poverty, 94 per cent are African and more than 70 per cent live in rural areas.

Meanwhile, one in eight South Africans spend more than ten times as much per month. Nearly three quarters of this group are white, and the overwhelming majority (88 per cent) are urban dwellers. In fact, South Africa has become the most economically unequal nation on earth.

Such enormous disparities pose a grave threat to the stability of our society, the future of race relations and the sustainability of our internationally admired transition to democracy.
The existing social assistance system is wholly inadequate to meet the basic needs of the majority of South Africans. The old age pension remains a vital lifeline for many households.

Recently, the child support grant has also begun to provide welcome assistance to many households previously without any access to social security.

Nevertheless, these and other transfer payments are only able to close the poverty gap (the difference between actual income and the poverty line) by about 37%. For about half of the poor, the potential household benefit amounts to less than R25 per capita per month.

Consequently, the present system is unable to satisfy the Constitution's guarantee of social security for all, "including, if they are unable to support themselves and their dependants, appropriate social assistance."

The Constitution imposes an obligation on the state to achieve the progressive realisation of this and the other constitutionally recognised socio-economic rights (food, water, housing, and health care).

The Constitutional Court recently reiterated this obligation in the Grootboom case. It also affirmed that the State is under a duty to provide immediate relief to people who are in desperate need and living in intolerable conditions.

Given the crisis of poverty and inequality that exists in South Africa today as a result of our apartheid history, the BIG would be an important measure giving effect to these constitutional obligations. If implemented a national BIG will:

• Combat poverty,
• Provide everyone with a minimum level of income,
• Enable the nation's poorest households to better meet their basic needs
• Stimulate equitable economic development,
  
• Promote family and community stability, and
• Affirm and support the inherent dignity of all.

How a Basic Income Grant would work

Many of the practical details associated with the introduction of a BIG require additional investigation and debate. However, most of the organisations campaigning for a BIG concur on the fundamental principles underlying the initiative, even if they reserve the right to raise additional specific proposals.These guiding principles include:

• Universal Coverage: The BIG would be available for all - from cradle to grave - and would not be subject to a means test. This would diminish the administrative burden and opportunities for corruption often associated with means-tested grants where local administrative staff are required to investigate and rule on an applicant's eligibility. The lack of a means test would also ensure that individuals would not be penalised by the loss of benefits if they work to improve their own situation.
  
• Amount: Proponents have recommended a variety of amounts, usually in the range of R100 to R200. The final figure should be decided after extensive consultation with stakeholders and careful analysis of the fiscal implications. However, there is broad consensus that the BIG should be a minimum of R100 per person per month on introduction and should be inflation indexed.
• No substitute for existing grants: The BIG is intended to expand the coverage of the existing social assistance system, not replace existing grants. Current beneficiaries should not have their benefits reduced by the introduction of the BIG.
• Delivery mechanisms: Payments should be made through public institutions. Post Banks in communities would be ideal, as this would also provide communities with much needed banking and service infrastructure.
• Financing: The majority of the cost of a BIG should be recovered through progressive taxation.

This would be a profound symbol of the solidarity of all South Africans in a national drive to eliminate poverty. The net cost of the grant after tax offsets would be roughly R20-R25 annually. New measures to expand the fiscus - including the restructuring of the government employee pension fund and a modest increase in deficit spending - would allow the financing of remaining costs without squeezing other social expenditure.

Benefits of a BIG

1. Deep, targeted poverty alleviation
Since everyone would receive the BIG, its capacity to alleviate poverty far outstrips other extensions to the social security system under consideration. Recent research suggests that the introduction of a R100 monthly BIG would nearly triple the average per capita transfer to poor households, thereby closing the poverty gap by more than 80 per cent.

A R100 grant would double the amount available for consumption by people in the poorest 29 per cent of the population, promoting improved nutrition especially for children. The grant covers households that do not currently have access to social assistance, including the working poor.
Although the grant is universal, using the tax system to recover the payments made to more affluent people ensures that total annual transfers target those sections of the population with the greatest needs. If wealthier people don't bother to take up the grant, the targeting effect will be further enhanced.

In addition, a BIG favours larger - typically poorer - households which tend to pool income. This, in turn, will lead to a more equal intra-household distribution of income, contributing to the empowerment of women and younger people in the family.

2. Enhanced response to HIV/AIDS pandemic
Current projections estimate that by 2011 the total number of HIV infections will reach 5.8 million and the AIDS death toll will top 5.5 million. One in four working age adults will be infected with HIV, and one in six will have succumbed to AIDS. Over half of the population will be in households where at least one member is living with HIV/AIDS or has died from the disease.

Affected households face a double burden. First, household members with the virus often have a diminished capacity to contribute to the income of the household, agricultural activities, childcare, or other household chores.

Second, other members of the household may need to devote a substantial amount of time to caring for them, especially if they begin to show symptoms of AIDS. There is also likely to be a dramatic increase in 'children only' households, with the number of children living under the subsistence level rising from about 46, 000 to nearly 900, 000. In the absence of state support, other families will have great difficulty integrating these children.

The current social assistance system is ill equipped to deal with the HIV/AIDS pandemic. The support given is insufficient to absorb the additional burden that affected households have to carry.
Those most affected by HIV/AIDS -- working age adults - have very little access to social grants, resulting in a dramatic increase of the number of people with no income whatsoever. The BIG fills this gap and gives HIV-affected households additional resources to help them to cope.

3. Contributes to reparations and reconciliation
The apartheid era has left South Africa with enduring legacies of racial tension and gross economic inequality. In addition to recommendations concerning urgent interim reparations and individual reparation grants, the Truth and Reconciliation Commission also called for much broader reparation schemes to rebuild communities and address the deep wounds social, economic and psychological wounds inflicted by apartheid. A BIG would be a tangible and meaningful contribution to that effort that could lay the foundation for genuine and lasting national reconciliation.

Further, evidence from other developing countries demonstrates that such inequality is an important obstacle to economic growth and investment. Given the fact that South Africa has one of the highest levels of inequality in the world, a reduction is imperative. The BIG in a combination with a solidarity tax reduces inequality on a broad scale and ensures that nobody is left without any income.

4. Stimulus to increased consumer spending, job creation, investment and economic growth
The BIG would provide a universal, stable and reliable income source, enabling people to plan their economic activities better. Cash transfers into households increase and stabilise demand, consumption and savings.

Spending is likely to be concentrated on basic, locally produced commodities, thus benefiting local markets and stimulating job creation. Increased consumption is likely to have particular impact on rural areas where it has the potential to kick-start the economy.

By serving as a wage subsidy, the grant allows wage increases to contribute more efficiently to worker productivity. Currently, pressure to provide remittances to family members or friends reduces the resources remaining to sustain the worker's productivity. Wage increases are in effect 'taxed' by corresponding increases in remittances, so long as the working poor must serve as the primary social safety net for the very poor.

The BIG reduces these demands, allowing workers to devote a larger proportion of their wages to productivity-enhancing consumption and social investment (in health, improved housing, skills development, children's education, etc.).

Meanwhile, improved living standards enable individuals to make more sustained and intensive efforts to find work. Research shows that such efforts are correlated with higher rates of success in finding employment. Enhanced economic security also enables poor households (as distinct from the poorest) to undertake higher-risk--yet potentially high return--activities such as educating children or even switching out of menial jobs to explore self-employment opportunities with less threat to survival.

5. Improved efficiency of social investment
UN studies have shown that poverty undermines social investment. Inadequate child nutrition, for example, creates long-term health problems which are associated with higher medical costs, poorer educational performance, lower labour productivity, increased absenteeism, etc.

This places an extra burden on women who are typically responsible for health care and education in the family. On the other hand, by strengthening the capacity of households to meet basic health and education needs, the BIG enhances the benefits of additional state investment in these public goods.

Furthermore, there is potential for increased overall revenue, generated through a combination of economic growth, increased consumer spending, and a more progressive income tax structure.
To date, the following organisations have endorsed this platform:

• Congress of South African Trade Unions
• Community Law Centre, UWC
• Alliance for Children's Entitlement to Social Security (ACESS)
• Black Sash
• Gender Advocacy Programme
• Development Resources Centre
• Child Health Policy Institute
• Southern African Catholic Bishops' Conference - Parliamentary Liaison Office
• South African Council of Churches
• Ecumenical Service for Socio-Economic Transformation
• South African NGO Coalition (SANGOCO)
• Treatment Action Campaign (TAC)