DM168

BIG IDEAS

Exploring a compelling case for why a basic income grant would benefit all

Exploring a compelling case for why a basic income grant would benefit all
The author writes that the idea of a basic income grant is gaining a foothold in unexpected places, driven by disruptive developments over the past few decades. (Illustration: iStock)

Author and researcher Hein Marais firmly believes in the merits of a universal grant and delivers a convincing argument for it in his recent book, “In the Balance”. That said, the challenges are immense.

Two anecdotes from my homeland of Canada shed light on the wider debates around the basic income grant (BIG) and how the idea is gaining traction in surprising places. 

One involves the western Canadian province of Manitoba and an experiment that Hein Marais says “became part of social policy folklore subsequently”. Known as the Mincome Programme, it paid out a supplemental income of CAN$19,500 per year per four-person family to 1,000 low-income families in the town of Dauphin. 

This ran from 1974 to 1979, when Canada’s Conservative Party briefly assumed power and pulled the plug on the scheme without bothering to examine the outcomes. 

A few years later an economist did analyse the data, and the results were striking. Among other effects, “numerous health and other indicators … improved among the recipients of the income payment. A larger proportion of children in recipient families had completed Grade 12 when compared with those living in similar towns in the province. Hospital visits and admissions had declined, especially for mental health diagnoses, accidents and injuries, and reports of domestic violence had decreased. 

“Employment rates had stayed steady throughout the five-year trial, except among new mothers (who were able to spend more time with their children) and teenagers (who were able to give up part-time jobs and focus on school work),” Marais writes. 

“All these effects,” he further notes, “disappeared when the experiment ended.” 

The other Canadian example (which Marais does not mention) involves a former prime minister from the same Conservative Party that ended the Mincome Programme. Brian Mulroney — a creature of Canada’s corporate culture not famed for his compassion — has come out swinging in favour of a BIG. 

“Governments, prime ministers have to think BIG now,” Mulroney said in a video posted on Twitter on 14 February. 

Mulroney goes on to explain that the Covid-19 pandemic and the economic dislocations it wrought focused his mind on the issue, and he cites proposals from his former chief of staff, Hugh Segal, who has been pushing the idea for decades. 

The point here is that the idea of a BIG is gaining a foothold in unexpected places, driven by disruptive developments over the past few decades. The idea of a BIG has emerged on the surface, and Marais does an admirable job of charting this flow. 

In clinical detail, he dissects the main trends that have informed the debate: the crisis of waged labour, the BIG’s attractions and dissents, and mechanisms for financing such a radical policy measure. On this front alone Marais has done a service, and among other things, it is a useful and readable primer on most of the issues related to the concept of a BIG, as well as a window on recent trends in economic thought.

On the question of financing, there is a range of ideas. For this reviewer, the most appealing among the ones that Marais highlights is a financial transactions tax (FTT).  It would be applied to the transfer of ownership of assets such as equities, bonds and foreign currencies. 

It’s not a novel tool, and at least 15 countries use an FTT, or did until recently, including the UK, India, Brazil and SA. 

In SA’s case, a limited FTT came into effect in 2008 in the form of a 0.25% levy on the purchase and transfer of securities.

“The tax has two major potential benefits: it can discourage financial market speculation by raising the costs of speculators, and it can be a substantial source of additional government revenues,” Marais writes. 

Part of the attraction of this approach is that the financial sector in many ways is becoming increasingly detached from the wider economy, accounting for a growing percentage of GDP unrelated to critical areas such as job creation or even productive investment. 

Marais notes that the main critiques of an FTT are that it is vulnerable to tax avoidance through offshoring and that it could discourage portfolio flows, which remain vital to the SA economy, in which financial markets are still liquid and sophisticated, even if they don’t always mirror — except in a distorted way — what is happening on the ground. 

Still, the SA Revenue Service is hardly incapable, and reducing the economy’s reliance on volatile portfolio flows, in the long run, may not be a bad thing — foreign direct investment is far more crucial and durable. And if applied appropriately and ring-fenced for the purpose of a BIG, an FTT seems to this reviewer as not representing a massive disincentive to financial markets investment — a sector of the economy that should give back more. 

Ultimately, the appeal of a BIG in the SA context is that even badly needed economic growth is not a panacea for job creation, especially in the face of the forces of automation and digitisation. 

There is the Fourth Industrial Revolution and all that jazz, and SA’s low-skilled and poorly educated workforce is ill-equipped to prosper from such trends. 

That doesn’t mean that job creation or economic growth are not worthy policy goals, but Marais’s wider point that they have not delivered the goods is indisputable. 

Even much faster rates of economic growth in SA are not going to bring unemployment rates down to, say, Canadian levels, which are currently close to record lows at 5% — and yet even in that environment, they have the likes of a former and deeply unpopular Conservative Party prime minister calling for a BIG. 

If BIG has surprising supporters in Canada, surely its utility in SA should be gin clear. 

The old adage about “hand-outs” to lazy people doesn’t apply, or is certainly inappropriate in a 21st-century economy that has the most glaring income disparities on the planet, thanks to the legacies of apartheid and the ANC’s bungling and looting. 

As Marais notes, in such an unfair setting, a BIG empowers SA’s underclass to quit jobs or turn down dangerous or exploitative work. “The ability to decline waged work can help reset the balance of power between workers and employers,” he writes. “Not merely an adjustment or an expansion of the existing social welfare order, it can be a quantitatively different intervention that breaks with the waged work-­centric model of the old order, its paternalist frame and its patriarchal slant.” 

Most people will still aspire for more than what a BIG promises, though it does provide a safety net with a tight enough mesh to hopefully prevent the poorest from falling into the economic currents below and empower them from being swept away. And if it’s universal, even the middle class will likely spend it, even if just on some meals out, adding to demand in the economy. Some may even devote it to savings, which is no bad thing. 

One way that Marais frames it is as a “citizens’ dividend”. The ultimate costs of such a dividend, though, seem harder than he envisions for the SA economy to absorb. That is not to say that he skirts over the decay of the SA state and its capabilities, or incapabilities. 

But he sees it as “reparable”, which ultimately every South African should hold out hope for, as the alternatives include a descent into a Zimbabwean-style nightmare. But “reparable” gets tougher when things are not maintained, as the case of Eskom highlights. 

Still, a BIG is an attractive policy option in SA, and this reviewer is more sold on its merits having digested Marais’s work. However, it remains too big a policy for SA’s body politic to digest without throwing it into a steaming heap of corrupt goo. The state needs to be mended back to health and the tax base shored up, with a renewed focus on financial transactions. DM168

This story first appeared in our weekly DM168 newspaper, which is available countrywide for R25.

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  • Epsilon Indi says:

    Once again a capitalist approach to the problems in SA is dumped in favour of yet another socialist proposal which, like all the ANC’s socialist proposals, won’t work. Why should the ANC’s pathetic attempt at government be propped up by a strategy that will negatively affect the taxpayer by making their tax burden even more onerous and allow a corrupt and incompetent coterie of halfwits in power to garner even more votes from the intellectually limited masses who were stupid enough to vote the odious ANC in to power to begin with.

  • Dirk Els says:

    A BIG addresses the symptoms and not the root causes. It would be more sustainable to create the right policies that will lead to economic growth, job creation, education and skills development, etc. The ANC’s quagmire of implemented laws and regulations (such as BEE, AA, excessive red tape, market restrictions (e.g power generation), etc,) as well as lack of effective implementation in areas such as schooling, health, policing and justice have directly led to the economic stagnation and lack of jobs.

  • R S says:

    Any increase in taxes for BIG will just result in increased looting and the poor will still be left with empty wallets and even emptier stomachs.

  • Willem Boshoff says:

    A BIG is a fine idea, provided you have reached a threshold on GDP per capita and employment figures. In South Africa we’re trying to solve problems by diving in backwards. Pursue aggressive economic growth and skills retention, expand the tax base and get to critical mass on GDP per capita – then only can you talk about a BIG. Capable people and capital is leaving these shores as an unfriendly economic environment, high tax rates, unsustainable grants en out of control crime take their toll.

  • Peter Oosthuizen says:

    A basic income grant should be just that – basic and fixed to provide the essentials to those unable to work but who we as a country will have to support in one way or another. There should be no child grant though which, if we are to accept anecdotal evidence, has led to an incentive for child bearing.
    The alternative is to accept that honest people, when faced with no alternative way to put food on the table, will ultimately resort to crime or begging for handouts.
    Those of us who are fortunate enough to have a tax problem, rather than an income problem, should recognise that there are no magic wands to provide employment for our population.
    If the DA wished to extend it’s support base it should consider offering something to the have-nots as well as the upper and middle income classes.

  • Rod H MacLeod says:

    “… a sector of the economy that should give back more …” Really? Financial investors must give back more? Do you mean the people who supply the capital for this economy to keep ticking? The ones who pick up the risk of every mining project, every building project, every job created, every manufacturing plant, every bank, every cent invested in this economy – they must give back more?

    This debate about a BIG is fatuous and fanciful. We simply cannot afford it. And, please, don’t tell me we can’t afford not to have it. We would be the only country on this continent to have it.

    All I can say about such socialist ideas is that Margaret Thatcher said a mouthful when she stated “the trouble with socialism is that eventually you run out of other people’s money”.

  • Johan Buys says:

    IF an income grant is such a no-brainer then the logical extension is pay everybody R5k per month. Imagine the good that will flow…

    As to funding, we are relatively unique in OECD in having virtually no social welfare income stream. At present people either pay income tax or don’t below certain levels. If ALL workers paid an amount into a grant fund for the unemployed, even R250pm, it would become a big number and after all, the workers would in the spirit of comradeship gladly give up R250 for their unemployed brothers and sisters; or wouldn’t they?

    • sue fry says:

      I think the idea of a flat rate payment of R250 for people below the tax level, but earning more than, say 5k a month has merit. Definitely, the idea of a 1% tax on financial transactions needs to be linked to it being a ring fenced BIG fund. In my view we need to find a way – creating jobs and growing the economy is failing not only here with our collapsing sytems. World wide lower income earners are stagnating and not able to improve their lot, while the richest whatever % rake in the billions. The trickle down effect is not trickling …….

  • Mark O’Malley says:

    There has been no benefit to GDP growth or unemployment by taxing corporates at only 27%, when individual taxpayers are taxed on a progressive scale up to 45%. Higher interest rates and public sector wage increases of 7.5% simply generate more top line earnings for banks and retailers. So up the corporate tax rate until we see real evidence that the financial and retail sectors are not simply making their executives and shareholders richer in an economy which is effectively growing at zero per year .

  • Komala Pillay says:

    The reasons for:
    – A universal BIG is more financially efficient – fewer checks to ensure eligibility, less need for distribution of in-kind support (more costly and prone to corruption), smaller social departments.
    – BIG increases cash in poor communities thereby stimulating local economies.
    – Learning and innovation are difficult when a human being is starving. Untapped potential could be unlocked that would ultimately benefit the country.
    – The data, albeit limited, shows the positive community impact.
    – For a government struggling with poor service delivery and corruption, enabling people to do more for themselves makes sense.

    The reasons against:
    – Patriarchal mindset that says that poor people are less than and can’t be trusted.
    – Government’s inability to manage cash effectively and control the size of the public sector- if this were possible, BIG could be paid for without increase of taxes.

    American marketing has made socialism a swear word and capitalism the ideal. This requires us to take the time to look beyond the marketing and at the substance of the arguments.

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