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ECONOMIC REGENERATION

Universal Basic Income urgently needed to kick-start SA economy — Social Policy Initiative

Universal Basic Income urgently needed to kick-start SA economy — Social Policy Initiative
Isobel Frye; executive director of SPI moderated; Dominic Brown from the Alternative Information and Development Centre; Nomahlubi Jakuja, head of research at SPI and Russell Wildeman from the United Nations Children’s Fund provided their inputs on Universal Basic Income. (Photos: Supplied)

The Social Policy Initiative recently held a webinar discussing the implementation of a Universal Basic Income as part of a fiscal policy strategy.

“With the demise of the foundations of socialised wellbeing and the rise of a neoliberal market-driven economics since the 1980s, there’s been a constant pushback against universal coverage of basic guaranteed income, in favour of mean, means-tested targeted, and conditional poverty alleviation programmes. But as we know, programmes for the poor are always poor programmes,” said Isobel Frye, executive director of the Social Policy Initiative (SPI).

Frye was speaking on Tuesday during a webinar that delved into the insights derived from SPI’s latest policy brief titled: “The Economics of Implementing a Universal Basic Income in South Africa”.

Nomahlubi Jakuja: head of research at SPI, presented the insights, with Russell Wildeman: Unicef South Africa Social Policy Specialist, and Dominic Brown who works for the Alternative Information & Development Centre, provided inputs to the brief.

This policy brief makes the case for why South Africa should implement a Universal Basic Income (UBI) as an economic stimulus package. The brief also presents data on the extent, composition (spending), and size of such a stimulus package required to grow the South African economy.

Why a UBI is needed as an economic policy in South Africa

Jakuja said UBI is not a social welfare but an economic stimulus to kickstart South Africa’s economy, which for the past 10 years has not been growing above 4% in terms of its GDP.

“South Africa’s high unemployment rates, especially among young black women, place the country on a very unsustainable trajectory,” said Jakuja.

The Policy Brief calls for a UBI to the value of R656.9-billion to be implemented over three years.

“This is not the only policy that South Africa should embark on in trying to revitalise the economy, but it’s one of seven pillars of fundamental reforms that are needed to get our country going on the right track,” said Jakuja.

According to the policy brief, UBI is primarily about economic stimulus and recovery, not redistribution or reducing inequality, although it will help to achieve these objectives.

It becomes sustainable within the context of a significantly higher GDP growth rate and generates the resources to mostly pay for itself.

Since the country transitioned to democracy three decades ago, South Africa’s economy has performed dismally.

“From 1994 to 2022 GDP per capita, an imperfect measure of average living standards, increased by 22%. By comparison, over the same period, GDP per capita growth in local currencies, was 783% in China, 337% in Vietnam, 315% in Ethiopia, 285% in India, and 216% in Poland, according to the World Bank,” according to the brief.

In South Africa, GDP per capita in 2023 was lower than it was in 2007, and it is expected to decline for another three years from 2024 to 2026.

Read more in Daily Maverick: SA narrowly dodges recession in Q4 as economy grows a sluggish 0.6% in 2023

“By the end of 2026, the country will have had 19 years of declining average living standards. We cannot continue like this,” read the brief.

South Africa has the highest levels of unemployment, poverty, and inequality in the world with Black African women bearing the brunt of the triple challenges, according to the brief.

Read more in Daily Maverick: South Africa’s wealth inequality has increased markedly over past two decades – UBS

“During the third quarter of 2023, according to Stats SA,  there were 11.7 million unemployed people, and the unemployment rate was 41.2%. The country also has the world’s second-highest youth unemployment rate after Djibouti. There were 2.4 million young people aged 15 to 24 who had no work, and their unemployment rate was 67.6%. There were also 8.7 million young people (15-34) who were not in education, employment, or training,” stated the brief.

Jakuja said there is a need for multiple policies to address South Africa’s multiple dimensions of poverty and unemployment.

“A UBI is part of a broader and a slew of policy interventions that SPI is calling for and that that actually needed to get our economy going, but it’s also an important policy in and of itself,” she said.

Composition and size of UBI 

The size of the UBI matters as it needs to be big enough to kickstart economic activity. The composition of a UBI also plays a role in making it more effective.

“Currently under the current macroeconomic policy of austerity, which is pushing less spending on governments, a UBI is not feasible. South Africa needs to pursue an expansionary macroeconomic policy, as it did between 2003 and 2008, under the Gear (Growth, Employment, and Redistribution) programme,” said Jakuja.

SPI’s UBI has up to 96% self-financing component and the UBI needs to be at a macro level, both in size and in composition, said Jakuja.

The SPI paper calls for the implementation of a UBI for adults and children valued at R862.9 billion over three years — R557.7-billion for adults and R305.2-billion for children who received a means-tested CSG (Child Support Grant) of R505 per month during 2023-2024.

Assuming a 70% uptake, the number of UBI adult beneficiaries will be 25 million in 2024-2025, 25.4 million in 2025-2026 and 25.8 million in 2026-2027, using Stats SA’s 2022 population projections. CSG beneficiaries will be 13.7 million in 2024-2025, 13.9 million in 2025-2026 and 14.1 million in 2026-2027, according to the brief.

“There will be clawback of basic income from 70% of 7.1 million people who are above the income tax threshold. Therefore, there could be about 33 million net UBI beneficiaries during 2026-2027,” read the brief.

Where will the money come from?

According to the policy brief, the narrative that South Africa is spending a lot already is not only a relative statement but not true compared to its peers. The brief also noted that large fiscal spending in response to shocks contributes to GDP growth.

“While the brief did not include in its model loans from central banks, this is an area that remains unexplored, rather not fully maximised in South Africa’s financing for fiscal spending,” read the brief.

South Africa has a large public sector balance sheet that has assets of almost R4-trillion, which includes assets worth R2.6-trillion at the Public Investment Corporation – the asset manager of the Unemployment Insurance Fund and the Government Employees Pension Fund. South Africa also has foreign exchange reserves of R1.2-trillion, according to the brief which proposes a once-off restructuring of these assets to release half of these assets into the economy.

The Government Employees Pension Fund had funding of 110% — almost R400-billion above the 90% target its trustees have set.

“There is no need for these surpluses. A company can go bust and must pay all its pensions on the same day, but there is no scenario in which the government will ever have to pay 1.3 million pensions on the same day,” read the brief.

The government also has cash of about R150-billion and according to National Tresury in 2023, the UIF has a surplus of R110-billion. This comes after the government created almost R60-billion “out of thin air” and paid 13.8 million people who were unemployed during the Covid-19 lockdowns, according to the brief.

“There was no need for the surplus before the pandemic and there is still no need for it now […]. The assets remain untapped as financing options for a UBI and are way above what is required to pay pensions and unemployment benefits and cover imports,” read the brief.

Lastly, the policy brief states that “there is no universe in which South Africa’s debt ratio of about 75% is high by international standards, even when it is benchmarked against emerging market peers”.

The IMF projected a world average debt ratio of 93.3% for 2023,  with advanced countries having an average debt ratio of 112.1% while emerging market and middle-income countries have an average of 68.3%.

“The conclusion is that SA Inc. can finance a stimulus for the economy, which includes higher spending on UBI, a job guarantee, infrastructure, industrial policies, universal public services, subsidised public electricity, transport and mass housing and regional integration,” read the policy brief.

The brief also included a menu of funding options including:

  • Monetary finance, which refers to the central bank’s creation of “public money” to support government spending;
  • The Reserve Bank can bypass the bond market and directly lend to the government, State Owned Enterprise or Development Finance Institutions on favourable terms — at the repo rate or with payment holidays — until the economy recovers;
  • South Africa can increase its borrowing on the bond market to finance a stimulus for the economy; and
  • South Africa can increase taxes on idle wealth and high earners that will not impede a fragile recovery or reduce the efficacy of the proposed UBI stimulus.

“As South Africa looks forward and makes economic and social plans for the sixth administration to build the country, social security presents a previously untapped opportunity to grow the economy while addressing the social ills of the country,” read the brief.

Characterising UBI as fiscal stimulus a bold move

Russell Wildeman, Unicef South Africa Social Policy Specialist, said changing the characterisation of the UBI  from social assistance to a fiscal stimulus is a bold move.

“I think it will be hard to sell, because of the rigid understanding of private consumption expenditure and productive investments. I don’t know if the switch from calling it a social security intervention to something like a fiscal stimulus will necessarily fly, in particular within this kind of constricted, narrow, neoliberal kind of context,” he said.

Wildeman also said that fiscal stimulus tends to be targeted and restricted to a particular period, but what the policy brief is talking about is a permanent intervention, which could lead to conceptual and philosophical discussions about exactly what SPI means.

Read more in Daily Maverick: Universal basic income is the answer to providing a solid unemployment social assistance system

“There might be some issues around redoubling it as a fiscal stimulus as opposed to simply seeing it as an important social assistance but I understand why that would be done, because if you make it a social assistance intervention, then people will again use the sort of normal language of dependency and handouts,” he said.

Idea of UBI not new 

Dominic Brown who works for the Alternative Information & Development Centre said the role of the UBI is impotent if it’s not in conjunction with a fiscal stimulus and a broader, expansionary macroeconomic framework.

“Particularly with investment into infrastructure, and a massive prioritisation of expanding the public sector. Post-apartheid, we’ve seen declining levels of spending gross capital formation in the public sector and in spending in general, which underpins in a big way the deindustrialisation of the South African economy, contributing to the worsening levels of unemployment over the past 30 years,”  he said.

Brown said the issue of expanded social protection and the struggle for a basic income grant has been on the agenda in South Africa for a long time, dating back at least to the1997/1998 white paper on expanded Social Security.

“So it’s a long-standing issue, which many people support, yet it fails to materialise itself. […]  for many of us, we recognise especially post Covid-19, it’s an idea whose time has come,” he said. DM

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  • Middle aged Mike says:

    Ah yes, the old tax us into prosperity idea. That’s bound to work . . . . in the rec room at varsity.

  • B M says:

    Many valid points. However, perhaps, instead of a BIG, an ESP (employment/entrepreneurship stimulus programme) is the solution. Provide the money in the form of salary incentives / rebates for SMEs to employ. No giving, but earning. This will likely have less inflationary pressure than a BIG, because, in theory, there is a value add that is driving the additional cash flows. Start a business – cleaning the streets for example; Employ some workers; pay the would be BIG to the employees. Win-Win-Win.

  • David Le Page says:

    It’s amazing how many people understood that to have a thriving business, you have to have adequate and well-maintained physical infrastructure, people who are healthy and well-fed and happy, good communications, high levels of education – yet fail to apply the same logic to a building a thriving economy and country. A business in which 20% of the workers were not even properly fed, in which the managers insist on clinging to the most outdated energy system, and where every call for proper capitalisation is met with the complaint that we’re going to be over-taxed would be lurching and failing and tottering from crisis to crisis – just as we are. Human beings are amazingly creative – given a certain minimum level of resources, which in ages past could often be met simply through access to land or nature… but in these times, those resources are no longer accessible, and so we need a UBI to unleash the full potential of all our people. We have a sovereign currency, and we can create far more of the money we need to finance a UBI and unlock the full potential of our economy, just as wealthy nations did quite unreservedly through “quantitative easing” during Covid – the difference being that their methodology funnelled most of that wealth towards elites; giving it to ordinary citizens will be far more effective. Just google “Give directly” to see some of the wealth of evidence that this approach is highly effective.

  • Ben Harper says:

    Hahaha, good laugh indeed!!!

  • Jack Russell says:

    Long winded dreamy nonsense. All that’s needed is competent government.

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