A basic income grant in SA would lead to a substantial reduction in poverty and hunger, but it is unlikely to directly result in an increase in economic growth and productivity, according to Wits University professor Michael Sachs.
He was a member of a panel of experts drawn together by the department of social development to discuss the issue as a possible replacement for the monthly R350 social relief of distress (SRD) grant. Introduced in May after the outbreak of the coronavirus pandemic, the SRD helps about 9-million people but is scheduled to end in March 2022.
There was broad agreement among the panellists that some form of financial assistance was needed for people aged 18-59 years who fall outside the social grants that cover children, the aged and the disabled.
Treasury is also exploring options for such assistance, having commissioned research from the University of Cape Town including a basic income grant, continuation of the SRD grant, an extension of the presidential employment stimulus programme, a job seeker allowance, and family grants as implemented in Brazil.
Sachs noted that 40% or more of SA’s population lived below the poverty line and hunger was a daily reality for about 35% who live below the food poverty line of R624 a month. This should not be tolerated, he said especially in the context where the top 10% of most affluent households have levels of consumption similar to those of first-world elites.
A basic income grant would lead to a substantial reduction in poverty and hunger by redistributing purchasing power or consumption from the rich to the poor, possibly through the tax system with the government acting as an intermediary. This would be the most progressive, accountable and efficient form of financing. In the medium term the only dependable source of revenue for the grant would be personal income tax or VAT, or a combination of both.
If the grant was funded through borrowing, account would need to be taken of the sluggish state of the economy and government’s fiscal position and its level of debt, Sachs noted.
A monthly grant of about R600 would cost about 4% of GDP annually and halve the number of people living in poverty and have a substantial impact on levels of hunger. However the argument that income transfers would reduce inequality was not so strong, Sachs said.
“The effects on employment and growth would probably be positive, but a basic income grant is not a policy that is going to directly lead to a process of growth, productivity — and what is most important the structural transformation of the economy,” Sachs said.
He referred to an International Monetary Fund (IMF) study that found that inequality is unequivocally bad for growth, and redistribution is weakly correlated with lower growth.
“Overall, moderate redistributions can be expected on average to improve growth outcomes. However this is the average effect. The world does not consist of average countries. It consists of actual countries,” Sachs said.
Another analysis found there was no trade-off between redistribution and growth in the long run, but this was contingent on political and fiscal institutions; some countries got it right and some got it wrong.
“There is no evidence that will tell you this is right or this is wrong. A substantial increase in redistribution in SA today where we already redistribute a large part of GDP relative to our level of development; where we have been in a crisis of low investment, slow growth and the absence of productivity improvements for decades if not generations; where our politics, the democratic process must enable the state to impose these sacrifices on the affluent in order to raise the consumption level of the poor; and where politics is weak and divided, the possibilities of success are narrow,” Sachs said.
The question was how SA would negotiate the trade off between redistribution and growth and whether it had the political capacity to do so. Also critical was how much of the burden of the redistribution fell on the top 10% versus the less well-off middle class.
University of Johannesburg professor Miriam Altman, who is also a member of the National Planning Commission emphasised that a basic income grant would alleviate poverty, not reduce it. She estimated that about a quarter to two-thirds of the population fell below the food poverty line and SA, a middle-income country had the resources to deal with it. This was both a human rights and human development issue, she said.
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