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Yes, we can afford a universal basic income guarantee

It just needs political will.
Queues at a South African Social Security Agency office in Bellville in January. The reinstatement of the Covid-19 grant takes the country one step closer to a universal basic income guarantee, say the authors. Image: Mary-Anne Gontsana

The reinstatement by President Cyril Ramaphosa of the Covid-19 Social Relief of Distress grant and its extension to caregivers take us one step closer to a universal basic income guarantee.

The Covid-19 pandemic has placed the idea of a universal basic income guarantee (UBIG) back on the agenda, as can be seen from the numerous demands from civil society groups and community organisers. This recognises, in the context of a long-standing structural unemployment crisis, that poverty and inequality cannot be addressed only through expanding employment.

However, the SRD grant of R350 per month can, at best, cover only 60% of a person’s minimum required food intake. In the short-term, the SRD grant should be increased to at least R585, which is the Food Poverty Line. This would cost an additional R17 billion until March 2022. The inadequate amount and the delays in implementing this are reflective of a government whose social policies have become reactive and crisis-driven.

A permanent UBIG is a chance to close the gaps in South Africa’s social security net. The question is then not about whether a UBIG should be implemented, but rather how it should be designed and financed.

To answer part of this question, the Institute for Economic Justice (IEJ) has put forward a financing policy brief for a UBIG, outlining 19 recommendations that will allow South Africa to raise funds to tackle poverty. The Policy Brief serves as a supplement to an earlier one on UBIG published by the IEJ in March 2021 and a summary of further research produced for the IEJ by DNA Economics. The proposals include: adjustments to income taxes, consumption taxes, and wealth and property taxes; removal of corporate tax breaks; the reduction of wasteful and irregular expenditure; and the recoupment of expenditure on UBIG through existing value-added tax (VAT).

Responding to South Africa’s extreme levels of inequality, all financing proposals are progressive and therefore remove or limit fiscal measures that currently disproportionately benefit the wealthy.

How much and for who?

There are numerous suggestions for the amount at which a UBIG should be set. We present a set of options, ranging from the Food Poverty Line of R585 per month to the initial starting level of the national minimum wage of R3,500 per month. These amounts are not, on their own, sufficient to provide a dignified standard of living, but rather seek to address the depth and severity of poverty by meeting people’s most basic needs.

The preferred approach is one of universality, allowing all people between the age of 18 to 59, currently excluded from permanent social security benefits, to be eligible for the UBIG. In tandem, if South Africa is to reach the National Development Plan’s objective of reducing poverty to 0% by 2030, then the Child Support Grant should also be increased to at least the level of the Food Poverty Line.

The universality ensures that lower-income taxpayers will benefit more from the income guarantee than they contribute in new taxes. The net benefit varies according to income brackets. For example, if a UBIG of R585 per month is provided, 84% of taxpayers will be net beneficiaries.

How to finance this?

The IEJ puts forward 19 tax proposals. These are options, and are not necessarily proposed as a package to be implemented simultaneously.

Adjustments to income taxes include:

  • The implementation of a ring-fenced Social Security Tax on income, operating similarly to Unemployment Insurance Fund (UIF) contributions. This will generate R67 billion annually. It would be progressively levied upon all income earners – ranging between 1.5 to 3% of taxable personal income;
  • A Resource Rent Tax, levied on excess profits earned by extractive industries, estimated to bring in R39 billion annually. This would redistribute the gains from commodity booms while preserving incentives for investors;
  • The removal of tax breaks for high-income earners – in the form of Medical Aid Tax Credits and the pension fund contribution deduction – could contribute a total of R26 billion annually; and
  • A halt to the National Treasury’s proposed reduction in the corporate income tax rate. In the context of pressing social needs, this reduction would be deeply irresponsible.

Proposed changes to taxes on products consumed include the introduction of a VAT rate of 25% on luxury goods; a temporary increase in excise duties; and an increase in carbon taxes to one-quarter of the European Union standard. We estimate that changes to such consumption taxes will result in an additional R13 billion that can be used to finance a UBIG.

These provide good revenue-raising options but do not tax accumulated wealth. For this reason we propose a wealth tax. Though South Africa has one of the highest levels of wealth inequality, a wealth tax has historically been excluded from the tax framework. Using the wealth tax simulator from the World Inequality Database, we show that a 1% wealth tax for the top 1%, and a 3% wealth tax for the top 0.1% would generate R59 billion in revenue in the medium to long term. While a wealth tax is not an immediate source of financing, it is an important proposal to ensure the sustainability of a UBIG.

It is also possible to tax the income that derives from wealth, which is also highly unequally distributed. A Currency Transaction Tax (CTT) of 0.005%; raising the Securities Transfer Tax from 0.25 to 0.3%; and a Financial Transaction Tax of 0.1%, would raise R3.68 billion, R1.37 billion, and R41 billion respectively. These tax the buying and selling of different financial assets and have the benefit of reducing stock market speculation.

An increase in the Estate Duty Tax would mean higher taxes when wealth is passed on after someone’s death. The proposal would align the tax to Personal Income Tax rates, ensuring greater equity across the tax system. Given the skewed nature of accumulated wealth under apartheid, this seems necessary.

This combination of taxes on wealth and income that derives from wealth would add R48 billion to government revenue.

In addition, we propose scrapping ineffective corporate tax breaks – such as the Employment Tax Incentive – and redoubling efforts to tackle tax evasion. The IEJ tax proposals target a 25% reduction in profit shifting of multinational corporations. Combined, this would free up a total of R18 billion in additional revenue. We also target a 30% reduction of irregular expenditure reported by the Auditor-General, freeing up R36.4 billion. A further reduction of wasteful expenditure in Cabinet and government departments would provide an additional R1.85 billion.

Spill-over effects

A UBIG would spur a host of positive spill-over effects in the economy, including shifting unspent funds from the wealthy and corporates to poor households, thus injecting spending into the economy that favours locally produced goods. This would also increase tax revenue as the economy grows. These all need to be investigated. One easy element to calculate is that around 12% of any expenditure on a UBIG would be recouped back by the state via VAT.

This array of financing proposals shows that implementing a UBIG progressively and sustainably is feasible in the short-term. Furthermore, some funds could be raised through additional debt, or other avenues.

A UBIG is an important component of a broader package of social support that a capable state should ensure for all. The urgency of the moment, in addition to the longstanding persisting patterns of poverty and inequality, needs to be recognised and reflected in the debate around the implementation of a UBIG. Addressing extreme poverty is therefore not simply about financing constraints, but rather about willingness to take the immediate measures that this moment demands.

Aliya Chikte is a Research Associate at the Institute for Economic Justice, where Gilad Isaacs is the Director.

Views expressed are not necessarily those of GroundUp.

© 2021 GroundUp. This article was first published here.

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Of course we can afford to give people thousands of rands per month — All we have to do is print it ne !!!!

Perhaps the authors can open up their wallets and dish it out.

taktikal

Soon to happen, once the tax base had been ruined to zero.

taktikal

Can MW please remove this troll from the discussion

“This recognises, in the context of a long-standing structural unemployment crisis, that poverty and inequality cannot be addressed only through expanding employment.” Say What!!!??

It seems civil society’s air of resignation has reached the point where continuing policy errors (primarily in education and labour legislation) are regarded as ‘structural’ – sacrosanct and immutable – and their consequences as the human condition.

The less the ANC steal them more we can afford a universal basic income guarantee.

The more the economy grows, even more.

Simple Maths.

The concern, from a humanitarian point, is to prevent people dying from hunger. The short-term solution is giving them food. At least ‘soup kitchens’ could offer a practical solution to hunger AND an opportunity for entrepreneurs to tender on providing the service – with related employment. This will prevent grant money being spent on alcohol and drugs.

This is the garbage of pseudoscientific leftwing economics. In macroeconomics 101, taxes are a leakage in the economy not an injection. As for this:”A halt to the National Treasury’s proposed reduction in the corporate income tax rate. In the context of pressing social needs, this reduction would be deeply irresponsible.” in a depressed economy is oxymoronic. The economy needs massive investment to create jobs and increased production to create wealth. If you kill the goose that lays the golden eggs you won’t get any eggs, when will this pseudo-intellectuals realise how the real world works

In order for the prognosis to evolve there needs to be a natural positive that is greater than the imposed negative. The China formula of milking capitalism has a finite duration of feasibility before the impetus of the animal instinct expires.

Clearly, poverty levels in SA are unacceptably high in SA. However, now is the time to identify and address the underlying cause for the depravity. South Africa has been stuck in a reinforcing downward spiral of crony-socialism. Excessive redistribution and ideologically driven regulation has harmed the economic competitiveness of our industry. To break the spiral, the poor and beneficiaries of these transfers, will need to take pain. For the only way to escape it, is to lower taxes and remove all regulatory barriers to growth. This means eliminating BEE, NHI, EWC, cutting public sector wages, etc. If the country goes the route of more grants, it will only prolong the pain and deepen the misery. If state imposes higher taxes on the rich, more of them will emigrate or tax evasion will rise to the point where it can never been controlled. SA really needs to change course now before its too late.

Why not just implement EWC and then everyone can be poor. Inequality will always exist except in your communist utopia. Strange how the leftist always try to justify looting yet in India where there are millions of poor no such behaviour is evident.

Social cohesion, stability, and law and order do have a specific value. The Zulu-speaking demographic group has demonstrated the cost of social instability and anarchy. This impacts directly on the bottom line of property owners, entrepreneurs, and the salary of the privileged elite who do have a job. A case can be made for these groups, with their vested interests, to contribute towards “purchasing” social stability through a basic income grant. They will get a return on their “investment”. This is why SARS and municipalities have the right to tax capital and income. The point is – locals are suffering from tax fatigue already. They are over-taxed, exploited, and abused by the average voter.

At some stage, it simply becomes too costly to be an entrepreneur, property owner, and employee. These people have value to add in the form of capital, skills, experience, and attitude. If they do not get a satisfactory return on these scarce attributes locally, they will offer their assets to the international community. They will either emigrate or become demotivated and despondent and join the ranks of the rioting unemployed.

At a certain stage, social unrest, anarchy, lawlessness, extortion, and plunder get a life of their own. The state loses control, the judiciary hides in their bunkers, the police protect the gangsters, the criminals capture the state, and the state frantically fights for legitimacy by exploiting the shrinking tax base to bribe voters with social grants.

Why settle for a measly R580 per month if you can act with impunity when you steal R85 000 per month from the community as a useless ANC ward member?

There is a fatal flaw at the heart of our political-economic system. We are experiencing the harmful results of wrong incentives. We punish hard work, investment, and entrepreneurship with a mountain of taxes, and we reward the victim mentality with BEE laws, redistributive municipal tax laws, minimum wages, labor laws, and social grants.

We are reaping what we have sown. We are beyond the point of no return. We are now, for the most part, a communalist society where everybody plunders everybody else. The ANC has turned South Africa into the Tragedy of the Commons.

You ever going to back up all the naval gazing with some action? Or do you not take yourself seriously?

Remember that:

“One universal basic income grant equals One Vote”

These proposals are not nearly radical enough. Every individual in the country must be unemployed and on the BIG. Once a year everyone can gather and go collect the stuff they want at the local shopping mall, school or blood bank.

A rampaging mob destructively loots the property of others for their own gain. The government through its bully revenue service coercively extracts monetary property from productive but captive members of society. The only difference is that one group is unlawful and the other claims moral superiority. However both groups of looters remain just that. Looters.

A UBIG is brilliant because money in millions of private pockets turbo charges the economy and helps people directly. Its proven.

However, don’t finance it with more taxes, rather divert money from public wage bill to BIG. Much better for the poor and economy.

If taxes are raised then taxpayers emigrate and the projections you make will no longer hold as the wealthy won’t be taxpayers any more.

Our AVERAGE government employee “earns” R500,000 a month (R650b on 1.3m employees)

So each pen pusher is paid the grant of ONE HUNDRED AND TWENTY grant recipients each month. Do they feel guilty you think? Will they give up a morning’s pay to give three comrades a grant for the month?

The state payroll is skewing income inequality in SA more than any other cause. It will also bankrupt the country before 2030.

Sorry – R500,000 a year not a month

500k per year not month – the rest of the math hopefully works

taktikal

500k/month at what point do you think making numbers up loses you all credibility? It is the same with the farm murders thing.

Several authors, such as RW Johnson on Politicsweb and Ivo Vegter, have convincingly destroyed this leftie fantasy.

Other, rich, countries have tried this and abandoned it. Again, the authors above have just proved their complete inability to do even basic maths; they cannot even grasp the very basic fact that governments have no money, and that only 1.6m taxpayers pay the bulk of taxes in SA. Soak these taxpayers with R10000 each per month in extra taxes, and SA becomes Venezuela.

The authors of this bilge live in a fantasy world, where governments can magically print money, and where Maggie Thatcher’s devastating takedown of socialism – sooner or later, you run out of other people’s money – never happened.

Good comments and the argument put forward by ANC shills like Isaacs are childishly weak in reality. But it is like the ANC’s application of AA and BEE and the “academics” who try and justify the property theft called “Land redistribution” the authors of these “articles” are, in my opinion, just singing for the suppers. They are the amoral and unprincipaled enablers of ANC theft and corruption and doing for their own ends, self importance and salaries. They are Malemas in academic gowns.

The idiocy of those still calling for a “wealth” tax and increasing estate duties tax beggars belief. Middle and upper income South Africans are leaving the country at a staggering rate already, this is just the medicine to seal the decision for a lot of people who were on the fence or perhaps hadn’t yet considered immigration.

Why do these authors not state clearly in this article what the annual cost of each proposed monthly grant is for each target group?

The link does not go anywhere

Reading between the lines it sounds like this costs about 200 billion a year.

We do not have a tax surplus at the moment. In fact, we have a crippling deficit that will put us beyond junk into default within six years.

Yet, the authors propose another 16% increase in spend.

Laugh off getting some of that from government reducing wasteful expenditure. If they could or wanted, they would have.

More income tax or call it welfare tax it is still coming from one income stream? Our taxes are massively concentrated on 1.6m taxpayers that effectively pay for everything and everybody.

New wealth tax? How do people pay tax without an underlying liquidity event? Perhaps the authors think people should take out additional debt to pay the wealth tax on the family business that the family still owns. Same applies to increased death taxes. Easy on JSE shares, impossible on a private business.

A 10% wealth tax on the top ½ % would bring in plenty of money. For a while. Giving up 10% would reduce the pool of taxpayers very quickly. By 2030 the tax collected would probably be 10% of the 2021 collection.

After decimating the wealthy (aka the employers), who do the authors think will create the jobs?

15m South Africans need jobs that give them dignity and a living wage. Only a radically transformed government will ever create 15m jobs in SA. South Africa also needs a one child policy, but our social and political science experts seem to think that this is a gross human rights abuse in SA but fine for our comrades in China… A one-child policy will reduce the grant pool by 10m far faster than will job creation or miracle self employment from receiving a grant.

As a masters student that is currently writing a thesis on wealth inequality in South Africa over the past 20 years, there are merits to the some of the points mentioned. Truthfully though, 90% of this article constitutes idealistic drivel – theoretical manure. Any economist who studies and investigates any economic issue, without considering behavioural economics, is stuck in the 20th century. You can raise taxes to the point where everyone receives a grant of R5000 a month, and the poor shall still remain poor. Just more aggressively so once the pantry has now been raided. Idealism is a methodology that works very well on paper, but is extremely impractical. Too often, European policies are looked at as solutions – these policies are not perfect and are highly unsuitable for our economic and cultural climates. Too many people simply think of today, instead of the next 30 years. To the writer I would ask this question – if (as the average South African taxpayer is already severely overtaxed) taxes are raised, what is the relationship to economic growth? Death spiral. Government should simply curb expenditure, ensure basic services are met, and provide the environment for jobs to be created in and simply regulate said environment. A government that tries to pull everyone up by the bootstraps is simple a welfare state. I heed again – once the pantry is empty, aggression will be the policy of the day. I’ve long decided to leave South Africa once my studies are finished, exactly for this reason. I’ll gladly pay taxes when I know I’m getting a fair deal.

Whilst I am a huge proponent of a Universal Basics Income, the amount which they mentioned should be equivalent to US$450, roughly R7,400 for every South Africa over the age of 18. This figure is equal to the cost and maintenance of a slave for 40 years.

The big question is how can we afford this, the cost would around R296,000,000,000 a month (R296 billion) X by 12 months and we are looking at R3.56 Trillion which is a truly astonishing figure given that SARS only managed to collect R1.35 Trillion last year.

Before I answer the affordability we need to address the elephant in the room, Government Debt. Which is R3.8Tril and excludes Municipal which some estimate to be about half that so about R2.0Tril plus consumer debt of about R2.0tril. The size of the elephant is R8Tril
https://commodity.com/data/south-africa/debt-clock/

Even if we could afford a UBI for every South Africa, what are the benefits in the first place?
a) poverty is completely eradicated
b) the economy is stimulated
c) jobs are created as demand for products and services increases
d) people rely on themselves to create happiness
e) unhappy people would simply leave their jobs; relationships; and other poor circumstances as they now have a means to do so.

Now, how we even have a chance of affording a UBI whilst the government is already exceeding it’s revenue and the answer is rather simple:
a) scrap all taxes and issue a single national tax of 18% + 1% on every transaction. Given that R296Bil will be given out in UBI that would generate R56Bil in monthly tax + according to Bank Serve Africa SA spends about R1Tril that would generate R190Bil
b) scrap physical money, digital currency only.
c) scrap all Government spending except for Law Enforcement and infrastructure spending, this alone would free up R1.2 Trillion
d) ban all new debts except where collateral is available whilst both the lender and liable person are equally responsible.
e) Ensure only basic employment rights, if you don’t like the job leave.

I firmly believe in Capitalism and individualism together with sound monetary policy. Maybe I don’t have all the answers and maybe they sound just to simply but one thing we can all agree so that doing nothing or very little is only bring us closer to a failed state.

No thanks. SA economy needs consumer spending at the shops. If you tax that alone, you naughty little ferrets will just stop spending.

Without forced birth control there is no hope….
At least make these spongers work for their money. Refuse collectors ?

Well, that will never happen and you know it. So you have no hope. Going to do something about it? Or don’t you believe what you say?

Bib/Bibby is nothing but a vacuous troll.

In return for a BIG will people do something in return too? Like picking up their garbage or having less children which they clearly can’t afford to have?

“The problem with socialism is that you eventually run out of other people’s money” – Margaret Thatcher

Good luck believing the willing tax base will remain willing under all circumstances.

End of comments.

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