Picture: Leon Lestrade/African News Agency (ANA) – Empirical evidence has been generated in abundance on the benefits and affordability of a Basic Income Grant for South Africa, says the writer.
By Isobel Frye
In his most recent Family Meeting on 25 July, President Ramaphosa addressed SA on the various steps taken to solve the energy crisis and renew faith in the leadership of the country. Earlier on the same day, his weekly missive, From The Desk of the President tried to answer why we have not been able to conclude a national social compact.
The solution to the energy crisis should have opened with a recognition of the greater crisis of poverty and unemployment, and the crisis created by the state’s failure to pay 11 million people their grants in April and May 2022. But the speech was silent on that.
Papa was not talking to all of his children.
The global post- Covid recession has been deepened by the fuel and food crises catalysed by the Ukraine war. Food and transport are the largest spendings in poor households. This was the time for the president to set out the energy solutions, but (also) to speak directly to the fears of so many millions whose crisis is food, not load shedding schedules.
Poverty and unemployment are structural crises that must be the point of departure for every and any other development. That inequality is the hallmark of our democracy is so evident in the president’s words.
National Treasury, which so savagely terminated the R350 grants for 11 million poor South Africans, will find the money for Eskom.
In his speech, the president advised that the burdensome red tape that required local procurement for energy-related build and renewal will be set aside because of the calamity that we have created.
That setting aside the policies that commit state -spending to be used to buy local, to build local factories to create local jobs to employ the 12,4 million locally unemployed people who go out the window.
Unscripted in the delivery of his speech, Papa assured the unemployed that their needs will be met by jobs that will flow from the increased economic growth that will flourish once the private sector has its way, and the red tape surrounding procurement and employment equity is removed. Creating the number of jobs that we need will require GDP growth of around 7% per annum. Q1 growth before the current energy crisis was 1,9%. How do you deliver on this promise?
The undirected trickle-down of benefits to the poor has long been debunked as a hollow promise.
Fair distribution of both the benefits of growth and the burden of poverty needs direct state intervention.
Last week Olivier de Schutte, the UN Special Rapporteur on Extreme Poverty and Human Rights, opened a United Nations Workshop in South Africa as part of the programme the Joint Sustainable Development Goals (SDG) Fund.
De Schutte spoke of the unambiguous support by the International Monetary Fund (IMF) for universal social security schemes as necessary mechanisms for stability and human development. Following the social and economic devastation of the global pandemic, the IMF sees these as critical conditions for attracting investment and growth globally.
Former president Thabo Mbeki recently reminded us of how central food riots were in catalysing the Arab Spring revolutions.
Recent research has identified a decent Basic Income Grant (BIG) as being the only policy on the table right now in SA that could meet people’s needs, stimulate demand-driven economic development and reduce the growing crisis of social and political instability.
The BIG is on the agenda for debate in the coming ANC Policy Conference. Perhaps it is no surprise that on the eve of this conference, Business Unity South Africa (BUSA) re-released its anti-BIG report written by their consultants, Intellidex. In essence, the BUSA report rejects the BIG because it claims that the only way to pay for it is to tax the rich and middle classes.
At a symposium on macroeconomic alternatives hosted by SPI last week, Dominic Brown identified a number of ways to finance more pro-poor state spending. These included drawing on the annual GEPF surplus of R50 billion, capturing the R150 to R370 billion lost each year through illicit financial flows and Base Erosion and Profit Shifting by the corporate sector, and recapturing the R10 billion given back to the corporate sector through the 1% cut to corporate tax last year.
Brown also raised the benefit of introducing a progressive wealth tax that could raise between R145 and R160 billion, depending on the rate. In a country where 1% of the nation owns 55% of aggregate wealth, the current wealth inequality levels are clearly unsustainable.
A similar idea of using a wealth tax to promote stability was raised in a 2021 World Bank Blog by Jim Brumby. He argued for the introduction of a progressive wealth tax to discipline five global “disruptors” threatening the worldwide economy.
A wealth tax would level the rampant and unsustainable levels of inequality, create new sources of national financing required given high levels of post -Covid national indebtedness, could create new revenue bundles for the stock market needed to reduce volatility, reduce Base Erosion and Profit Shifting (BEPS) behaviour by the super-rich who move their monies to tax havens, and finally, it would address the disruption caused by the very weak social contracts between state and citizens.
BUSA is not the only voice of the business community. De Schutte questioned why the business community is not sought out as an ally for reform calls for programmes like a BIG, and he cautioned against seeing organised business chambers as the only voice of business.
Globally there has been a growth in appetite for pro-equality reform amongst enlightened entrepreneurs and people who actually drive the business sector.
Empirical evidence has been generated in abundance on the benefits and affordability of a BIG for SA. Given the need, the available resources and the jurisprudence, perhaps the time for engagement has passed.
Is it now time to proceed to the Constitutional Court and seek an order that the state develop a policy for the needs of the poor within a 12-month period?
The Constitution is the ultimate social compact. Let the Constitution guide us.
Isobel Frye is the Director of the Social Policy Institute.