BACKGROUND BRIEFING ON THE BASIC INCOME GRANT

Poverty and Inequality: South Africa's Greatest Challenges

At least 22 million people in South Africa--well over half the population--live in poverty. On average, they survive on R144 per month. Even in the new South Africa, poverty remains strongly correlated with race, gender and urbanisation. Of those people living in poverty, 94 per cent are African and more than 70 per cent live in rural areas. Households below the poverty line are twice as likely to be headed by women as by men. Meanwhile, one in eight South Africans spend, on average, more than R2000 on consumption each month. Nearly three quarters of this group are white, and the overwhelming majority (88 per cent) are urban dwellers. In fact, South Africa has become possibly the most economically unequal nation on earth. Such enormous disparities pose a grave threat to the stability of our society, the future of race relations and the sustainability of our internationally-admired transition to democracy.

South Africa's inherited social assistance system is wholly inadequate to meet the basic needs of the majority of its people. The partial coverage provided by the existing patchwork of grants is only able to close the poverty gap (the difference between actual income and the poverty line) by about 37 per cent. For about half of the poor, the potential household benefit of current grants amounts to less than R25 per capita per month. Recent research has revealed that more than 13,8 million people in the poorest 40 per cent of households do not qualify for any social security transfers. Many of the country's poorest households fall through the net because they do not have members receiving UIF, a state old age pension, a disability grant, nor any children qualifying for a child maintenance grant.

Consequently, the present system is unable to satisfy the Constitution's guarantee of social security for all, "including, if they are unable to support themselves and their dependants, appropriate social assistance." The Constitution imposes a obligation on the state to achieve the progressive realisation of this and the other constitutionally-recognised socio-economic rights (food, water, housing, and health care). The Constitutional Court recently reiterated this obligation in the Grootboom case. It also affirmed that the State is under a duty to provide immediate relief to people who are in desperate need and living in intolerable conditions. Given the crisis of poverty and inequality that exists in South Africa today as a result of our apartheid history, the Basic Income Grant would be an important measure giving effect to these constitutional obligations.

A growing number of organisations have therefore begun to call for the introduction of a national Basic Income Grant to alleviate poverty, to provide all households with a minimum level of income to enable the nation's poorest households to better meet their basic needs, to stimulate equitable economic development, to promote family and community stability, and to affirm and support the inherent dignity of all people.

How a Basic Income Grant would work

Many of the practical details associated with the introduction of a Basic Income Grant require additional investigation and debate. However, most of the organisations campaigning for a Basic Income Grant concur on the fundamental principles underlying the initiative, even if they reserve the right to raise additional specific proposals. These guiding principles include:

• Universal Coverage: The Basic Income Grant would be available for all--from cradle to grave--and would not be subject to a means test. This would diminish the administrative burden and opportunities for corruption that are often associated with means-tested grants where local administrative staff are required to investigate and rule on an applicant's eligibility. The lack of a means test would also ensure that individuals would not be penalised by the loss of benefits if they work to improve their own situation.
• Amount: Proponents have recommended a variety of amounts, usually in the range of R100 to R200. The final figure should be decided after extensive consultation with stakeholders and careful analysis of the fiscal implications. However, there is broad consensus that the Basic Income Grant should be a minimum of R100 per person per month on introduction and should be inflation indexed.
• No substitute for existing grants: The Basic Income Grant is intended to expand the coverage of the existing social assistance system, not replace existing grants. Current beneficiaries should not have their benefits reduced by the introduction of the Basic Income Grant.
• Delivery Mechanisms: Payments should be made through Public Institutions. Post Banks in communities would be ideal as this would also provide communities with much needed banking and service infrastructure.
• Financing: The majority of the cost of a Basic Income Grant should be recovered through progressive taxation. This would be a profound symbol of the solidarity of all South Africans in a national drive to eliminate poverty. The net cost of the grant after tax offsets would be roughly R20 to R25 billion annually. New measures to expand the fiscus--including the restructuring of the government employee pension fund and a modest increase in deficit spending--would allow the financing of remaining costs without squeezing other social expenditure.

To date, the following organisations have endorsed this platform: the Alliance for Children's Entitlement to Social Security (ACESS), Black Sash, Child Health Policy Institute, the Community Law Centre (UWC), the Congress of South African Trade Unions (COSATU), Development Resources Centre, Gender Advocacy Programme, the South African Council of Churches (SACC), the South African National NGO Coalition (SANGOCO), the Southern African Catholic Bishops' Conference and the Treatment Action Campaign.

Benefits of a Basic Income Grant

Variations on the Basic Income Grant strategy are receiving serious consideration in a number of countries. In April, the Brazilian government approved a Guaranteed Minimum Income Programme that could provide up to R150 per month for families earning less than half of the national minimum wage. Meanwhile, the Irish Prime Minister has promised to publish a Green Paper on Basic Income later this year, and Britain's Labour Party has floated a proposal for a "baby bond" of up to 500 to be held in trust for every child born in Britain. For the past fifteen years, the Basic Income European Network (BIEN) has linked a growing network of basic income campaigns across Europe and around the world.

The potential benefits of a Basic Income Grant are manifold. They include:

Deep, targeted poverty alleviation: Since everyone would receive the Basic Income Grant, its capacity to alleviate poverty far outstrips other extensions to the social security system under consideration. Recent research suggests that the introduction of a R100 monthly Basic Income Grant would nearly triple the average per capita transfer to poor households, thereby closing the poverty gap by more than 80 per cent. A R100 grant would double the amount available for consumption by people in the poorest 29 per cent of the population, promoting improved nutrition especially for children. The grant covers households that do not currently have access to social assistance, including the working poor.

Although the grant is universal, using the tax system to recover the payments made to more affluent people ensures that total annual transfers target those sections of the population with the greatest needs. If wealthier people don't bother to take up the grant, the targeting effect will be further enhanced. In addition, a Basic Income Grant favours larger--typically poorer--households which tend to pool income. This, in turn, will lead to a more equal intra-household distribution of income, contributing to the empowerment of women and younger people in the family.

Enhanced response to HIV/AIDS pandemic: Current projections estimate that by 2011 the total number of HIV infections will reach 5.8 million and the AIDS death toll will top 5.5 million. One in four working age adults will be infected with HIV, and one in six will have succumbed to AIDS. If this is proved correct, over half of the population will be in households where at least one member is living with HIV/AIDS or has died from the disease. Affected households face a double burden. First, household members with the virus often have a diminished capacity to contribute to the income of the household, agricultural activities, child care, or other household chores. Second, other members of the household may need to devote a substantial amount of time to caring for them, especially if they begin to show symptoms of AIDS. There is also likely to be a dramatic increase in "children only" households, with the number of children living under the subsistence level in these households rising from about 46, 000 to nearly 900, 000. In the absence of state support, other families will have great difficulty integrating these children.

The current social assistance system is ill-equipped to deal with the HIV/AIDS pandemic. The support given is insufficient to absorb the additional burden that affected households have to carry. Those most affected by HIV/AIDS--working age adults--have very little access to social grants, resulting in a dramatic increase of the number of people with no income whatsoever. The Basic Income Grant fill this gap and give HIV-affected households additional resources to help them to cope.

Contributes to reparations and reconciliation: The apartheid era has left South Africa with enduring legacies of racial tension and gross economic inequality. In addition to recommendations concerning urgent interim reparations and individual reparation grants, the Truth and Reconciliation Commission also called for much broader reparation schemes to rebuild communities and address the deep wounds social, economic and psychological wounds inflicted by apartheid. A Basic Income Grant would be a tangible and meaningful contribution to that effort that could lay the foundation for genuine and lasting national reconciliation.

Further, evidence from other developing countries demonstrates that such inequality is an important obstacle to economic growth and investment. Given the fact that South Africa has one of the highest levels of inequality in the world, a reduction is imperative. The Basic Income Grant in a combination with a solidarity tax reduces inequality on a broad scale and ensures that nobody is left without any income.

Stimulus to increased consumer spending, job creation, investment and economic growth: The Basic Income Grant would provide a universal, stable, and reliable income source, enabling people to plan their economic activities better. Cash transfers into households increase and stabilise demand, consumption and savings. Spending is likely to be concentrated on basic, locally-produced commodities, thus benefiting local markets and stimulating job creation. Increased consumption is likely to have particular impact on rural areas where it has the potential to kick-start the economy.

By serving as a wage subsidy, the grant allows wage increases to contribute more efficiently to worker productivity. Currently, pressure to provide remittances to family members or friends reduces the resources remaining to sustain the worker's productivity. Wage increases are, in effect, "taxed" by corresponding increases in remittances, so long as the working poor must serve as the primary social safety net for the very poor. The Basic Income Grant reduces these demands, allowing workers to devote a larger proportion of their wages to productivity-enhancing consumption and social investment (in health, improved housing, skills development, children's education, etc.).

Meanwhile, improved living standards enable individuals to make more sustained and intensive efforts to find work. Research shows that such efforts are correlated with higher rates of success in finding employment. Enhanced economic security also enables poor households (as distinct from the poorest) to undertake higher-risk--yet potentially high-return--economic activities or to switch out of menial jobs to explore self-employment opportunities without threatening their survival.

Improved efficiency of social investment: UN studies have shown that poverty undermines social investment. Inadequate child nutrition, for example, creates long-term health problems which are associated with higher medical costs, poorer educational performance, lower labour productivity, increased absenteeism, etc. This places an extra burden on women who are typically responsible for health care and education in the family. On the other hand, by strengthening the capacity of households to meet basic health and education needs, the Basic Income Grant enhances the benefits of additional state investment in these public goods. Furthermore, there is potential for increased overall revenue, generated through a combination of economic growth, increased consumer spending, and a more progressive income tax structure.

CONTACTS FOR MORE INFORMATION:

On the economics of a Basic Income Grant -
Dr. Claudia Haarmann & Dr. Dirk Haarmann: (09264) 81 249 9089 or (073) 166 7219
Prof. Michael Samson: (021) 686 9550

On constitutional issues and socio-economic rights -
Prof Sandra Liebenberg: (021) 959 3708