Yes, we can afford a Universal Basic Income Guarantee

First published by GroundUp.

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

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 whom?

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.