The Basic Income Grant: Should we go BIG or not?

On Thursday, 22 May, Budget Expenditure Monitoring Forum (BEMF), Section 27 and Alternative Information and Development Centre (AIDC) hosted a Budget Justice Seminar. At the Seminar, Isobel Frye from the Studies in Poverty and Inequality Institute presented an interesting study on social grants in the 2014 budget and the forgotten case for a Basic Income Grant (BIG).

Frye explained that BIG was envisioned as a cash transfer to every residence, with those earning above a certain threshold getting taxed on the grant. Before getting into arguments for and against BIG, Frye looked at the connection between South Africa’s poverty, inequality and unemployment.

She explained that with a Gini-coefficient of 0.7, South Africa has one of the highest levels of income inequality, globally. The country also has an unemployment rate of between 25.2% (narrow definition) and 35,1% (according to the broader definition of unemployment, which includes discouraged work seekers). There are currently over five million unemployed people in South Africa.

According to the 2010/11 Income and Expenditure Survey (IES), the average annual household consumption expenditure level by population group, a black African household spent on average R55 920 per year, whilst a household headed by a white South African spent R314 524 per annum. ”Furthermore, one out of every two black African households spent less than R28 per day,” said Frye.

She went on to say that social grants have “been hailed as the most effective poverty alleviation policy by many people”. In 1998, 2.5 million South Africans received social grants. By early 2014, this had expanded massively to 16.5 million recipients. The total expenditure estimates for the Department of Social Development in terms of the 2014 Budget Review is R128 million. Of this, just over R120 million is allocated to social assistance, which is about 3,5% of GDP.

Yet the existing social security net is not able to address this crisis given the massive hole of the ‘missing middle’ made up of working age people. This is where a BIG would come in. Frye asked the question: “Are we making sufficient resources available for the progressive realisation of rights as goateed by our Constitution?”

A BIG pilot project was implemented in the Omitara-Otjivero village in Namibia in January 2008, where all existing inhabitants of the village, excluding those who were already in receipt of a state old age grant, were registered to receive a monthly BIG of Nam$100. The pilot ran for two years. Some of the research findings included a heightened sense of dignity and hope among the community and a decline in crime (according to police records).

In terms of poverty, 86% of the residents at Otjivero fell below the lower bound national poverty line, and 76% of residents fell below the food poverty line. After one year this had fallen to 68% and 37% respectively. Six months after the introduction of the BIG, child malnutrition rates had fallen to 17%, and to 10% a year later. More people started saving money as well.

Despite the success of the Omitara-Otjiver pilot project, BIG was not introduced in Namibia. Frye said that while she is biased towards BIG, there are a number of arguments against BIG, including creating dependency and the idea that people would stop working or looking for work. There is the idea that it is a handout and there is “a reluctance to give money without encouraging people to work” Frye said.

Previous Finance Minister Trevor Manuel also questioned the affordability and administrative feasibility of delivery of a BIG, but Frye said, “its important to note that there also appeared to be ‘an ideological ground’ to his position, as he allegedly described proponents of the idea as ‘populist’.”

As well as the positive outcome of the pilot project in Namibia, arguments in favour of a BIG are that it is a straightforward transmission, that it is rights based and that it is “addressing the survivalist needs of the most vulnerable” said Frey. She added that some economists believed that a BIG might stimulate economic growth by increasing the overall national income.

The estimated cost of a BIG of R198 per person per month was R 10.5 billion annually for a population of over 52 million. Frye admitted that this was a hefty sum. She also mentioned that in lieu of a BIG, she was very much in favour of expanding the Community Works Programme (CWP) as it contributed to building community infrastructure and it is “a good combination of income and community activity”.

According to Finance Minister Gordhan’s Budget speech earlier this year, the state funded Community Works Programme which is the fastest growing component of government’s Expanded Public Works Programme, guaranteed approximately 175 00 people two days of work a week in 2012/13. By 2017, there should be a CWP in every municipality.