Rising poverty brings urgency to universal basic income debate
SA’s Gini coefficient measure of inequality — is world’s highest
SA remains one of the most unequal societies globally in terms of income and wealth distribution, with the bottom half of the local workforce receiving a meagre 12% of all wages. The Oxfam “Reward Work, Not Wealth” report found that the cost of supporting one person’s monthly needs in SA is about R6,460, though the minimum wage, as of May 1 this year, is R3,500.
The World Bank measured SA’s Gini coefficient at 0.63 — the highest internationally. The Gini coefficient measures income inequality ranging from 0 to 1, with 1 being the worst.
Poverty levels are also on the rise — the recent Stats SA “Poverty Trends in South Africa” report found that the poverty head count increased to 55.5% in 2015 from 53.2% in 2011, after having declined between 2006 and 2011.
Research has unambiguously found that poverty and extreme inequality undermine economic growth and investment.
This, alongside rising unemployment, paints a grim picture for the poor and vulnerable in SA, re-energising the policy debate on the merits of a universal basic income (UBI) as a means to address inequality, poverty and unemployment challenges.
UBI is a form of social security that ensures an unconditional, noncontributory monthly income to every individual. Unconditionality means that this income would be received by all, irrespective of their income and their work status.
There are many polarising arguments relating to the costs of a UBI, its implications for the labour force, its moral and social implications and its broader impact on the economy.
The aim here is to adopt a balanced discussion on the prospects of a UBI and important considerations for its implementation in SA.
The idea of a UBI has long been explored globally. In 2010, Iran became the first country to implement a full-scale UBI, where it used higher crude oil revenues — and reductions in cooking oil and bread subsidies that had previously been in place — to finance a nationwide basic income that amounted to 29% of the median household income.
In 1982, Alaska established the Alaska Permanent Fund — also funded through oil revenues — which pays all of its citizens an annual dividend.
The US, Switzerland, Canada, Finland, India and Namibia are among the countries that have piloted UBI in varying degrees, and momentum is building in countries such as Germany.
From an academic research point of view, two broad areas of study underpin the key elements implicated by UBI proposals.
First is a theory of optimum taxation, which posits that a tax system should be chosen to maximise social welfare, subject to constraints. In the context of a UBI, its key proposals suggest that the optimal extent of redistribution rises with wage inequality.
Second is a public choice theory, in terms of which redistribution is articulated as an insurance, as a public good, as a means to satisfy fairness norms and to enhance allocative efficiency.
UBI is a redistributive policy framework that aims to extend the ways social security is provided in the economy through the provision of a more robust financial safety
Economies piloting UBI have had no drop-off in labour-force participation
net for those in need.
Many of those in need fall through the cracks due to their inability to provide the required documents for them to qualify for needs-based social security.
One of the key imperatives of the
National Development Plan (NDP) is the eradication of poverty by 2030. Section 27 of the South African constitution recognises social security as a basic human right, stating that “all South Africans have the right to social security, including, if they are unable to support themselves and their dependants, appropriate social assistance”.
The challenge the country faces is the allocative efficiency of its social-security programmes. The five functions of social protection as contained in the NDP are that it ought to be protective, preventive, promotive, transformative and developmental and generative. The proposals of UBI seek to address the shortcomings on social-security provisions that fall short of meeting these functions.
Much of the resistance to UBI hypothesises that:
● UBI should not be universal as it disproportionately benefits those with sufficient economic means;
● UBI will negatively affect labour participation, as people may not be incentivised to look for work;
● There are moral shortcomings to tax the rich to “feed” the poor; and
● UBI seeks to remove state intervention in income distribution for the advancement of social and economic imperatives.
However, empirical evidence shows that economies that have piloted UBI experienced no drop-off in labour-force participation.
In addition, a progressive income tax regime as in SA necessarily means that those in higher income brackets find no material benefit in the UBI through the tax mechanisms in place, while providing meaningful financial buffers for those in lower-income brackets.
Instead, a UBI proposes to improve the quality and quantity of the labour force.
In a tough economic environment, young graduates would still be able to access lowpaying internships to gain experience without severely constraining the finances of the companies offering them on-the-job training.
A UBI would also strengthen the bargaining power of labour, given the financial security it would provide workers.
Like any policy development process, the UBI would require extensive contributions from labour, business and the government to ensure that the policy framework is both balanced and inclusive.
The reservations levelled at the implementation challenges of a UBI are not without merit, but as long as there is a universal agreement between all stakeholders that the basic tenet of a UBI is the reduction of inequality, provision of immediately usable resources and, ultimately, an attempt at eliminating poverty, the very same stakeholders will engage robustly on how to make UBI work for those who need it the most.