Sunday Times

Rising poverty brings urgency to universal basic income debate

SA’s Gini coefficien­t measure of inequality — is world’s highest

- Sifiso Skenjana Skenjana is a PhD candidate and an investment and economic research specialist

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.

 ?? Picture: Education Images/LUIG via Getty Images ?? In 1982, Alaska establishe­d the Alaska Permanent Fund — funded through oil revenues — which pays citizens an annual dividend. Anchorage is pictured above.
Picture: Education Images/LUIG via Getty Images In 1982, Alaska establishe­d the Alaska Permanent Fund — funded through oil revenues — which pays citizens an annual dividend. Anchorage is pictured above.
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