Workshop on the Basic Income Grant: Addressing Poverty and Economic Growth

1. Workshop on the Basic Income GrantPresented to the Select Committee on Social ServicesBy the Basic Income Grant Coalition25 June 2002

2. “There will be universal access to an integrated and sustainable social security system. Every South African should have a minimum income, sufficient to meet basic subsistence needs, and should not have to live below minimum acceptable standards. The social security system will also work intersectorally to alleviate poverty.”[1] [1] Chapter 7, Paragraph 27 of the White Paper for Social Welfare, 1997.

3. Principles of the BIG Coalition • Universal Coverage – from cradle to grave and not subjected to a means test • Relationship to existing grants: No one should receive less in social assistance grants than before the intro of a BIG • Amount: No less than R100 per person per month • Delivery Mechanisms • Financing

4. Members of the Coalition • Age-in-Action, AIDS Consortium, Alliance for Children’s Entitlement to Social Security, Anglican Diocese of Johannesburg, Black Sash, Child Health Policy Institute, Congress of South African Trade Unions, Co-operative for Research and Education, Development Resources Centre, Diakonia Council of Churches., ESSET, Gender Advocacy Programme, Community Law Centre (UWC), Southern African Catholic Bishops’ Conference, South African Council of Churches, South Africa New Economics Foundation (SANE), South African NGO Coalition (SANGOCO), Treatment Action Campaign, Young Christian Workers National Secretariat

5. The Social, Economic and Administrative Impact of a Basic Income Grant 25 June 2002

6. Overview • Social impact: how effective would a basic income grant be in addressing poverty and severe destitution? • Economic impact: how will the basic income grant affect growth, development and job creation? Can the economic afford it? • Administrative impact: is the basic income grant administratively feasible? How can government overcome the capacity constraints?

7. Measuring the social impact • Use household surveys and micro-simulation models to evaluate the poverty impact • Poverty headcount--how many people are freed from poverty? • Poverty gap--how much does the policy reduce the gap between the incomes of the poor and the poverty line?

8. The social impact of the BIG

9. The BIG is developmental and supports economic growth • The government’s HRD strategy identifies how poverty and inequality undermine human capital development and thus constrain higher incomes – the poor are trapped by their poverty • The Basic Income Grant provides income security, promoting productive risk-taking and helping to break that trap • The grant supports improved nutrition, health, education and productivity

10. Poverty is a tax on workers--the Basic Income Grant reduces that tax and supports both higher wages and job creation

11. The macro-economic impact supports investment and growth • The government’s MTBPS recognises that “a more equal distribution of wealth favours higher rates of growth.” • Providing all South Africans with an economic stake improves social stability and reinforces the foundations for more investment and economic growth • Shifting spending power to the poor stimulates job-creating economic activity

12. The cost of the BIG • Using a micro-simulation model, the gross cost of the BIG identified by the terms of reference of the Committee of Enquiry is calculated to be R46 billion • Using taxpayer data provided by SARS, the analysis identified adjustments to tax rates that recovered R22 billion • The net cost of the grant is R24 billion • The net cost is equal to the actual amount of resources transferred to the poor

13. South Africa’s tax revenue is relatively low by international standards

14. South Africa’s tax revenue is relatively low compared to countries with comparable income levels

15. The Fiscal Impact • Tax effort analysis demonstrates that South Africa can raise taxes by five percent of national income without undermining international competitiveness • The basic income grant only requires an increase in taxes of two percent of national income • The positive growth and development effects improve the affordability of the grant in the medium-to-long run

16. The Administrative Impact • Research documents the source of administrative failure in the delivery of existing social security programmes-- • lack of bureaucratic commitment • bureaucratic intensity of the “means test” and other administrative requirements • The Basic Income Grant requires substantially less administrative resources • “rights based” • no “means test” • targeting through the tax system (SARS)

17. The government’s strategy on administrative capacity • In April, the government adopted the “Microeconomic Reform Strategy”, which has among its aims the improvement of government administrative capacity for social delivery • The government has made eradicating poverty a priority, most recently in President Mbeki’s state-of-the-nation address (2002) • Addressing corruption--the transparency property of a Basic Income Grant • Delivery mechanisms • Implementation strategy

18. Conclusions • The Basic Income Grant is the most effective policy option for eliminating destitution and reducing poverty. • Effective social security reform is developmental and affordable, generating a positive growth impact that promotes job creation while improving the effectiveness of social delivery and long term sustainability. • The administrative requirements of the grant are substantially more manageable than those for existing social programmes. The government’s current strategy aims to further improve bureaucratic capacity for social delivery.

19. Administration of the Basic Income Grant

20. Key Requirements for Successful Social Assistance • Good physical, administrative and information infrastructure • Avoid complicated means test which acts as a barrier to entry • Keep possibilities for corruption as low as possible

21. Current Constraints in the Administration of Grants • Lack of awareness about grants currently available and the procedures involved in accessing them • Insufficient pay points; lack of adequate infrastructure at pay points • Delays in the processing of applications • Money lenders • Internal corruption

22. Current Plans for Improvements in Delivery • Social Development Department • The norms and standards project • SOCPEN replacement • Public Service & Admin Dept. • Service Delivery Innovation Policy • GCIS • Multi-Purpose Community Centres • Public Service Commission • Citizen’s Forums for Service Delivery Improvement

23. Home Affairs National Identification System (HANIS) • Automated Fingerprint Identification System (AFIS) • ID card • Integration of AFIS, ID and population register • Smart card onto which various applications can be loaded • Social grants have been prioritised

24. Payment System • Smart card/chip system - debit card/telephone card - many initiatives underway including HANIS and reserve bank • Post Office Bank • Financial Institutions • Tax system

25. Preparations for Implementation • Concurrent programmes • Put in place institutional measures and processes • Registration campaign for adults and children • Extension of post bank infrastructure and negotiations with other delivery agents • Education and Training Programmes • targetting civil servants and the public

26. Further preparations • Using existing intedepartmental forums for co-ordination • Social Cluster • DG’s Forum • Departments involved inService Delivery