The first two articles on this sequence targeted on defining a Universal Basic Income Grant (UBIG) and explaining its impacts and the evolving debate about its implementation. One of the most contested points in the debate is whether or not or not South Africa can afford it. That’s the subject we deal with on this final article in the sequence.
Debates about the affordability of a UBIG have a tendency to give attention to the “gross” financing prices – the amount of cash the authorities wants to put aside to pay the grants at the outset – and the fiscal trade-offs that will have to be made. These debates ignore the financial impacts of introducing a UBIG and the mechanisms via which it generates further income.
How a lot would it not value?
A UBIG paid to adults between the ages of 18 and 59 at the stage of the Food Poverty Line (FPL) of R624 monthly would have a gross value of R255-billion per yr.
But the first level is that not everybody would take it up. Research reveals that a big group of the inhabitants, a few of whom have different sources of income, could not choose to obtain the UBIG. We can assume, based mostly on historic uptake of different grants, that solely 60% of the attainable beneficiaries shall be reached as soon as the grant is in place, progressively bettering to 80% over time.
If the UBIG is taken up by 60% of adults it could value about R153-billion per yr and at 80% uptake it could value about R204-billion per yr.
But the web value could be a lot decrease.
The web value is the value authorities has to finance, minus the advantages to authorities because of the initiative. This is helpful to have in mind as a result of the UBIG boosts financial development, and in consequence income from taxes is elevated.
The newest research on the use of the SRD grant reveals that individuals use it to buy meals and basic requirements. People with decrease incomes spend extra of their income on items produced in South Africa than individuals with larger incomes, and so they additionally spend extra close to the place they reside. This implies that home demand will increase. This has a ripple impact via the economic system, boosting the development of corporations and thereby employment. This stimulus affect is properly supported by international evidence.
In addition, the lowest spending 70% of the inhabitants spends 81% of disposable income on objects which carry VAT (based mostly on information evaluation from the Income and Expenditure Survey 2014/15). This implies that about 12% of the cash spent on grants is recouped via VAT. If there’s an 80% uptake of a grant set at R624 a month, authorities would recoup about R24-billion from VAT alone. This implies that, earlier than accounting for the stimulus impact of the grant, R180-billion could be left to pay.
This quantity could possibly be additional lowered via tax “claw-backs” comparable to a social safety tax. In this case, low-income earners would obtain extra in the type of a UBIG than they pay in the social safety tax, and high-income earners would pay greater than the UBIG to assist the fee of the grant to the working poor and the unemployed. Around 25% of the value of a UBIG is returned through a progressive clawback mechanism comparable to the Social Security Tax (when levied at ranges proposed by the IEJ).
The ensuing income and income generated by the grant, mixed with a progressive clawback from larger income earners, and an anticipated lag in uptake in the short- to medium-term general, will end in a web value of as little as 50% of the gross value.
How might we pay for it?
Progressive taxation is a crucial authorities lever to redistribute incomes to poor households. This type of taxation implies that those that are wealthier contribute proportionally higher quantities in tax than those that are poorer. International evidence reveals that progressive income tax, company taxes, and taxes on wealth are higher at redistributing and bettering incomes for poor households than regressive types of tax comparable to VAT. They are additionally higher at selling elevated employment and financial development.
South Africa’s growing ranges of inequality warrant a progressively financed UBIG. Achieving this requires a cautious and phased-in rebalancing of the taxation system which incorporates eradicating measures that at present disproportionately profit the rich. A latest study by economists Maya Goldman and Ingrid Woolard on the function of income tax in decreasing poverty in South Africa discovered that whereas the larger earners are paying extra income tax in absolute phrases, their income has elevated greater than their income tax funds.
Therefore, regardless of claims that South African taxpayers are overburdened, there’s scope to improve tax for the rich and high-income earners.
Professor Alex van den Heever has proven that the prime 10% of income earners additionally obtain large authorities subsidies in the type of pension fund contribution deductions and retirement fund property, and others have made the identical commentary about personal medical support rebates. He estimates subsidies on pension fund contributions to be R87-billion, whereas subsidies on the return on investments of retirement fund property are estimated to be R46-billion. This is a complete subsidy of R133-billion on retirement fund advantages alone to wealthier South Africans, which may benefit poor households however as an alternative contributes to the excessive ranges of inequality the nation faces.
Aroop Chatterjee and different economists have proven {that a} wealth tax on the wealthiest 1% of the inhabitants – simply 340,000 individuals – might elevate R143-billion a yr.
The IEJ has additionally shown {that a} VAT on luxurious items of 25% would elevate a median of R9-billion yearly.
Collectively, these revenues and different sources of income, together with a discount in wasteful and irregular expenditure, could possibly be used to finance the UBIG.
All in all, the IEJ’s work on financing choices reveals that the nation has no less than 18 financing devices accessible, which, appropriately chosen and sequenced, might finance a UBIG. There wants to be severe engagement with these and different choices, somewhat than, as is the case with the National Treasury and a few enterprise think-tanks, a refusal to think about them as a result of they elevate uncomfortable questions round wealth redistribution.
Many arguments towards the affordability of UBIG are ideological and never supported by proof.
A Universal Basic Income Grant is possible and reasonably priced with out compromising the nation’s fiscal place, and with out reducing spending on public providers or on current grants.
