IRIN Focus on income grant debate

Civil society groups gathered in Johannesburg on Thursday to call on the government to introduce a basic income grant to try and close the poverty gap between South Africans. Cecily Singer from the Development Resource Centre (DRC) told IRIN that the country-wide campaign had brought together a coalition of various organisations. "The feeling is that the real problem in this country is poverty," Singer said. "There is an acknowledgement that everybody has the right to a minimum to help households meet their basic needs." A spokesman for the government's Department of Social Development told IRIN that a committee was set up towards the end of last year to investigate a comprehensive social security system. "It is expected that the committee's report will be presented to the cabinet by the end of this month," he said. Singer explained that the coalition was recommending a basic monthly grant of SAR 100 (US $11). "The idea is that there would be universal coverage, irrespective of their incomes. Obviously there are those that won't need it but these are very much in the minority at the moment." According to the DRC, there are at least 22 million South Africans who live in abject poverty, surviving on an estimated SAR 144 (US $15) per month. Findings from the national poverty hearings in 1998 organised by the South African Human Rights Commission concluded that social security was one of the critical areas that needed prioritisation. The government, confronted with the legacy of apartheid and the challenge of making good on its own election promises, has struggled to deliver on improving access to basic services and reducing poverty. Instead, unemployment has remained stubbornly high and the economy has not grown enough. Singer said that by making the proposed grant available to everybody, there would be no need for the "cumbersome" bureaucracy that has characterised the present system of accessing welfare. "This means that there will be no means test and that payments could be facilitated through public institutions such as community post banks. This is not the dole, as it is not enough to live on, it will supplement their existing incomes," said Singer. Michael Samson from the Economic Policy Research Institute in Cape Town told IRIN research in South Africa demonstrated that the kind of social security reform with the greatest impact in reducing poverty was the introduction of a universal income grant. "This type of intervention is not hampered as much by constraints in terms of bureaucratic capacity, such as with the means-tested child support grant. In South Africa, a universal grant can reduce the poverty gap by about three-quarters, compared to just a quarter with the existing social security programmes," Samson said. According to Singer a substantial part of the cost of the grant would be recovered through the tax system. "This kind of grant would not replace but complement the assistance grants that are already available," she said. Statistics from the South African Non-Governmental Coalition (SANGOCO) show that over 40 percent of the poorest households rely on disability and old age pensions as their main source of income. In his medium term budget policy statement Finance Minister Trevor Manuel said that spending on social services would increase by SAR 15 billion (US $1.5 billion) over the next three years, averaging a growth of about 8.7 percent. However, some social activists have argued that before such a grant system can be introduced the entire service delivery mechanisms of the department have to be re-examined. "The idea is great, but this in itself will not solve the kind of problems surrounding access which exist," one activist told IRIN. "There are very basic problems which exist which need to be corrected first. Problems surrounding accessing old age, disability, child grants etc. We hear of old people not getting their pensions because they have mysteriously disappeared off the system, there are women who can't get the child support grants because they are not told what paper work they need so they end up making many trips to the department. Many of them don't have money for a loaf of bread, where then do they get money for transport," the social activist said. "We need to bring efficiency and professionalism into the system, in my opinion, before we can introduce yet another grant. Those processing grant applications and those making payments need to be made to understand that they are dealing with people's lives and that the way they do their jobs on that day will determine if people will eat that night or not," she added. Samson said that there was a debate among economists about the economic impact of social security reform. "Some argue that social security grants are purely redistributional. This thinking is in line with the so called Washington consensus, which institutions like the IMF (International Monetary Fund) and World Bank argue that structural adjustment generally requires reductions in government expenditure and lower inflation as a prerequisite for higher growth," said Samson. "However, an emerging 'post-Washington consensus' finds that this strategy may be misplaced, and that poverty and severe inequality undermine economic growth. In some cases, workers are too poor to even be able to look effectively for work. Consider the example of a poor mother with two children, and only 10 rand in assets. Should she spend that 10 rand to look for work?" he added. "But with no income security, paying for food for her children is probably a more rational choice. The provision of a basic income grant creates the opportunities to manage risk that support high-risk high-return investments like job search while protecting well-being." He explained that increasing the ability to look for work was not useful if there were no jobs. "Other research demonstrates that directly addressing poverty may actually support job creation also. First, reducing poverty and inequality improves social and political stability, encouraging investment," said Samson. "Second, poverty reduction improves productivity, by supporting improved education and health outcomes and promoting better nutrition. Other research shows how, in countries like South Africa, a basic income grant can help break the poverty trap that restricts the country's growth." Samson said that in terms of the fiscal impact, there were many affordable policy options on the table for government with respect to a universal income grant. "In particular, the basic income grant supports effective delivery unencumbered by the shortage of bureaucratic capacity. While initial funding requirements may require some increase in taxes, over time, several fiscal benefits result," he said. "First, as the grant supports human development, the poverty-induced stress on the health and education systems may be reduced. Second, resulting growth increases the tax base, reducing the tax rates required to supporting the financing of the grant."