ZWELINZIMA VAVI: Stop merely discussing the basic income grant
Before COVID-19, South Africa was not only the world’s most unequal country, it also had one of the most severe unemployment crises. Since the pandemic hit our shores and the subsequent state-imposed lockdown, the situation for working people has become a nightmare. Between 40% and 50% of the labour force is now unemployed. Women and the youth are by far the most affected.
As a result, there are growing signs of social degeneracy: gender-based violence; substance abuse; depression and mental illness; suicide; xenophobia; and the very high burden of disease, with co-morbidities such as high blood pressure and diabetes pandemics that leave our poor and working people much more prone to COVID-19 infection and death. These cannot be understood outside of the mass unemployment crisis disfiguring our society.
We are on the eve of receiving the 2020 matric results, and again we will witness the impact of the state’s unforgiveable "culling" of around half our students before they reach their final year, so that the pass rates are artificially higher. A further 600,000 young people will be joining the labour market in 2021, and most will not find a job. The hoped-for mass public works programme – last, on 15 October, President Cyril Ramaphosa promised to “create and support over 800,000 work opportunities in the immediate term to respond to job losses” – is simply invisible, with no journalists bothering to probe what became of these.
For those workers who did retain their jobs, many are employed at a terribly inadequate minimum wage (e.g. less than R12/hour for public works jobs and less than R22/hour in the private sector). And they are compelled to support not only the 20 million people who are not in the labour market, but also the 11 million to 15 million sisters and brothers without work, who like you and me need to eat, clothe themselves and seek shelter.
The current social security system is totally inadequate to deal with the social crisis we are facing. Treasury’s failure to maintain the slight increases in social grants to caregivers – mostly a small R440/month increment from June to October last year – and transcend the tokenistic R350 emergency monthly grant with a genuine basic income grant (BIG), will lead to a social explosion. It's what we have referred to previously as the ticking time bomb.
Once our people begin to express their anger, the South African uprising of 2021 will make the Arab Spring a decade ago seem like a Sunday School picnic. In just the past two weeks, since a return to level three COVID-19 restrictions, the South African Police Service made more than 20,000 arrests. We don’t endorse any violation of hygienic policies – such as wearing face masks in public – but we again stress how unrealistic the state’s social distancing commands are in the high-density shack settlements, townships and kombi-taxis that are again becoming super-spreading sites, as Polokwane’s recent outbreak proves.
Kombis are still jammed at 100% capacity because of Treasury’s stinginess in subsidisation: workers in these taxis get zero subsidy compared to the R1000 per flight that SAA customers were used to receiving from the state towards lowering their ticket price.
And more than a third of our residences are still not being properly supplied with yard or house taps for washing hands, or the water isn’t running in the pipes due to municipal service failures, even government admits. Water and Sanitation Minister Lindiwe Sisulu’s promises of belated water delivery to everyone, so we can wash our hands, were at the outset destined for flushing away as useless.
The potential of a Universal BIG
If the South African state wants to retain any legitimacy and overcome the widespread disillusionment enveloping black working-class communities, a BIG must be the first step towards the series of social-systemic reforms that our country desperately needs.
We saw BIG’s potential in a hotly contested election. In the US state of Georgia on 5 January, the $2,000 cheque to each US adult that was promised by the two Democratic Party candidates for Senate was, by all accounts, the main reason each won by a small margin in what was a traditionally Republican state.
The world is crying out for relief from COVID-19’s economic catastrophe, and few working classes have been as hard hit as South Africa’s. It is essential that government implements a decent cash transfer, to all citizens. We insist that at least R1,500/month be made available, in addition to increasing the existing social grants that are targeted.
If it sounds expensive, consider economist Duma Gqubule’s calculations (in Business Day on 11 January) of “the net as opposed to the gross cost after taking into account increased tax revenue and fiscal multipliers, which measure the additional GDP generated by each rand of new spending”. At a slightly lower amount (R1,268) than we propose, Gqubule suggests not only would BIG “immediately generate VAT of R75 billion,” there would be “claw-back through income tax” of R25 billion” and “multipliers range from 0.8 to 2.52.” In sum: “the net cost could easily be between 50% and 60% of the gross cost”.
We don’t accept that there are fiscal constraints because the South African Reserve Bank (SARB) should stand ready to fund the fiscus during this emergency, as is the case in most other parts of the world, including countries far poorer than South Africa.
When former Treasury deputy director-general Andrew Donaldson last April suggested R20 billion in SARB quantitative easing could be made available each week without doing damage or risking inflation, that was in line with other countries’ central bank support for collapsed economies. In the end, although the SARB did fund Treasury through direct bond purchases last March to April, the total was less than R20 billion (because at two auctions, investor demand had temporarily collapsed).
Aside from the impact on the fiscus, the benefits of implementing a BIG include stimulating the real economy by providing people with resources to purchase essential goods and services, which are mostly locally-made. In addition, the introduction of a BIG potentially leads to increased labour productivity, as well as greater independence for women, improved nutrition improving quality of health and education amongst youth.
But set aside the economic merits. Most importantly, the introduction of a R1,500 per month BIG in South Africa would dramatically improve the lives of the majority of the population (in Brazil, by way of comparison, a R1,800 per month BIG for vulnerable people from April to June last year, continued at R900 per month from July to December, was extremely important for mass survival, even while the government failed the population on COVID-19 control).
In light of the merits of a BIG, some may have rejoiced at President Cyril Ramaphosa’s January 8 statement celebrating the 109th anniversary of his party: “The ANC, government and broader civil society will need to continue discussions on the desirability and viability of a basic income grant to provide a social safety net to the poor.”
But it sounds like classical populist election-year chatter to suggest that we should “continue discussions”, thereby falsely raising society’s hopes at a time of such profound desperation. Such discussions have been under way in government since the Taylor Commission in 2002 recommended a BIG. No leader of the ANC can claim they are not aware of the recommendation of the 2002 report.
We won’t be appeased with empty talk. The working class is getting fed up with such fakery from the filthy-rich tycoons and corrupt apparatchiks running our government and ruling party. So we intend to support a massive popular mobilisation on 24 February, aimed at forcing government to stop the talk, and instead to walk the walk, starting that day – the assumed date of Finance Minister Tito Mboweni’s budget speech – by contesting Treasury’s commitment to austerity.
What is needed is not more tokenistic spending implemented at the expense of other vital budget lines, which Treasury continually does due to its ruinous budget ceiling, one that last August it promised the International Monetary Fund it would dogmatically police.
Structural reforms in society’s interest
Of course, the implementation of a BIG is vitally important but is not a solution to all the problems we face in the country. It helps on the consumption side, and simply to ensure survival for the millions of us who capitalism and the state otherwise toss aside. But it should be coupled with much greater redistribution of wealth through job creation and service provision, within a low-carbon re-industrialisation programme and a genuine just transition.
We are also desperately in need of both the procurement and eventual local generic production of COVID-19 vaccines. We need an urgent rebuilding of our collapsing public health system, not more Treasury budget cuts. We must rescue our state-owned enterprises from the hyenas who during both the Jacob Zuma and current Ramaphosa government, are abusing these public assets. For example, although Eskom has recently lost battles in the courts when it treacherously disconnects entire municipalities, the management team is still hell-bent on privatisation, obscene tariff increases and a resulting increase in household disconnections due to unaffordability.
Standing in our way is Treasury’s commitment to ideological orthodoxy, i.e. neoliberalism. The Treasury’s masters include the financial institutions, credit rating agencies, mainstream business journalists, and economists who simply do not understand – or have no sympathy with – the vast, suffering majority of our society.
In contrast to orthodoxy, we must raise the necessary resources by not only providing emergency financing through SARB quantitative easing strategies, but by raising taxes on the rich and corporations, and halting their extreme Illicit financial flows and offshoring of wealth.
Aside from a mildly progressive income tax and minor capital gains taxes, our ability to a redistribute has been foiled by Treasury’s refusal to impose a wealth tax in what is the most unequal country in the world. Implementing a relatively small net wealth tax could potentially raise a substantial amount of revenue.
While the VAT – adversely affecting most of us in a regressive manner – was raised in 2017, the primary corporate income tax was cut. It peaked at 52% three decades ago, during apartheid, but was then steadily reduced to what is now a generous 28% under the expectation that this tax cut would encourage new fixed investment. It did not do, and capital strike has worsened since the early 2010s.
Meanwhile, South African corporate profits were recorded by the International Monetary Fund in the top five of all countries in the mid-2010s (the last available data), so it is long overdue to tax the corporates appropriately and compel them to keep their profits within South Africa, using tightened exchange controls. Far too much capital is lost through profit, dividend and interest outflows – the persistent balance on income deficit within the current account) – and too much hot money flows into South Africa to take advantage merely of high returns on financial assets, including inter-corporate loans.
It is also long overdue for government to clamp down on high net worth individuals and transnational corporations that shift profits to trusts in tax havens to avoid paying taxes altogether. Treasury’s Financial Intelligence Centre puts the illicit financial flow loss at 3% to 7% of GDP, which in 2019 would have been R150 billion to R360 billion.
There are many other pools of finance that can and must be used to finance a BIG and a just transition. The JSE just hit a new record index in early 2021, resulting in the highest level of market capitalisation to GDP in our history – indeed at 393% today, this is the highest “Buffett indicator” of any country in world history – at a time output just fell an estimated 8%. Let us not feed this bubble any further. Prescribed assets should immediately be imposed on our vulnerable pension funds that are now in the hands of financier-gamblers addicted to the JSE casino. We should start by redirecting the massive surpluses now in the Government Employees Pension Fund and the bloated, ungenerous Unemployment Insurance Fund.
In sum, South Africans should kick start a new era of progressive, systemic macro-economic reforms aimed at social survival, localised re-industrialisation and a just transition from our capital-intensive, carbon-addicted minerals energy complex. To do so, we need to end the discussions on the desirability and viability of a BIG. For the sake of our country’s present and future, we insist that a BIG be implemented immediately.
Zwelinzima Vavi is the leader of the South African Federation of Trade Unions. You can follow him on Twitter on @Zwelinzima1