WAGING WAR ON POVERTY
THE DA POLICY ON THE BASIC INCOME GRANT

Extract of minutes of DA Federal Congress April 2002

Introduction

Defining the problem

What is the Basic Income Grant (BIG), and who would get it?

Financing the BIG

Administering the BIG

The impact of the BIG on poverty

What the BIG means for individuals

Conclusion

Bibliography

Introduction

There are two parts to the DA's purpose in politics. First, to protect and promote the constitutional, democratic and human rights order that was born in 1994, and second, to promote a policy agenda for positive change – change that will give everyone, especially those disadvantaged because of past oppression, the opportunity to improve the quality of his or her life.

That is why the DA stands for an open, opportunity society in which every individual is free, secure and has access to the opportunity to make his or her life better. Consequently, our policies are designed to bring into being such a society.

Poverty is the primary enemy of an opportunity society. Poverty causes ill health, undermines the effectiveness of education and demoralizes our people. It is because of poverty that millions of South Africans live without hope or prospects for the future. Moreover, the rights and freedoms enshrined in our constitution mean little unless South Africans have the means to assert and use them.

Unemployment is the primary cause of poverty. The only way poverty will be eradicated is through the creation of jobs on a sustainable basis. This requires rapid economic growth – 6% or more per year. And growth is dependent on our ability to attract investment into the South African economy.

The Democratic Alliance has clear, carefully thought-out, practical policies designed to achieve economic and employment growth, and our policy on the Basic Income Grant should be read in conjunction with our growth policies.

It needs to be said that a Basic Income Grant cannot eradicate poverty. Only economic growth and job creation can do that. But the Basic Income Grant can help to alleviate poverty. It is also one way in which to extend some opportunity to those living in poverty.

The Democratic Alliance believes that the state has an important role to play in creating opportunity for our people. We believe in a caring state that takes action to generate opportunity, especially for the disadvantaged. A Basic Income Grant, financed and administered in a responsible manner, and implemented in conjunction with economic policies designed to achieve faster growth, is exactly the kind of policy a DA government would implement.

1. Defining the problem

The scope of poverty in South Africa

distributions in the world, these distinctively high levels of relative poverty should not overshadow the severe absolute poverty that also exists within the country.

Using an international benchmark of absolute income-poverty reveals that around one fifth of South African's live on less than $1 per day”.

45% of the population (18 million people) live on less than $2 a day

“About 11% of households with children under 7 went hungry in 1999 due to lack of money to buy food. Another 2,3 million households with people aged 7 years and older went hungry due to an inability to purchase food. The percentage of households reporting hunger in 1999 was 21.9%”

Further research, using non-income-based measures of poverty, shows that one in four children are malnourished.

Even with full take-up of all social security programmes almost 22 million people live below the poverty line.

The reach of the social security system at the present time & the welfare gap

5.5 million of the total population of 41 million receive state assistance.

Only children under 7 qualify for the Child Support Grant and while there are at least 3 million children in need, 75% do not receive the Grant. The possibility of extending the Grant to children up to the age of 14 is currently under discussion.

Unemployment insurance is only available if one has already been employed at some point and only for a limited period.

Only women over 60 and men over 65 qualify for the pension scheme and Disability grants are very difficult to secure both because of a complicated registration process and because of the difficulty disabled people have in getting to the payment and registration points.

The two largest components of social security spending are the old age pension and the disability grant, which account for 60 and 24 percent of the social security budget respectively. Both programs are non-contributory and means tested, and in 1998 amounted to an average R490 or US$49 per month transfer to 2.5 million people.

However, despite being targeted at individuals, the pension program in particular is likely to support the living standards of individuals beyond their immediate beneficiaries. The state pension offers many poor households a regular income and provides a basic level of food security against seasonal and other fluctuations. Nevertheless, over three quarters of adults and children currently live in households with no pensioners, and as such many of South Africa 's poor are not even indirect beneficiaries of the social security system.

A BIG will be able to close the poverty gap by 74 percent and effectively reach the millions South Africans in the poorest households currently not receiving, even indirectly, any form of social assistance.

2. What is the Basic Income Grant (BIG), and who would get it?

The BIG is a grant of R110 per month that would be made available to all South Africans.

For income tax purposes, the BIG would be multiplied by a factor of 20. For this reason, only people who earn less than R7 500 per annum would benefit from the BIG. Everyone else would pay more back to the state in tax every year than they would get if they claimed the BIG.

The grant would not be available to people who already receive another state grant.

The grant would not be available to dependents of people who do not receive the grant themselves.

People would have to register to receive the BIG. Applicants would be required to produce a valid ID document and the registration would be recorded by the South African Revenue Service. The application would consist of single form, rather than the current multiple form applications required for state grants.

This system would eliminate the need for a means test.

3. Financing the BIG

A R110 grant to every indigent South African can realistically be sourced and budgeted for in a fiscally sound and sustainable way.

For example, in the 2002/03 fiscal year:

It is estimated that between 10 million and 12 million people would be eligible for the BIG - requiring an amount of approximately R15 billion per year.

These three sources would thus yield enough money to cover the cost of the BIG.

4. Administering the BIG

Inefficient administration is the biggest obstacle in the delivery of the BIG. Below are several ways in which the BIG can be administered:

a) Expand the systems and payment days already in place that are used for the payment of social pensions, Child Support Grants and other grants. In other words, payment of the BIG would utilise the equipment and structures that already exist to pay out grants.

b) Do away with the means test for social old age pensions. This will release thousands of bureaucrats who currently administer the means test and will save the state millions. It will also cut out the biggest opportunities for fraud in the social payment cycle. (Because of the way in which the BIG is taxed - at 20 times its value - it will not be worthwhile for those who earn more than R7 500 per annum to apply for the BIG and a means test is thus unnecessary. A similar, but adjusted, system should be used in respect of social old age pensions).

c) Reaching large numbers of people, particularly in rural areas, is never easy, but a process linked to ID numbers and subsequently relayed to SARS could be fairly simple. The biggest challenge would be to prevent fraudulent or duplicate payments based on false ID documents.

d) Payments made directly to bank accounts. The idea is automatically to credit the accounts of the recipients. The cost of this would be recouped from the savings achieved by doing away with physical payments. Some disability and pension grants are already paid directly into bank accounts, making this a feasible option. T he Post Bank, with branches in all post offices, would be an ideal candidate for this sort of transaction.

e) Minister Skweyiya has acknowledged that assistance from the churches has enabled the Department of Social Welfare to increase Child Support Grant beneficiaries by 13%.This should be encouraged and further utilised.

f) State agencies and various government systems that administer some sort of payment (e.g. Department of Labour, Social Development, and Department of Health) should co-ordinate and work together to maximise utilization in areas of commonality. Income support of this nature would assist the poor, particularly in rural areas, to access government services, thereby improving the effectiveness of many service delivery programmes and social policies.

5. The impact of the BIG on poverty

According to the Taylor report (to assess the current social security system), a BIG of R100 per month would 'nearly completely eliminate' extreme poverty. The report states that such a system would 'reduce to zero the number of poor South Africans excluded from the social security system'.

In numerical terms, about 6,3 million people would be moved out of poverty and the number of destitute individuals would fall by about 10,2 million. (This figure is calculated using R100 per month so the results using R110 per month would be even greater.)

The Economic Policy Research Unit argues that the BIG is 'the single most effective way of intervening in poverty, reducing it by 75%.' It states that even if there was a full uptake of grants, on the current system, the poverty gap would be reduced by only 36%.

In households that consist only of working age adults, the BIG would close the poverty gap by 56% (compared with 8% in the current system).

In households with children but no pensioners, the poverty gap would be closed by 66%. For skip generation households, 95% of the poverty gap would be closed; for three-generation households, the gap would be closed by 85%.

53% of the benefits would be distributed to rural households.

6. What the BIG means for individuals

It is wrong to assume that R110 per month will only be used to buy food. The DA investigated what people who are potential recipients of the grant would in fact use the money for. Here are their stories:

a) T- is a 21-year-old mother who fell pregnant in matric and left school. She used to pay a woman from her township R250 per month to look after her child while she looked for work in Durban and Pietermaritzburg. She tried to apply for the Child Support Grant but since her baby does not live with her, she cannot receive the grant - only the caregiver can and in this case, the woman looking after the baby is incapacitated and cannot get to Pinetown where she needs to register and apply. T- can no longer afford to pay the woman and has to look after her child herself, and can thus not look for work. She says that the BIG would help her afford the cost of child-care so that she could look for employment.

b) J- hands out 'cash for gold' flyers 5 days a week, 9 hours a day in St George's mall. He is paid R25 per day. This is his only employment. His taxi fare is R25 per week. This means that he pays a full day's salary towards transport costs. When told about the BIG, his immediate reaction was that he would use the money to pay for his taxi fare and would then be able to take home his whole salary. He supports his younger brother who has not been able to find work since leaving school a year ago.

c) P- buys raffia bags from a wholesale store and sells them at the flea market. The store gives discounts for bulk purchases. She can only afford to buy up to 20 bags at R15 per bag. If she could buy 30 bags each time, they would cost only R11, 50 per bag. That means that her profit margin would increase from R5 per bag to R8, 50. She believes that an additional R110 per month would enable her to grow her business and help to relieve her of the burden of poverty.

d) D- stole water for his eight children after he could no longer take the humiliation of seeing them beg for water from his neighbours. Five years ago he saved enough money to have his water connected to his hut. But school fees, transport and food costs drove him into debt and his water was cut off when he could no longer afford it. With R110 per month, he would not have had to steal.

7. Conclusion

Literally millions of South Africans are unemployed, destitute and are living below the poverty datum line. Despite having promised JOBS, JOBS, JOBS, the government's policies have actually caused substantial job losses. This means that joblessness has increased exponentially since 1994. The result is that, in many parts of South Africa , people are starving, in some cases, to death.

While the obvious longer-term solution lies in policies that will kick start economic growth and therefore job creation, South Africans cannot sit back and allow our fellow citizens to starve.

For this reason, the DA pioneered the debate on, and supports the introduction of, a Basic Income Grant, that will provide emergency relief to those who are truly destitute

“In the context of pervasive absolute poverty and inequality, the consideration of poverty alleviation measures is of critical importance. The BIG would enhance the provisions of the South African constitution by not only giving people the right to life but also the means to live it. ”

8. Bibliography

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Report prepared for the Office of the Executive Deputy President and the Interministerial Committee for Poverty and Inequality. Durban , South Africa .

Mgijima, C. (1999) ‚'International Consultative Conference on Food Security and

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Skweyiya, Zola 2002, GCIS Media Briefing 2002 www.pmg.org.za/briefing/aug2002/020320socdev.htm 7 Nov. 2002

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