President Cyril Ramaphosa has been a strong advocate for a basic income grant in South Africa, Michael Sachs argues the government must be realistic about the fact that the increased costs will entail tax increases and budget cuts.
Sachs is an adjunct professor at the University of the Witwatersrand’s Southern Centre for Inequality Studies. Between 2013 and 2017, he was the chairman of the National Treasury’s Budget Office, and between 2001 and 2007, he was the research coordinator at the African National Congress’s headquarters.
“For many years National Treasury has correctly argued that structural increases in spending must be backed by structural increases in taxation. Taxes are not the only means through which government can extract economic value from society on a permanent basis,” Sachs said.
“But taxation is (by far) the most transparent, accountable, progressive, and efficient mechanism. It has also proven to be the only mechanism that is compatible with sustained growth, especially in large social states. ”
What are the choices?
According to Sachs, numerous choices must now be examined, including:
The government can also step harder on the brake of fiscal drag, which distributes the burden to the middle strata but creates inefficiency and perverse incentives; removing tax breaks on retirement savings would raise the effective rate of Personal Income Tax for the most affluent; the government can also step harder on the brake of fiscal drag, which distributes the burden to the middle strata but creates inefficiency and perverse incentives; Raising the rate of value-added tax would be a better strategy (VAT). Given the grant’s indefinite nature – as well as a slew of other fiscal challenges – some combination of all of these tax measures should be put on the table for discussion as soon as feasible, according to Sachs.
“Tax increases need not be implemented immediately but must be announced far in advance. Delaying tax increases would help reap the multiplier effects of the new spending.
“But upfront clarity on plans for increased taxation is needed to limit the deterioration in financial conditions which, if left unchecked, could overwhelm any positive multiplier effects. Tax changes of this magnitude also require extensive public deliberation and policy work to ensure effective design and orderly implementation can take place.”
This isn’t a case of benevolence.
According to Sachs, basic income support is not a matter of the government’s ‘generosity.’
The money will come from working-class people and the wealthy, and it is to them that the president should appeal, explaining why he believes it is vital for them to pay greater taxes, he said.
Basic income assistance also implies sacrificing economic capacity for other progressive social policy measures, perhaps for the next generation, and could hasten the deterioration of critical government services like basic education, healthcare, and policing, according to Sachs.
“An income support grant that reaches poor and unemployed workers can become an effective and prideful part of our fiscal constitution. It will mean sacrifices from the wealthy, but also from those in secure jobs, including public-sector workers and other unionised insiders. And this will take political courage to push through.”
On the econ3x3 website, you can read Sachs’ comprehensive analysis of the Basic Income Grant. [1]Read More