E-mail to the treasury – Covid 19 Demand Side Economic Response

Ladies and Gentlemen of the Treasury.

I head up a political party: Direct Democracy Forum Reg Number 936.

We have as cornerstone policies:

1) A Senate, drawn from the streets, 2) Tax Reform (Total Economic Activity Levy, Replaces all other taxes) (TEAL), 3) A Universal Basic Income (Including National Health Insurance Funding) (UBI), 4) An Advancement Grant (for tertiary education and other advancement activities) (AG), 5) A Sovereign Wealth Fund (SWF), 6) Banking and Monetary Reform

We suggest the last five items should be adopted to relieve the effects of the Covid 19 pandemic and any subsequent economic fall-out.

Assuming an adult population of 35 Million adult South Africans, a UBI of R5000 per month would deliver R175 Billion into the demand side of the economy, each month. Apart from the obvious economic stimulus this would bring to the economy it would also have the effect of empowering and uplifting every recipient in the economy, and to ‘challenge’ the supply side to claim their share of that stimulus through trade and industry. A UBI is intended to replace all other grants.

A UBI can be paid for by a 2%TEAL on all the money flowing through the banking system. You would not be printing money so much as re-purposing existing money. If you created or borrowed the money you might wish to recycle it using TEAL. A ½% TEAL could also fund the Fiscus.

You can ‘create’ the required money, if you wish (see below*). This is what the banks would do if you borrowed R175 Billion from them, at interest. They would create the money from nothing, as is their wont, then lend it to you at interest. If treasury themselves created the money from nothing instead of going to the banks, treasury would get the money and save the country and the taxpayers the interest.

The ANC are talking of a Sovereign Wealth Fund (SWF). If you stimulate the demand side of an economy without ensuring that the supply side keeps pace, you have a classic inflation/hyper-inflation situation. The SWF can be used to intervene in the supply side of the economy to help it maintain the required balance between demand and supply. This it does by investing in the supply side economy. This, however, would not be the SWF’s sole function. The SWF can be rapidly funded using TEAL and other mechanisms to become effective in this manner, inside of months, or even days (see below**).

Part of the supply side intervention would be for the SWF to own and run commercial, industrial and community banks alongside privately owned and run banks, thus influencing the financial services sector. We believe that the S A Reserve Bank (SARB) should be wholly owned by the SWF and operated for the benefit of the economy, regulating the money supply and interest rates to that end. Any money creation (see above *) would be under the auspices of such a SARB.

The rational for this is that a UBI is an intervention designed to fill the void left by the already existing 4th Industrial Revolution’s lack of formal sector employment opportunities. The Covid 19 pandemic seems just to have accelerated the onset of this dilemma. There is more to this (see below **).

** Further details are available at our web site, http://ddforum.co.za. If you wish to discuss any of this you may contact me on +27 76 060 1973 and or at

Thank you for your attention.

John Barrington.
Leader, DDF.
24/03/2020

How to Fund a National Health Insurance Scheme

The DDF (Direct Democracy Forum) have blithely aimed to initiate a National Health Insurance Scheme for South Africa, based on a monthly deduction of R600 from their proposed UBI/BIG (Universal Basic Income/Basic Income Grant). The DDF have been avoiding the issue of how that would work, money-wise, largely because they did not know, with any certainty, what spend was needed.

Some research along with an independent source (Compare Guru) puts that spend at 8.8% of the GDP.

The arithmetic for that is as follows:

Assume a GDP of R3 Trillion.

The SA’s health spend is said to be 8.8% of the GDP = R3 Trillion X 8.8% = R264 Billion (includes public and private resourced health care).

Assume a Citizenry of 35 Million each getting a UBI/BIG, from which is deducted R600 per month and paid over to the NHIS.

So contributions from the UBI = R600 X 35 Million per month X 12 (for a year) = R252 Billion.

The point being that the R252 Billion contributions from the UBI/BIG are in the ballpark for the national health spend of R264 Billion.

The conclusion is that a NHIS funded from a UBI/BIG is doable.

We believed that was the case but it is nice to have some numbers with which to back it up.

See DDF Health Care Policies

The Third Economy

Jeremy Rifkin’s works, in particular ‘The End of Work’ and ‘The Zero Marginal Cost Society’ have had the world talking because they are a take on a very real problem, the decline of the (non-specialist) labour market which together with burgeoning population predicts huge proportions of the world’s populations facing unemployment and poverty while an ever diminishing proportion of specialists (the elite) are stunningly successful and affluent, all the time while capitalist productivity rises and demand falls. In short they are arguing that Capitalism will become the victim of its own success and end up producing large volumes of goods for which there are few markets and (presumably) capitalism will eventually implode.

Rifkin imagines that the employment slack will be taken up by the rise of a third economy (the first and second being the public sector and the private sector economies). This third being largely a social economy or a ‘social commons’, servicing diverse community needs through non-profit non government organisations powered largely by a low-paid, oft-times voluntary and probably relatively unskilled workforce. Rifkin imagines that the third economy will service the social needs of society which are not being met by a shrinking public sector economy, which is under constant budget constraints, nor being met by a disinterested private sector economy for which there is little profit in public service. Rifkin also envisages much shorter working weeks with more workers earning lower weekly wages, to try and help take up the employment slack.

Writing here in 1995, Lance A Compa, then of Cornell University, notes that in addition to the reduced working hours, Rifkin proposes a social wage funded by a value added tax (VAT) (in the USA) but excluding vat on basic necessities, along with defence spending budget cuts. Aronowitz and DiFazio in their book ‘The Jobless Future’ also propose reduced working hours but with more progressive income taxes instead of a VAT, along with a host of other measures, many of them in support of social welfare type expenditure along with infrastructure spends to help take up labour slack.

According to Compa, both books imply “a willing turn toward a shared genteel poverty”. However, Compa does not seem to share Rifkin’s nor Aronowitz and DiFazio’s sense of gloom regarding employment, and instead argues that history and the current experience suggests “that there is still plenty of work to be done and plenty of people wanting to work”. In short he is suggesting that while the mix of supply and demand for work is changing, it is not evaporating.

The Direct Democracy Forum (see DDF) have a slightly different take on these problems, agreeing in part with Rifkin et al’s perceptions, on the one hand, and in part with Compa’s contrary view, on the other.

We agree that three separate economies are emerging, the already existing public sector and formal private sector economies and a third economy that we would categorise as an informal private sector economy, an alternative to the formal sector economy of the Fortune 500 corporates and their ilk. We imagine this economy as being a merging of the formal and the commons economies of Rifkin’s imagining, but definitely not a second class economy of genteel poverty as Compa interpreted Rifkin et al to imply.

We do not believe a social wage will work as an adequate motivation for employment (as demonstrated by the failed Finnish so-called Basic Income Grant experiment), rather we see the need for a UBI or BIG (Universal Basic Income or Basic Income Grant) which, being universal and unconditional, goes to every adult citizen in an economy. We believe that an adequate UBI/BIG will to a large extent pay for the basic needs of most recipients. Those needs which cannot be met by a UBI/BIG we believe will motivate folk to trade with others in their communities and in this ‘third economy’, for mutual profit. Some may be content to seek low income service positions in NGOs and other service organisations but nothing will stop the more ambitious from exercising their entrepreneurial skills to rise above a mere survival level.

The DDF anticipate there could be significant movement between the formal and informal economies, of skills and labour and finance, as members of all three economies interact and move between the economies, as and when circumstances allow or dictate. So the DDF don’t see a rigid stratification where the ‘have-nots’ cannot or may not enter into the domains of the ‘haves’. Nor do we envisage the opposite.

Rather we see a more fluid society with movement between the different economies occurring more or less on a voluntary basis. Because whichever economy one occupies, the basic needs of everyone could be met from the UBI/BIG, there would be less importance attached to which economy one occupies at any point in time, and less stigma attached to not being a part of a formal economy if one is part of the informal third economy. That is not to say that one should lack ambition, just that it would not be a question of life or death, or survival or poverty, so much as to how one can move up (or down) in society, either within the economy one occupies or between economies, so as to improve one’s circumstances.

The question of how to pay for this UBI/BIG leads us to the topic of tax reform. A UBI/BIG in most economies would exceed the GDP. So, if one were to tax the GDP to pay for a UBI/BIG, that would be the same as having a higher tax than one earns, say a 120% tax on income. Clearly that would not work.

Before we look at an alternative to income tax, think of how iniquitous income tax is. What the tax authorities say, is, if you succeed, if you earn a wage or salary (you are one of the employed and therefore a success when compared to the unemployed), or if you trade at a profit (you are a success compared to those who trade at a loss), we will take from you, a part of that wage, salary or profit. Generally, the goal is to collect 30% or more of one’s income (or the GDP) in taxes. However, if you fail (do not earn an income or declare a real or concocted taxable loss,) you get off scot free, or tax free.

So what is the alternative? Both Rifkin and Aronowitz and DiFazio suggest that we add more and more complex taxes, when we should at least be trying to simplify taxes and make the collection process less complex and less expensive, even if we cannot actually reduce the taxes themselves. The DDF believe that is too complex and too costly and also believe they have a more effective and more economical alternative solution.

The DDF has a core policy to replace income tax and all other taxes, direct or indirect, with a Total Economic Activity Levy or TEAL. TEAL levies all the funds flowing through an economy’s banking system. In South Africa, where we have a good idea of what that amounts to, a ½% levy on all the transactions debited or credited to one’s bank account in all the bank accounts in the land, would collect about 30% of the GDP. This in effect reduces one’s tax payments from 30% or so of one’s income and profits, to 1% of one’s income or 1% of all of one’s trading activities (½% on all debits and ½% on all credits in your bank accounts). This presumes that you spend all that you earn. By comparison, banks in South Africa can charge more than ½% on all transactions for bank fees.

The DDF think TEAL is a far more equitable system than income and profits tax. Some of the advantages of TEAL are:

  • 1) All will pay the same low ½% TEAL.
  • 2) TEAL effectively works like a progressive tax, thus the more active you are in the economy the more TEAL you pay in absolute terms.
  • 3) TEAL is uncompromising and unconditional – all persons active in the economy’s banking system pay TEAL, so there are none who get away scot free (or tax free).
  • 4) TEAL broadens the tax base from the narrow GDP tax base to a much broader tax base, encompassing all economic activity in the economy. In South Africa this broader tax base is, on average, some 30 times the value of the GDP.
  • 5) TEAL can be thought of more as a rent that everyone pays rather than a tax that only some pay.
  • 6) The cost of collecting and administering TEAL is estimated to be some 10% of the costs of administering the conventional tax systems.
  • 7) The savings from implementing TEAL would more than pay for the costs of implementing and running a Senate, drawn from the streets rather than from a political party base, thus broadening and strengthening the reach of democracy at little or no extra cost.
  • 8) TEAL makes a UBI/BIG fiscally possible.

So how does TEAL make a UBI/BIG possible?

In South Africa’s economy, a 2.165% TEAL on all the economic activity, as measured by the flow of funds through the banking system, will pay for;

  • 1) the fiscus
  • 2) a moderately significant UBI/BIG
    • including funding for a National Health Insurance scheme,
  • 3) an Advancement Grant
    • to pay for Tertiary Education or any other advancement initiatives,
  • 4) help seed a Sovereign Wealth Fund.
  • 5) A UBI would effectively be an investment in the demand side of the economy, stimulating both the demand side and the supply side of the economy and both the formal and informal economies.

We believe the above makes TEAL an eminently more desirable alternative to income and profits taxes and makes a UBI/BIG and an informal third economy a viable and preferable alternative to genteel poverty in a social commons.

Finland’s Basic Income experiment fails

Finland’s Basic Income failure is something that every advocate for a Basic Income Grant (BIG) or Universal Basic Income (UBI) needs to contextualise.

https://www.usatoday.com/story/news/nation-now/2018/04/25/finland-basic-income-685-fails/549087002/?utm_source=feedblitz&utm_medium=FeedBlitzRss&utm_campaign=usatodaycomworld-topstories

There are elements of the Finnish exercise that indicate that Finland’s experiment was more about the dole or unemployment benefits than about a BIG or UBI. In fact, Finland did not give everyone a basic income of $685, they randomly selected 2000 unemployed (and probably unemployable) Fins, and paid them $685 per month and then concluded that a basic income was unaffordable and did not achieve any social goals. Being paid because you are not working is a dole. A BIG or UBI system is where a population is universally and unconditionally paid whether working or not. The Finnish experiment was apparently motivated by the expectation that the 2000 unemployed would then go out and find low paid employment thus filling a gap in the labour market, an expectation that was never fulfilled. None the less, even if that had worked, even if the benefit was extended to all unemployed Fins or to the Finnish population as a whole, it could probably be argued that their tax system could not to bear it.

These conclusions are not unexpected for that sort of exercise:

First, when a BIG / UBI is applied universally to an entire community, there are long term benefits to the community members and the community as a whole, which can justify the high cost of a BIG / UBI. These benefits will never be apparent from a randomly selected and widely dispersed small population assessed in the short term, as with the Finnish experiment. The selected Finnish population was not representative of any universal and unconditionally selected population receiving a BIG or UBI.

Second, a BIG/UBI is costly and beyond the scope of any conventional tax system to fund. The exercises done by the Direct Democracy Forum (DDF) (see Teal, The Big Picture), presumed a Gross Domestic Product (GDP) of R2.8Trillion. The DDF hypothesized a BIG of R2.1 Trillion for a BIG of R5000 per month for 35 million adult South Africans. In that exercise the BIG was almost the size of the GDP.

Most economies target tax levels at about 30% of the GDP. The BIG in that context is 2.5 times the tax burden for that size of economy. The tax (R0.84T) + BIG (R2.1T) would total R2.94T, a sum bigger than the entire GDP of R2.8T. You clearly cannot extract more tax from a GDP than the GDP permits.

If Finland’s situation is anything like South Africa’s, the Fins are correct. Using a conventional tax system (taxing the GDP) cannot pay for a Basic Income of $685 per month. Nor can South Africa afford a R5000 per month BIG if reliant on a conventional tax system. What is missing here is a tax system that can accommodate the needs of a BIG. Here TEAL (Total Economic Activity Levy) comes into its own.

Instead of taxing income and profit, Teal levies the economic activity represented by the flow of money through the banking system. This is typically, in SA, about thirty times the GDP, so a R3T GDP represents a cash flow of 30 times and more through the banking system.  The arithmetic is GDP x 30 x 2 x 1.37 where every Rand is both deposited and withdrawn (the x 2) and an additional 37% is drawn on and paid into the same bank and therefore is not included in interbank settlements (the 1.37) which amounts to R246.6T on a GDP of R3T.  

What this levy amounts to is paying a rent for the privilege of playing in the country’s economy. If you are a large player the rent is large, if a small player, the rent is small, but everyone pays the rent, irrespective of who you are or what your game is or how much your profits or losses are. This broadens the tax base. In an example set in South Africa, instead of a tax base of a R2.8T GDP, the tax base is R230T of the broader economy. So the rate of tax or levy can be slashed from about 30% of the GDP to ½% of the broader economy, and achieve the same result.

Applying the same principle (levying the entire broader economy instead of taxing the GDP) one is able to collect the R2.1T needed for a BIG with a 1.25% levy on the broader economy (see Teal, The Big Picture). Suddenly a BIG or UBI becomes attainable.

Then there is the political context of the Finish experiment. The NY Time’s analysis (see the link below) suggests that when the Fins started the experiment the government was somewhat liberal. Then Finland was hit by recession, and a more conservative government came to power whose main platform was cutting expenditure. Bye bye Basic Income experiment!

According to the NY Times, the reasons why the Finnish Basic Income experiment failed are are set out here (see https://nyti.ms/2tiI1bA)

Fortunately the Finnish experiment, however inadequate it is for a BIG / UBI, is not the only BIG / UBI experiment and discussion under way in the world, and far from being definitive, it will merely be a footnote to the art of misdirection on the topic.

Our conclusion from this is that to take the failure of the so-called Finnish Basic Income experiment as an indication of the impossibility of a BIG or UBI, is to be misled by an experiment which was not about a BIG or UBI at all, but about a dole, The two (a dole or a BIG / UBI) are not comparable and the Finnish failure, far from discouraging the DDF from its BIG / UBI objective, merely strengthens the DDF resolve to see the introduction of TEAL and an affordable Basic Income Grant or Universal Basic Income in South Africa. Further, the collective benefits arising from investing R1.75 Billion in the demand side of the South African economy every month, will more than justify collecting that money with a 1.25% levy (TEAL) on the broader economy.

A Basic Income Grants discussion.

I recently listened to a podcast (Upstream podcasts) in 2 parts on a UBI (Universal Basic Income) which I found really interesting. The podcasts are available here (1) and here (2). If you have difficulty listening to podcasts, you can download the transcripts in pdf format for both podcasts from here,.

What interested me most was the almost universal consensus that 1) UBI or BIGs (Basic Income Grants) were desirable and productive, and 2) where implemented (in pilot schemes & etc) the beneficiaries, their progeny and the communities they were a part of all benefited, and few if any recipients abused the system. So there is a multiplier effect.

I contacted the producers of the podcasts with a view to setting up a dialogue from which I hoped we all could benefit, but was disappointed to find that my contribution showing how capitalism can pay for a UBI was not well received. The producers seemed to feel that using a system which they clearly wished to see the back of, would compromise their ideals for a post-capitalist society. I don’t think this is a very constructive position but instead regard using capitalism to fund a UBI as a step in the right direction, thus tackling the disparity of wealth between the haves and have nots and more importantly, tackling the lack of economic opportunity for the have nots, and who knows where that can lead. But the producers felt that a dialogue on that basis, as they put it, (we) would be talking to cross-purposes. So, instead of having a dialogue from which, perhaps, we all could benefit, we have nothing much at all beyond our separate but ironically similar goals.

Be that as it may, the podcasts are awesome.

Much more disappointing for me was the response of two South African institutions to my approaches. One is the Studies in Poverty and Inequality Institute (SPII), and South Africa’s main opposition party, the Democratic Alliance (DA).

The SPII were said to be promoting a Basic Income Grant. When I approached them I found they had a project devoted to a BIG with a dedicated manager and BIG committee, this according to their web site and correspondence and conversations I had with their staff. In the end it seemed that their interest in a BIG was limited to a SADC context rather than a South African context. In any event, when I approached them I was met by an unwillingness to engage on the topic of a BIG.

It may be significant that their present web-site (which may still be under development) has no mention that I could find of a Basic Income Grant. Perhaps they have given it up as a bad idea and perhaps that was why they were unwilling to address the topic of a BIG with me. But the SPII are not saying anything to me on that topic.

I also approached the Democratic Alliance suggesting I had policies that would almost certainly guarantee the DA a substantial win in the upcoming 2019 general elections. I was referred to a member of the DA specialising in policy matters. He indicated two things to me. One was a scepticism of the claim that the throughput of money in the South African banking system was anything like an average of 30 times the GDP and that it could bear a ½% levy in place of the 30% or so taxation of the GDP, although he did admit it would be a game-changer if this was so. He also stated that in the run-up to the 2014 general elections, the DA had approached residents of SOWETO who indicated that they did not think a BIG was a good idea. That then, was my time to be sceptical.

The DA’s policy specialist also suggested that I should obtain (for the DA?) written proof from the SA Reserve Bank that such a relationship exists between the GDP and the money flowing through SA’s banking system. My unspoken response to that was that the DA should do their own homework as the DDF and the TEAL Foundation had already done theirs. See here for some information on DDF and TEAL findings.

Never the less, I did and will continue to approach the SARB even though they are reluctant to release any information on the topic beyond what they publish, which is not very much. They claim proprietary rights to information of national importance, which I dispute absolutely. Perhaps I have to brandish the freedom of information act (I think we have such an act) under their noses to get any real satisfaction. Perhaps not.

From time to time I encounter detractors from the idea of a UBI/BIG (the “you can’t give away something for nothing” brigade and the “everyone will stop working” brigade and the “how do we pay for it in our corrupt society” brigade) but they usually walk away from an encounter with me a lot more thoughtful about the prospect of a UBI/BIG. Once you get past those knee-jerk reactions, folk generally seem more amenable to the idea.

So, far from finding possible allies willing to share knowledge and experiences on the topic of a UBI or BIG, I found folk and institutions who, whether for ideological reasons (in the case of the podcast producers) or perhaps for political reasons (was I encroaching on SPII’s and the DA’s turf and in the DA’s view was I not also being a political upstart?), viewed my assertions that I knew how to pay for a UBI or BIG pretty much with indifference.

I find all of that quite astonishing.

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