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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Is a Basic Income Grant stealing from the rich?

An interesting article from BBC Future (There is a problem with the way we look at inequality) looks at the wealth gap and some publications on the subject and concluded that there were actually three different elements that one should distinguish between in order to understand what needs to be done to rectify an obviously unjust situation. The issue, they say, is not the existence of a gap between rich and poor, but the existence of unfairness”.

So the trick is to understand what of the wealth gap is just and what of it is unjust. We would paraphrase the situation thus, we need to deliver justice without destroying that which is just and desirable, because, if we destroy that which is good in an attempt to destroy that which is bad, what is left for those of us who want the good? Perhaps only the bad. This is reflected in the law of unintended consequences.

English is full of pithy little sayings and a very pertinent one for this topic is; “don’t throw out the baby with the bathwater”. In other words, be careful of the baby (the economy). You don’t wish to destroy the economy.

A point highlighted in the article was that one study argued that the public perception of wealth inequality itself being aversive to most people is incorrect, and that instead, what people are truly concerned about is unfairness” and that “People typically prefer fair inequality to unfair equality”. Nicholas Bloom, an economics professor at Stanford University arguing against a world of absolute equality, observed “why would I work for 50 hours a week if everything I’m given is free?”. Indeed, why work at all if you receive the same as Joe Blogs who works 50 hours a week, when you get the same for not working at all?

The three ideas we need to grasp about equality are 1) People should have equal opportunity in society, regardless of their background, race, sexuality, gender and so on. 2) Fair distribution says that benefits or rewards should be distributed fairly based on merit. 3) Equality of outcome says that all in society should earn the same rewards irrespective of their input into society.

Most of us would agree with points 1 and 2 but many would disagree with point 3 (see Bloom (above)).

Many economist interviewed for the article agree that too much attention is paid to the fact that the 1%, and the super-rich exist. Instead, they argue, we need to concentrate more on helping those less fortunate, who via a lack of fairness, are unable to improve their situation.

Harry G Frankfurt, emeritus professor of philosophy at Princeton University argues in his book On Inequality that “the moral obligation should be on eliminating poverty, not achieving equality, and striving to make sure everyone has the means to lead a good life”.

Experts say the solution to poverty lies in addressing the fact that poverty and unfairness exist because addressing that should be the real moral obligation.

While we at the Direct Democracy Forum (DDF) agree with all of this, our approach is more pragmatic than moral. We suggest it is in fact in the interests of all of society, including the rich and the super rich, that poverty be eradicated, and that it is also in the interest of the market economy that poverty be eliminated. After all, the poor cannot afford to buy cars and washing machines and dishwashers and clothing and medical services and education and housing and recreation and food and travel and electricity and swimming pools and stereo sets and computers and video equipment and so on and so on and so on, while even the modestly affluent, the sort of lower middle class (financially speaking), can, over time, buy all these goods and services. By making the demand side of the economy stronger, we all, even the rich and the super rich, grow richer.

If we use a slightly different analogy, every farmer knows he has to sow the seeds of his prosperity by investing in his land and his livestock. Similarly every person who relies on the economy for his prosperity, both the rich and the poor, needs to sow the seeds of this prosperity by investing not only in the means of production, but also the means of consumption.

So we at the DDF argue that a Basic Income Grant (BIG), funded at first by the economy through the application of a BIG TEAL, will sow the seeds of that prosperity, and should not be viewed as stealing from the rich to give to the poor, but as an investment in the demand side of the economy, and if at the same time, a BIG makes the lives of countless of individuals better and makes ”sure everyone has the means to lead a good life”, to quote Harry G Frankfurt, so much the better.

In addition, it should be remembered that TEAL collects in equal proportion from everyone. While the rich may contribute more than the poor, that is only because the rich are more economically active than the poor. But they all contribute in equal proportions.

So, in answer to the question, is a BIG stealing from the rich, we would answer emphatically and resoundingly, NO! It is an investment in their own and everyone else’s prosperity.

For those who wonder how we could pay for a Basic Income Grant, see how to pay for a basic income grant and take a look at DDF policy on the Basic Income Grant (BIG) and DDF policy on the Total Economic Activity Levy (TEAL).

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Mental Health Subsidy Crises? Dial BIG for Help!

Remember the Esidimeni crises when a mental health care facility was closed and patients transferred willy-nilly to other ill-equipped facilities. A health ombudsman report suggests that as many as 80 (others say more and still counting) patients may have died as a result of that fiasco and not just 36 as originally reported.

Could things get worse? Apparently they can.

The San Michele Home, a flagship facility for mental health care, faces being closed because the Gauteng Health Department is withdrawing the R3400.00 per patient per month subsidy, because, the department claims, the facility does not comply with the regulations for such an establishment. These regulations were recently changed and, it is claimed, are excessively stringent and, in any event, the home has not been given a reasonable opportunity to comply with the new regulations.

Forget the San Michele Home for a moment. It appears that as many as 160 (one hundred and sixty) mental care facilities face closure for the same reasons. San Michele Home has about 200 patients in its care, so let us assume that each of the 160 homes have on average100 patients in their care. That means that some 16 000 patients (or more) are at risk, something that reduces the Esidimeni crises to a level of insignificance that is truly frightening.

It seems that the Gauteng Health Department are trying to discard their subsidy obligations to the mentally ill community and, quite callously, do not care much about the risk of a few more deaths here and there.

One would have thought that they would have learned from the Esidimeni fiasco, but apparently not.

But the Direct Democracy Forum (DDF) are not here to berate the Gauteng Health Department for whatever their lapses may be, merely to observe that if a Basic Income Grant of R5000 per month for every adult South African were in place, all sixteen thousand or so patients would not be at risk, because they could provide for their own medical subsidy at the facility of their choice, and would not need to be subsidised by a reluctant province or even an unwilling national government.

For those who would ridicule the idea of a Basic Income Grant, see how to pay for a basic income grant and take a look at DDF policy on the Basic Income Grant (BIG) and DDF policy on the Total Economic Activity Levy (TEAL).

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Recession? Dial BIG for help

Recession? Car sales down? No problem. Dial BIG for help:

South Africa slipped into recession with two successive quarters of negative growth in the GDP and car sales shrinking 13% to 34 956 units, year on year to April 2017.

Imagine there is in place a Basic Income Grant (BIG) of R5000 per month given to every adult South Africa citizen (see here) in 2017, and 0.1% of that population, say 34 400 of them, decided that they would like to buy new cars in 2017 because with the R5000 BIG they could afford to buy a car and pay it off over say the next three years. That would almost double new car sales for 2017 and boost new car sales by maybe R6.2 Billion, or more, in 2017.

I wonder what effect that would have on the motor industry and on SA’s latest recession?

I wonder too, if the remaining R1.5 Trillion pa additional spend by BIG recipients in 2017 (see here) would have any effect on the rest of the economy? I would guess that yes, it would have an enormous and positive effect on the economy.

Bye bye recession. Hello prosperity!

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How to pay for a Basic Income Grant

How can one pay for a Basic Income Grant (BIG)?

The short answer is that a TEAL (a Total Economic Activity Levy) would pay for a BIG. Later, the role of TEAL as a source for a BIG may be taken over by a Sovereign Wealth Fund, in part or in full, depending on the success of the SWF project (see SWF)

Let us explain how:

First what should a basic income grant be set at?

In the UK people who typically use food banks earn less than £320.00 (at R17/£ = R5440) per month and in the US they are thinking of $10 000 pa or about $800 BIG per month (at R13:50/$ = R10 800) while Finland are talking about €800 BIG per month (at R15.50 = R12 400), so the Direct Democracy Forum’s (DDF’s) suggestion of R5 000 BIG per month is quite modest when compared to other countries’ needs and suggestions. But let’s stick with R5 000 per month as a starting point.

What would the monthly and annual BIG bill be at R5 000 per month?

Our best guestimate is that the adult South African population is about 34,4m. That would mean a monthly BIG bill of R5 000 X 34.4m equals R172 Billion or an annual BIG of 12 times that amount (no thirteenth cheque) or R2.064 Trillion.

That’s frightening. Where on earth do we get R2.1 Trillion Rand a year, an amount rising along with the population as we go on in time? That is almost the value of the current GDP (our estimate at R2.8T for 2017).

The DDF reasons as follows.

If there is a relationship of 30 times the GDP to the amount of money flowing through the banking system (a relationship we observed in an earlier TEAL exercise in 2011) , a GDP of R2.8T would equate to R84T passing through the banking system, per year, We call that the TEA or Total Economic Activity. But each Rand of TEA represents a deposit into one bank account and a withdrawal from another bank account (we call this the doubling factor). So the TEALable amount is the TEA doubled, or R84T doubled to R168T.

Suddenly, 2.1 Trillion Rand seems quite small. In fact a 1.2% levy on the Tealable amount of R168T would deliver R2.1 Trillion. Not cheap but also not that expensive when you consider that the R2.1 Trillion will go back into the economy and effect the money velocity and the GDP (more about that later) and generally increase the size of the pie that we are all eating from.

Is a BIG just a thinly disguised wealth redistribution?  Does it not steal from the rich to give to the poor?  

This is not the topic of this post but for those who are thinking along those lines and do not at first see beyond the wealth redistribution element (yes, there is such an element) then we suggest you consider the effect on the economy of boosting the potential spend of the population by a net R1.5 T a year (remember the social welfare grant offset).  That has to boost the demand side of the economy enormously and provide the suply side of the economy with numerous wealth making opportunities, not just for the existing industrial and commercial powerhouses but also for the small trader and industrialists (the SMEs that everyone says should be the backbone of our economic revival) and individuals at large. In addition the socio-economic benefits for the population as a whole probably make it worthwhile.  But this is discussed more fully here and elsewhere in DDF’s current affairs posts,

Are there dangers? Yes, there are:

Will a BIG effect inflation?

Yes, it probably will, but that would need to be countered by 1) easing into a R5 000 BIG over time (say over 5 years) to ease the inflationary pressures on the economy, and 2)  dropping existing social welfare benefits (for example old age pensions) as the BIG matches or betters them (you won’t receive both an old age pension and a BIG together) and 3) increasing the GDP, in short increasing the supply of goods and services to match the increased availability of the R2.1T of BIG money.

Will a BIG effect the money supply and won’t that in itself be inflationary?

The answer to that is probably not a simple yes or no. Yes a BIG of R2.1 will effect the availability of money but not to the extent of R2.1 T.  Remember the social welfare offsets and that TEAL does not create money.  The economy may become more liquid.  A BIG will probably make existing money more accessible, particularly for the poor, and make money circulate more quickly and more often and that could be inflationary (see above on counter measures).  The No side to that is that TEAL does not in itself create money, print money or borrow money.  So the money supply per se should not be effected by a TEAL funded BIG, and that in itself should restrain inflationary tendencies.

Will a BIG of R2.1 Trillion lift the GDP to R4.9 Trillion?

No, probably not: 1) the BIG will substitute for existing social welfare grants, so there will be an offset factor, and 2) any increased demand trend will probably be met by a trend to import more, not produce more (remember we are in a post industrial phase in South Africa and are more a nation of consumers than producers, and I squarely blame the ANC for that).

So how do we move the supply trend to produce more and import less?

This will need a concerted and coordinated effort of the private and public sectors to boost production, maybe even engaging in targeted programs of import substitution and production benefaction, particularly by engaging as many of the BIG recipients as possible to invest as much of their BIG in production capacity, either of their own or through the JSE by investing in corporations which can expand their capacity to compete for the expanding markets for their goods and services, and of course, investments by the Sovereign Wealth Fund in South Africa’s production capacity.

Would a DDF administration have an overarching socio-economic-industrial strategy?

Yes, there would have to be such a strategy. In short, all the damage that successive ANC governments have done and in particular the damage the most recent (2014-19) ANC government has done, would have to be reversed. This is a tall order but when South Africans can stop hating one-another and when even the poorest of the poor has a stake in the economy and has some security and hope for the future, we believe that a united and determined South Africa can do just that, and in fact must do it, because the alternative is an ever downward spiral toward abject misery for most of our population.

So that is how a Total Economic Activity Levy will pay for a Basic Income Grant.

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Basic Income Grant

PDF: BIG_UBI 200819

The idea of a Basic Income Grant (BIG) or Universal Basic Income (UBI) has been around for some time.  The motivations for a BIG/UBI are many and varied.  There is the old saw about alleviating poverty.  This is often the product of utopian dreams but the really big motivations are a bit more pragmatic and interconnected.  The Direct Democracy Forum (DDF) intend to focus on the effects of a BIG/UBI on the real needs of all of society rather than the outcomes for any particular sector of society  

Is BIG/UBI in use anywhere else?   Finland intend implementing a BIG/UBI (they call it a Universal Basic Income, which they intend to be E800 per month) and Canada are in the process of running a pilot scheme, though I don’t know how you pilot a BIG/UBI, but yes, the idea of a Basic or Universal BASIC Income Scheme is catching on fast.

Update on Finland’s experiment.  The Finnish experiment was not really for an experimental BIG/UBI but was more along the lines of an unemployment grant (aka The Dole), did nothing to develop the concept of a BIG/UBI, and was cancelled in 2018 OR SO.

For further discussions on the benefits and trials of and for a UBI, see The Case for a UBI Here

Unemployment:  What exactly do you do with the unemployed and unemployable, that is, those for whom there are no jobs in current economic structures, regardless of their skill levels?  How many economies in the world can guarantee 100% employment figures.  None, I would suggest.  Some economies are running unemployment at 25 to 50% of the work force.  So what do the unemployed do.  Get make-work jobs with the state?  Trip over one-another’s feet while trying desperately not to serve their customers, the members of the public who pay them by way of rates and taxes, for their services.  This is a public service nightmare.  Read on – a BIG/UBI  will help resolve this issue in many ways.

Social unrest:  The saying about idle hands was never more true than today.  Millions of idle hands can get up to an incredible amount of mischief, let alone downright destructive behaviour.  Something to be avoided almost at all costs.  So how would a BIG/UBI diminish idle hands.  Won’t people just be paid to do nothing and won’t this exacerbate an idle hands syndrome?  We, don’t think so and address this issue further on in this page.  Read on – if you have an engaged and mostly wealthy population (that is a population which is not starved of hope and sustenance), the likelihood of social unrest is diminished. 

Stimulate the economy:  The traditional method of stimulating an economy is to hand out money to those who know best how to invest it and put it to work, in effect to hand it out to big business, in the belief that they will generate production and employment and therefore stimulate the economy and grow the GDP, and that there would be a trickle down effect, that some of that additional wealth would find its way into the hands of those who most need it through employment.  This is Say’s Law and the tricle down effect has been largely discredited.

In effect big business endeavour to retain as much of that money as possible by shoring up management incomes, improving financial reserves to make balance sheets look stronger, improving profits by employing as few as possible as cheaply as possible, which makes their trading results and equity look better and improves shareholder perceptions, important when you wish to be re-elected to a board of directors.   The reality is that not much stimulus spending trickles down to those in need.

The DDF believe that bypassing the trickle-down effect and placing that stimulus directly in the hands of the consumer will have a more direct effect on the economy than stimulating the producer.  So, we believe we should stimulate the demand side rather than the supply side of the economy.  The DDF belief is that the supply side will catch up by responding with increasing production to satisfy increased demand and expand their trade and profits.  In short, the supply side will want as much share of the demand-side stimulus as they can get and that they can do through increased trad in the supply of goods ad services. 

While the DDF are aware that additional spending, particularly by printing money, can be inflationary, it does not believe the impact of inflation will be significantly greater with demand-side stimulation than with supply side stimulation.  Further, the DDF do not intend that a BIG/UBI be funded through money creation or debt.  Rather, the DDF believe that increasing TEAL from 1/2% to 2.5% of all bank transactions, by value, will fund a BIG with very little additional inflationary effect when compared with supply side stimulation.

Wealth Creation and Wealth Retention for the Wealthy:

What would you rather be?  Wealthy in a society of poverty, or wealthy in a society of wealth?  Surely you can create and retain more wealth in a wealthy society than in a poor society.  The DDF believe that BIG/UBI1 will help to create a society of wealth rather than a society of poverty.

What about Big Business?

There should be almost double the market for goods and services.  If you were in any business supplying that market, your probable response would be to invest in expansion of trade and profit.  The same is true for all sectors of the supply chain, from street vendors, SMEs up to public companies and conglomerates of all descriptions.

Small and Medium Enterprises (SMEs) will benefit because levels of self employment can readily be stimulated from placing what amounts to capital in the hands of SME entrepreneurs.

Self employment should be stimulated, ranging from home industry to the arts in all their variety to community services employment.  If one’s passion is to care for those in need, including but not limited to care of the elderly, child care and animal care, a BIG/UBI can offer a great many possibilities for self employment or community service.

The DDF also believe that there will be a positive effect on families and family structures.  If there is no longer a desperate need for both parents in a family to become formally employed in the economy merely to survive, some parents, perhaps even many, might be more inclined to stay at home or engage in home employment, and today there are many opportunities for that, in order to be productive in the economy, earn income and be home care-givers, all at the same time.  This does not mean confining women to domestic activities, barefoot and pregnant in the kitchen.  Nothing like that is intended.  Rather a BIG/UBI will give every South African Adult in every South African home the opportunity to exercise choices about how they live their lives and contribute to society

Then there is also alleviation of poverty.  The greatest impact on alleviation of poverty will come from the impact of BIG on employment and self employment.  The DDF believe that there is dignity in employment and in service and that many who never had anything but despair in their lives will lift themselves up and engage in some useful activity, if only in skills acquisition, further education and or community service.

2020 update:  Who hasn’t heard of  the 4th Industrial Revolution.  There are becoming fewer and fewer employment opportunities for more and more workers.  The formal Public and Private economies are becoming less and less able to employ the world’s workforce.  A BIG/UBI will basically fund a third informal economy which can take up the slack and provide employment and meaningful opportunities for economic betterment of all members of society, and provide additional markets for the formal sector.

Who Would Qualify?

The intention is that all adult South African Citizens would qualify for BIG/UBI, from the richest to the poorest, from the most powerful to the most vulnerable, all equally.  The question of what the wealthy do with their BIG/UBIs would be a matter for them to decide.  Neither the state nor society would sit in judgement, moral or otherwise, of who should or should not qualify and what they do with their grants.  Most of us, if we did not need the grant, would have little difficulty finding a home for it, from the local cat’s shelter to a battered children or women’s home or any other such deserving cause, or simply, save it for a rainy day.  Your choice.

If you really think you should not qualify for a BIG/UBI and do not wish to receive the BIG/UBI, it will be paid into the Sovereign Wealth Fund on your behalf.  Any such payments will be irrevocable, but BIG/UBI will be paid to you should you decide to take up the grants in the future.

Does everyone then work for the state?

No, receipt of a BIG/UBI does not imply employment by the state and the state has no call on a recipient purely from him or her receiving a BIG/UBI.  If employed by the state or any other agency, private or public, that employment and any income derived from it would be totally separate from a BIG/UBI.

What would the grant be?

In the United States, an amount of $10 000 per annum has been suggested.  That would amount just over $800 per month, a Rand equivalent of about R10 508.33 per month at the time of writing.  That would be very nice but we are thinking in terms of about R5 000 per month as a target to be worked up to over time.

What would it cost?

Assuming an adult population of about 34.4 Million receiving R5000 per month, the monthly bill would be 34.4 Million X R5000 or about R172 Billion or R2.064 Trillion (say R2.1 Trillion) per year.

How would it be paid for?

Initially, TEAL would pay for the BIG/UBI but over time it is hoped that a sovereign wealth fund would take on much if not all of that burden.  Assuming a GDP of R2.8 Trillion (our guess for the 2017 GDP) and that the Total Economic Activity is 30 times that figure (a relationship we observed in an earlier TEAL exercise in 2011) the flow of money through the banking system would be R84 Trillion.  As each Rand passing through the system represents both a deposit and a withdrawal, the actual TEALable amount would be double that (R168 Trillion). R2.1 Trillion is 1,25% of R168T.  So a TEAL of 1.25% of the TEALable amount of R168 Trillion will deliver the R2.1 Trillion needed annually for a Basic Income Grant or Universal Basic Income of R5000 per month for 34.4 million recipients. Also see TEAL: The Big Picture.

What about the drunks and drug addicts?

With BIG/UBI in place there might be fewer people without hope and hopefully fewer addicts and alcoholics, but if an individual is determined to waste his or her life, while society may care and lend whatever support it can, at the end of the day, that individual’s life would be his or her own responsibility.

What about those who don’t want to participate in the economy?

The same applies as above.  You do what you can to make them have fulfilling lives, but if they don‘t want to play, let them live their lives as they wish. 

What about those who are dysfunctional?

They may be dysfunctional but with a BIG/UBI they will no longer be destitute and society will be able to look after their needs better than ever before.

So you give money to people who do not know its value nor what to do with it?

Anyone who believes the bit about the poor not knowing the value of money is ignorant at best, for the poorer you are the greater is your appreciation of money, and as to knowing what to do with money, how best to manage it, yes, some will be easy marks for the unscrupulous, and no, you don’t just abandon them.  You mentor and train them through community outreach programs, you help them become better housed and better clothed in an affordable manner and become more sophisticated about money.  You show them how to reap the greatest possible benefit from a steady income, and how to grow their wealth, how to invest in themselves and how to live cooperative life-styles.  If ever there are practical reasons for families to stick together, a BIG/UBI would be up amongst the most important of those reasons.

Is a BIG/UBI intended to fully provide for everyone’s needs?

No.  The intention is that no one on a BIG/UBI should want for the basics of life.  If you want more from life, you still have to earn it through the sweat of your brow and the application of your skills, providing something society needs in return for that ‘more’ that you wish for. From that perspective, you still have to earn what you want from life and there is no such thing as a free lunch.  What will change is that more people will have more opportunities to earn what they want from life.  That is the real benefit of a BIG/UBI.

What then do I pay my employees?

So your employees have BIG/UBIs.  So what?  You are not in competition with BIG/UBI.  Your employees will still want to work for the additional income employment brings them.  No one we have ever canvassed has said they would stop working if they had a BIG/UBI.  They might put up with less BS and be more picky about their job. The opposite might be equally true of employers who might be more picky about who they employ and what their expectations are from their employees.  Apart from that, formal and informal labour markets will probably remain much the same as ever. 

What about other social grants?

BIG/UBI is a catch-all social grant.  Most other social grants would fall away.  For example, one would not receive a BIG/UBI and a state paid old age or disability pension.  The state would still be involved in the provision of essential services which are not otherwise supplied by the private sector, so in effect, the state would be the supplier of last resort. Particularly, health care and education could fall under this category, but much would depend on how effectively and efficiently the private sector fill those needs.

It won’t work!

There are no doubt lots of folk who believe it won’t work.  We concede that under certain circumstances nothing will work, including BIG/UBI.  The economy will founder, income will become minimal and without income, taxes will evaporate and whatever demands society will make on government will be unfulfilled. But in a normally functioning economy where business thrives and prospers, it will work.  In fact, there should be a positive feedback loop where BIG/UBI stimulates the economy that in turn stimulates the velocity of money through the economy which in turn generates more TEAL which in turn funds BIG/UBI.   The role of TEAL in the long run would be to diminish the percentage levied as money velocity increases and, ultimately, the goal is to hand the funding of a BIG/UBI over to a Sovereign Wealth Fund.

Conclusion:

BIG is not the perfect panacea for all of society’s ills, but it should deal with many if not most of those ills, and allow the state and society greater opportunity to deal more effectively with the remaining problems.  That is the DDF’s belief.

Education and Training

Background:       Education Resources:        PDF: Policy Statement Education & Training

Strategies: 

  • As a general education policy, the Direct Democracy Forum (DDF) will be looking both nationally and internationally  at systems and processes that work best, and will adopt those strategies it believes will work best for SA’s beleaguered education system, and, importantly, for its students.
  • The DDF will put well qualified educators in every classroom in the country, from pre-school to secondary school, and instill in each and every teacher a teaching ethic that exceeds mere classroom attendance and drawing a salary at the end of each month.    
  • We want teachers to become cherished members of the societies they serve, who are well educated, good educators, highly motivated and well rewarded. The implementation of TEAL as a tax strategy and Basic Income Grants and a voucher system  will provide the necessary funds and tools for achieving that ambition.
  • The DDF will develop a learning ethic amongst students.  We will resource all classrooms adequately, tolerate no violence or misbehaviour in the classrooms and school yards, and insist on absolute security and respect for teachers and fellow students.  
  • Students who are unwilling to learn and are unable to pass annual promotion examinations will be held back to repeat the year they failed in.  They will be held  accountable for their performance.  
  • Students who prove they cannot be accommodated in the general student population will, after appropriate psychological assessment, be accommodated in special needs or remedial units either in their own school or in a school within their community.
    •  The emphasis will be to address the needs of these students and give them the special care required for them to complete their education and be reintegrated into the general education population as best as possible and as soon as is possible.
  • For tertiary education the DDF will:
    • Un-bundle the bundling of technicons with universities.
    • Un-bundle some of the university mergers (basically reinstate the pre bundling university profiles) and give universities much greater freedom in defining their academic, social and cultural profiles.
    • Engage the educators of the land in designing as an adjunct to existing systems of university entry, a more graduated advancement from high schools to technical colleges through to university entry, for students who qualify at each level, so as to provide an alternate and much more integrated process of advancement through the system than the system currently provides.  This will not supersede nor replace the present system. Merely add to it.
    • Funding:
      • The DDF will ensure that every student who wishes to and qualifies to attend university or technicons will be financially enabled to do so.  This will require paying back the funds advanced from increased income gained from graduation, and can involve post-graduate service contracts, where appropriate, by way of pay-backs for financial support of graduate and post graduate studies.  
      • The DDF will largely cease direct funding of educational facilities and in place thereof will institute a system of vouchers, held by students and or their parents/guardians and exchanged for services rendered by educational facilities, which in turn will be treated by education facilities as legal tender to be deposited in institutions’ bank accounts.  This will enable students/parents to go to the institutions of their choice and importantly enable greater mobility of students between competing schools/institutions.
      • The voucher system will apply at all South African pre, primary and secondary school scholars and for South African tertiary students wishing to enter the funding program.  The payback requirement will only apply to tertiary education students.   
      • In time the voucher system will be paid for from the Basic Income Grant by deduction of all or some of the voucher values from the BIG. 

Pre-Primary Schooling:

The DDF believe that quality education begins in Early Education.  To this end DDF will;

  • introduce universal and compulsory access to early education
  • Ensure that care providers in early education centres are qualified professionals
  • Fund the training of pre-school teachers through the application of TEAL and the voucher/ advance system for higher education repayable from the ‘profits’ generated by graduates from their increased earnings capabilities arising from their advanced education and training and or from post graduate service contracts.

Primary and Secondary Education:

Primary and Secondary education will also be largely funded through vouchers placed in the hands of parents/guardians exchangeable for services rendered by primary and secondary education facilities.  The value of the vouchers will be pitched to include the essentials of basic education.  Non essential elements of education will need to be self funded.  So Karate and Ballet classes, unless part of a matriculation syllabus, will need to be funded by direct parental contributions (aka additional fees).  The voucher system will mostly replace direct funding of schools by the state.  In effect this means that the state will enable the parents to directly fund the schools of their choice.  The state, by stipulating the purposes for which the funds may be used, will ensure that certain basic educational needs are met by the schools.  

Further Education and Training:

As part of the DDF’s contention that every person in the country should have the right to be educated and trained to be fit for employment:

  • the DDF will embark on a major drive to train and educate every unemployed person in the country.  
  • The DDF are prepared to pledge the cost of training and the cost of living for every person engaged in the program, initially at the state’s cost, but collectable after graduation from the additional income derived by graduates from their advanced education.  
  • The DDF’s contention is that it is far better to pay for the cost of making our population skilled and employable than it is to pay for the cost of their welfare for the rest of their lives.  

Integrated Policies:

The DDF will also merge these new-found skills in the employment market to create much needed housing and infrastructure and communities within which South African citizens can work, live and play with dignity and pride. 

Education Support Services:

A DDF administration will ensure that adequate support services are provided for parents and schools, to ensure the effective management of schools.  In particular, every school will have a designated psychologist available to evaluate and support at-risk students.

Conclusion:

The DDF wish they could turn back the clock and undo all the damage that has been done to students and scholars under ANC administration but regrettably that is not possible.  Application of DDF education policy will come as a shock to many who have never been asked to do even the most simple things.  They will be asked to do things that are much more than simple in order to advance.  Hopefully they will understand why they are now expected to perform  To those who have already passed through the system, we can only do our best to make up for the shortfalls in their education through further education and training programs.   

The DDF want education to be the most sought after profession in the land and want a Matriculation Certificate that will be accepted without question for entry to tertiary education systems and entry to the work place.

This is the bare bones of DDF intentions which we will develop into strong policy, in cooperation with educators and educational institutes nation-wide.