(Photo: Gallo Images / Foto24 / Brendan Croft)
Intellidex, a financial services research firm, recently entered the debate on the issue of a Basic Income Grant/Guarantee (BIG). Around half of its report Is a basic income grant sustainable? commissioned by Business Unity South Africa and Business Leadership South Africa is spent critiquing three existing BIG-related research reports.
These reports come from Deloitte (commissioned by Nedlac), DNA Economics (commissioned by the IEJ), and the Institute for Economic Justice (IEJ) the latter referring to a recent policy brief, Financing Options for a Universal Basic Income Guarantee. In this brief, the IEJ put forward 19 tax-related financing options for a BIG. The IEJ comes in for special consideration, receiving an Appendix all of its own, and sharp criticism from Intellidex.
In this article we respond to three aspects of those criticisms, showing how the Intellidex report misrepresents the work of the IEJ, contains mistakes of its own, and fails to live up to the standard it sets for others.
Misrepresenting the IEJs work
Two of the most important criticisms, levelled repeatedly, are that the modelling by the IEJ fails to account for any interactions between the taxes proposed and that the economy-wide impacts of these taxes are not appropriately modelled. These omissions, it is argued, result in a lack of clarity on how the tax measures impact each other or the economy.
While both these elements may be absent from the IEJ brief, the brief neither seeks, nor claims, to undertake such modelling.
In any fair reading of the IEJ brief, this is immediately obvious.
Regarding the interaction between tax options, the brief makes clear its objective is to place on the table a series of financing options as appears in the title for further consideration. These are not exhaustive and are not presented as necessarily constituting a combined package; as the conclusion notes: the array presented is not necessarily a package, allowing for further consideration and subsequent selection. There are hundreds of ways in which these 19 options can be combined, and to expect the brief to have explored the interaction between the taxes in each of these scenarios is manifestly unreasonable.
Similarly, the brief makes no claims to model the macroeconomic impact of these taxes. In fact, the conclusion notes that [a] further Policy Brief looking at the impact of a UBIG (Universal Basic Income Grant) on poverty, inequality, and macroeconomic indicators will be released by the IEJ. This further policy brief one of two under production draws from the already-published Fiscally Neutral Basic Income Grant Scenarios: Economic and Development Impacts by Applied Development Research Solutions (ADRS), a leading macroeconomic modeller of the South African economy. That Intellidex bemoans the lack of macroeconomic modelling and then studiously ignores the ADRS work is curious.
If it is reasonable for the IEJs brief to do some things and not others, is it not also fair for Intellidex to point out these missing elements?
Unfortunately, this is not what the Intellidex report does.
Rather, it incorrectly implies that the IEJ has undertaken modelling and that this modelling is poorly done. This is used to discredit the proposals.
As any economist will know, what the IEJ offers is a series of calculations, not a modelling exercise. Intellidex deliberately implies otherwise, referring throughout to the IEJ model and, at times, lumping the IEJs work together with the critique of Deloittes modelling their models, a flaw in the models used, the outcomes are entirely predictable but are not evidence in the modelling done by Deloitte, DNA Economics and IEJ, and so on.
If the IEJ had undertaken modelling, then failing to consider the interaction between tax options would be a serious oversight, rather than simply being beyond the scope of a particular output.
Similarly, Intellidex implies that the IEJ is making claims as to the macroeconomic effects of its funding proposals something explicitly not done and that these claims are poorly substantiated. On this fallacious basis, the work is rejected, summed up clearly here:
As described in some detail in Section Two, the evidence presented by Deloitte, the IEJ and DNA Economics about the macroeconomic effects of a BIG is unpersuasive. Their models are not designed to test the effect of a large rise in tax rates on a range of critical macroeconomic variables which are assumed by those models to be fixed. No reliance can be placed on the conclusions proffered in those reports, which we believe should be discounted.
The IEJ presents no such evidence and offers no such model, fixed or otherwise.
One might be tempted to read this as one giant misunderstanding. And, arguably, a fair criticism could be that the IEJ should have done more to expressly state the limitations of that particular brief we had assumed this was obvious.
However, we find it hard to consider the above as a genuine misunderstanding, given that the Intellidex report is filled with other distortions that can only be read as intended to discredit the IEJ. For example, the report implies the IEJ takes a maximalist position, citing a grant of R3,500 at a cost of R1.4-trillion a scenario expressly included in the IEJs work as illustrative, given its appearance in the public domain, and considered by the IEJ, at the outset, as unaffordable.
Mistakes of its own
The third central criticism levelled is that the IEJs work contains mistakes and misstatements.
On some issues, Intellidex offers some useful critiques. We are in agreement that the broad category of irregular expenditure is a poor way of judging wasteful and unnecessary expenditure, and concede that our estimate of VAT recouped from the spending of the BIG may be overstated to the extent to which it is financed from lowering the expenditure of higher-income earners on VATable items. (It is, however, obvious that, contrary to Intellidex, the net receipts will increase somewhat as some taxes particularly on wealth are levied on pools of funds that wouldnt otherwise enter the real economy.)
On some other issues, we are not at loggerheads on the substance. For example, it is common cause that a wealth tax is a complex instrument, with wealth being difficult to value and hard to estimate. This does not, contrary to Intelledixs implication, make it unreasonable to pursue. In fact, Intellidixs contention that this tax is undesirable, as it would fall so disproportionately on the extremely small number of major wealth holders in South Africa, can easily be read as an argument in its favour that it would tackle extreme wealth concentration.
But there are other instances where the Intellidix report is simply wrong.
Most glaring of these is with regards to a Resource Rent Tax. The IEJ and DNA consider a resource rent as windfall profits made by resource firms, most commonly on the back of commodity price booms. Using a World Bank study, we calculate a 25% tax on rents worth R154-billion. Intellidex contends the World Bank methods means this R154-billion is not a rent at all, but that some of these are funds that must be distributed as wages and taxes. However, the World Bank reports source document shows this is false, and the R154-billion is arrived at after already taking into account the cost of both harvesting and extracting the resource including paying taxes and wages. Supplementary available explanations imply it also excludes normal returns.
Others include basic errors, like misstating that the IEJ projects over R350bn can be raised by 2023/24 to fund a BIG when the IEJs options total R270-billion for that year, and sleight-of-hand distortions of what the IEJ brief actually says. That Intellidex makes a fuss about purported IEJ errors and then makes basic errors like this is notable.
Failing to live up to its own standards
Perhaps most bizarrely, Intellidex appears to feel no compulsion to hold itself to the same standard as it holds others.
According to Intellidex, the inexcusable flaw, discussed above, of DNA and the IEJs work is that they present policy options in the absence of adequately modelling the macroeconomic impact of the BIG and associated tax measures.
Intellidex, however, does little to provide any evidence modelling or otherwise for its extremely strong, and repeated, macroeconomic claims. Intellidex, the report notes, strongly believes that the macroeconomic consequences of implementing a BIG would lead to deepening poverty, rather than its alleviation. It goes so far as to say that a BIG represents an existential threat to SAs macroeconomic stability. Strongly believing something to be the case just doesnt cut it in policy debate.
These claims are substantiated only on the basis of recounting the sort of macroeconomic theoretical assumptions that one would find in orthodox undergraduate economics textbooks that higher taxes lead to a fall in consumption expenditure, a drop in savings, a reduction in investment, and various growth-retarding behavioural changes.
We should view these assertions with extreme caution, both theoretically and empirically.
Theoretically, the world in which investment is a function of savings, for example, is, as the Bank of England pointed out, a fiction. Investment is, in large part, driven by bank lending, itself not constrained by some pre-established pot of prior savings.
Empirically, we must consider the South African context in the concrete. Is the extraordinary wealth held by a tiny elite in South Africa being invested in productive job-creating enterprises, or in speculative financial assets seeking capital gains? Where are pension funds investing? What percentage of investment by non-JSE-listed non-financial enterprises in sectors most likely to create jobs is financed via bank credit versus bonds and equity? What goods and services do the wealthy and poor buy and what is the relative weight of domestic goods versus imports in these? And so on.
This is not the place to attempt to answer these questions, but the answers will play a critical role in determining the macroeconomic impact of taxing in order to finance a BIG. To our knowledge, the most detailed modelling, ignored by Intellidex, where these relationships are estimated based on historical data, is that by the ADRS referred to above. In that modelling, the macroeconomic impacts of a BIG are positive.
The alternatives
Intellidex places on the table a few alternatives to the BIG. These are not very detailed but, presumably, this was not the focus of their report. Some of the issues raised for instance on eligibility, or the interaction with public employment schemes are covered in the IEJs forthcoming work. Others bear further debate. It is clear, for example, that Intellidexs public employment proposal is far more expensive when a similar number of beneficiaries is targeted.
Intellidexs presumption, however, is clear South Africa cannot afford an ambitious poverty-alleviating social transfer programme such as a BIG.
This is an unhelpful starting point and one we hope the business associations that commissioned the report will reject.
The presumption that not a cent more can be raised through increased taxes or borrowing is patently absurd.
The IEJs work and presumably that of Deloitte and DNA Economics is neither perfect nor comprehensive. But what the country needs is a coming together of stakeholders, including researchers, driven by the question of how do we design and fund the most ambitious programme to address our deep crisis? Having been forced to set the record straight through this op-ed, this is the question that the IEJ would rather participate in answering. DM
Dr Gilad Isaacs is Director at the Institute for Economic Justice. He is also an economist at Wits University, where he coordinates the National Minimum Wage Research Initiative and lectures.
Go here to read the rest:
'A hatchet job' A response by the Institute for... - Daily Maverick
- Research on the influence of digital finance on the economic ... - Nature.com - September 11th, 2023 [September 11th, 2023]
- Albanese persists with reverse Robin Hood policies - Red Flag - September 11th, 2023 [September 11th, 2023]
- Governor Hochul Announces Fare Free Bus Routes Included in MTA ... - ny.gov - July 17th, 2023 [July 17th, 2023]
- Higher taxes on the wealthy would bolster Social Security, U.S. ... - Idaho Capital Sun - July 17th, 2023 [July 17th, 2023]
- Love in the Time of Sickle Cell Disease, by Krithika Varagur - Harper's Magazine - July 17th, 2023 [July 17th, 2023]
- BIEN working group on Clarification of the Definition of Basic Income ... - Basic Income News - July 4th, 2023 [July 4th, 2023]
- MEPs call for revamp of artists rights across EU and debate on AI-generated content - Yahoo News UK - July 4th, 2023 [July 4th, 2023]
- What are Liquid Assets and How Can They Improve Your Portfolio - Nomad Capitalist - July 4th, 2023 [July 4th, 2023]
- Income guarantee a clear and immediate solution to Prod Comm ... - Green Party of Aotearoa New Zealand - June 26th, 2023 [June 26th, 2023]
- Unable to escape persistent hardship: JRF's cost of living tracker ... - Joseph Rowntree Foundation - June 26th, 2023 [June 26th, 2023]
- No relief for the 7.3 million going without essentials - JRF responds ... - Joseph Rowntree Foundation - June 26th, 2023 [June 26th, 2023]
- Additional borrowings, higher revenue targets, hiked taxes may still ... - South First - June 26th, 2023 [June 26th, 2023]
- Simon Wilson: Green Partys poverty plan for Election 2023 - and the ... - New Zealand Herald - June 26th, 2023 [June 26th, 2023]
- Remarks by President Biden in a Political Event with Reproductive ... - The White House - June 26th, 2023 [June 26th, 2023]
- Why does South Africa need a Universal Basic Income Guarantee ... - December 16th, 2022 [December 16th, 2022]
- Child poverty across eastern Europe and Central Asia soars by 19 per cent, as Ukraine war and rising inflation drive four million children into... - October 19th, 2022 [October 19th, 2022]
- Denver approves $2 million for basic income project - September 17th, 2022 [September 17th, 2022]
- Basic Income Grant what its all about and what i... - September 17th, 2022 [September 17th, 2022]
- EXPLAINER | Basic Income Grant: What is the debate about? | Fin24 - News24 - September 11th, 2022 [September 11th, 2022]
- Martin Lewis MSE warns millions are missing out on broadband discount and you could save 114 a year... - The Sun - September 11th, 2022 [September 11th, 2022]
- Progress on the Sustainable Development Goals: The Gender Snapshot 2022 - World - ReliefWeb - September 11th, 2022 [September 11th, 2022]
- Stating Her Mission: One-on-one with Stacey Abrams - Valdosta Daily Times - September 11th, 2022 [September 11th, 2022]
- Erin Smith and Thomas Smith of Weston, Florida, Support Veterans with Efforts of Project We Care - Digital Journal - September 11th, 2022 [September 11th, 2022]
- International food crisis and proposals to overcome it - CADTM.org - September 11th, 2022 [September 11th, 2022]
- Guy Standing: A basic income is a right of every individual - Buenos Aires Times - August 22nd, 2022 [August 22nd, 2022]
- Is Universal Basic Income a good idea? | JRF - July 3rd, 2022 [July 3rd, 2022]
- THINKING OUT LOUD WITH SHELDON MacLEOD: Basic Income Guarantee - Saltwire - July 3rd, 2022 [July 3rd, 2022]
- Income-Support Programs Could Save Thousands of Lives a Year: Study - The Fiscal Times - June 11th, 2022 [June 11th, 2022]
- Biden Slammed With Another Awful Inflation Report | The Fiscal Times - The Fiscal Times - June 11th, 2022 [June 11th, 2022]
- Analysis: Ending child hunger and food insecurity needs to be a top priority in Canada as well as globally - Brighter World - June 11th, 2022 [June 11th, 2022]
- Two thirds of people in Yorkshire support scrapping Universal Credit - Yorkshire Live - March 4th, 2022 [March 4th, 2022]
- Low-income Texans are still reeling from the winter storm. Theres no guarantee the next time will be better - Houston Public Media - February 15th, 2022 [February 15th, 2022]
- Opinion | Basic Income Guarantee is the best way to improve lives - TheSpec.com - January 17th, 2022 [January 17th, 2022]
- Pioneering places: 10 hotspots of positive change in 2021 - Positive.News - December 22nd, 2021 [December 22nd, 2021]
- Need to address Indias growing disparities - Financial Express - December 22nd, 2021 [December 22nd, 2021]
- FPJ Edit: Garibi Hatao - NITI Aayogs multi-dimensional poverty index takes a holistic view of the - Free Press Journal - December 1st, 2021 [December 1st, 2021]
- A Universal Basic Income Is The Private Sectors Job, Not The Taxpayers - Forbes - October 21st, 2021 [October 21st, 2021]
- We want to give everyone in Britain 400 a month no strings attached - Open Democracy - October 11th, 2021 [October 11th, 2021]
- Kawartha Lakes ranked one of highest in province in food insecurity - ThePeterboroughExaminer.com - October 11th, 2021 [October 11th, 2021]
- Personal resources and those of family and friends, not the State, guarantee ESCR in Jalisco - OpenGlobalRights - September 20th, 2021 [September 20th, 2021]
- Sturgeon drags Scotland to the left with plan for universal income - Telegraph.co.uk - September 8th, 2021 [September 8th, 2021]
- What is a universal basic income? And which countries are eyeing a trial? - Big Issue - August 22nd, 2021 [August 22nd, 2021]
- Call for Universal Basic Income to end 'toxic' thinking around poverty - The National - August 22nd, 2021 [August 22nd, 2021]
- Scotland to host world's largest conference on Universal Basic Income - The National - August 14th, 2021 [August 14th, 2021]
- South African social movements to participate in global Festival to Fight Inequality and push for universal basic income grant - Daily Maverick - August 14th, 2021 [August 14th, 2021]
- Both Gig Workers and Freelancers enjoy the flexibility of gig work but miss employment-related benefits that would bring them better financial... - August 14th, 2021 [August 14th, 2021]
- SA needs income support for 18- to 59-year-olds and Treasury can afford it, say experts - Daily Maverick - August 9th, 2021 [August 9th, 2021]
- Universal basic income - Pros and cons - Economics Help - July 27th, 2021 [July 27th, 2021]
- Basic income guarantee pilot scheme for the arts sector - July 25th, 2021 [July 25th, 2021]
- Basic income guarantee scheme to be piloted for artists - July 25th, 2021 [July 25th, 2021]
- Money printing is a flawed experiment that's done America more harm than good - MarketWatch - July 21st, 2021 [July 21st, 2021]
- Universal basic income would be 'great opportunity' for independence - The National - July 18th, 2021 [July 18th, 2021]
- Universal credit cut set to leave millions with less than half of acceptable living standards income - The Independent - July 14th, 2021 [July 14th, 2021]
- Is a universal basic income coming to Wales? Campaigners say now is the time - Big Issue - May 16th, 2021 [May 16th, 2021]
- Minister Martin: We can protect our artists by covering their basic living costs - thejournal.ie - March 21st, 2021 [March 21st, 2021]
- Clubhouse promises its accelerator participants either brand deals or $5K per month during the program - TechCrunch - March 16th, 2021 [March 16th, 2021]
- Agenda: Is Universal Basic Income the key to tackling care leaver poverty? - HeraldScotland - March 7th, 2021 [March 7th, 2021]
- Get creative to help artists through pandemic - The Guardian - February 16th, 2021 [February 16th, 2021]
- The economy can't guarantee a job. It can guarantee a liveable income for other work - The Conversation AU - January 25th, 2021 [January 25th, 2021]
- Donald Trump and Richard Nixon: 10 comparisons the Internet made to show POTUS is '10X worse' - MEAWW - January 15th, 2021 [January 15th, 2021]
- Basic income for all: Has the Covid crisis given us a new economic model? - The Irish Times - November 29th, 2020 [November 29th, 2020]
- Universal basic income has time come for it? Debate intensifies in pandemic - WRAL Tech Wire - November 29th, 2020 [November 29th, 2020]
- We Need Universal Basic Income And We Need It Now - Scary Mommy - August 30th, 2020 [August 30th, 2020]
- Prepare for the irreversible rise of non-profit activity everywhere - Livemint - August 26th, 2020 [August 26th, 2020]
- Five Things You Need to Know to Start Your Day - Bloomberg - August 26th, 2020 [August 26th, 2020]
- In the wake of Covid-19, time to consider basic income: Senate report - Investment Executive - July 15th, 2020 [July 15th, 2020]
- COVID-19 on P.E.I.: What's happening Tuesday, July 14 - CBC.ca - July 15th, 2020 [July 15th, 2020]
- COVID-19 on P.E.I.: What's happening Monday, July 13 - CBC.ca - July 15th, 2020 [July 15th, 2020]
- COVID illuminates global inequalities in workers' rights and working conditions - University of Birmingham - June 24th, 2020 [June 24th, 2020]
- Why a Universal Basic Income is the solution to inequity - Women's Agenda - June 24th, 2020 [June 24th, 2020]
- Crypto Experts Reveal Thoughts: How Will Bitcoin Perform After the COVID-19 Crisis Has Passed? - Yahoo Finance - June 24th, 2020 [June 24th, 2020]
- A universal basic income is less attractive if it needs to be paid for - American Enterprise Institute - June 17th, 2020 [June 17th, 2020]
- KAREN FOSTER: Pandemic pay premium for grocery store employees a flash in the pan - TheChronicleHerald.ca - June 17th, 2020 [June 17th, 2020]
- COVID-19: UN agencies warn against rising hunger in Latin America and the Caribbean - UN News - June 17th, 2020 [June 17th, 2020]
- Why recovery needs to have children at its centre - Social Europe - June 17th, 2020 [June 17th, 2020]
- Basic Income activism in the United States | BIEN - Basic Income News - June 6th, 2020 [June 6th, 2020]
- When All Men Are Paid for Existing: Universal Basic Income Has Arrived - National Review - June 6th, 2020 [June 6th, 2020]
- Local funds model the racial reckoning and renewal central to the COVID recovery - ImpactAlpha - June 6th, 2020 [June 6th, 2020]
- National Security at the United Nations This Week (May 8-15) - Just Security - May 15th, 2020 [May 15th, 2020]
- What is Basic Income? | Guaranteed Universal Basic Income - May 11th, 2020 [May 11th, 2020]