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Towards a basic income policy for Egypt

Egypt could institute a limited basic income policy in order to avoid problems with traditional cash transfer programmes

Beesan Kassab , Sunday 7 Oct 2018
Tahrir Square
File Photo: Egyptian vendors sit by their donkey-carts loaded with fruits as they wait for customers in Tahrir Square in Cairo (Photo: AP)

Cash transfers for all was how Philippe Van Parijs, a professor of politics and economics, explained the concept of basic income at a lecture at the American University in Cairo (AUC) last week.

A basic income policy is a programme through which citizens of a country may receive a regular sum of money from a source such as the government, without strings attached, as their “basic income.”

In his lecture at AUC, Van Parijs, one of the founders of the Basic Income Earth Network, a pressure group, and current chair of its international board, raised questions about the possibility of applying this concept in Egypt as a substitute for the present system of conditional cash transfers.

A research paper by the AUC’s Alternative Policy Solutions Project has suggested alternatives to regular basic incomes in Egypt.

One scenario introduces basic incomes in the countryside. Another introduces them among young people and the elderly alone.

Van Parijs started to promote the idea of basic incomes in the early 1980s as a solution to unemployment in the developed countries.

He argued that giving extra income to employees working in several jobs might encourage them to leave one of them, making room for others who are unemployed.

He concluded that it was developing countries that were more qualified to adopt basic incomes because of the administrative difficulties they faced in applying conditional cash transfers under which poorer people can receive regular monthly allowances on condition that they provide for their children’s education.

Such conditional transfers have run into difficulties because of the inability to accurately identify those deserving support since many people work in the informal sector making obtaining data impossible and raising the possibility of corruption.

There may also be problems of false registration and bribery.

Egypt first applied its “Solidarity” and “Dignity” conditional cash support systems in 2014-2015, when it partially lifted fuel subsidies for the first time.

However, “the percentage of people falling under the poverty line increased to 27.8 per cent in 2015, not taking into consideration the effects of the economic measures taken by the end of 2016, such as floating the pound, lifting subsidies on energy products, increasing tariffs on some public services and applying the value-added tax,” the AUC paper said.

Van Parijs believes that the ideal solution would be to apply a basic-income policy and finance it through progressive taxes that deduct the support richer people may receive from tax breaks.

Egypt reduced the maximum rate of income tax from 25 to 22.5 per cent and cancelled the exceptional 30 per cent tax it had imposed on the highest-income strata before convening the Egypt Economic Development Conference in Sharm El-Sheikh in 2015 to encourage investment.

Consecutive governments have failed to impose a tax on stock market profits, despite the fact that this was first proposed in 2014-15.

Hania Al-Shalqami, a professor at the AUC’s Social Research Centre who helped to design the “Solidarity” and “Dignity” programmes, believes a basic-income policy may be politically skewed and that it is not a neutral expression of socio-economic policy.

“A basic-income policy may become a means towards more spending, or less of it, if the government uses it to wash its hands of social responsibility,” Al-Shalqami told Al-Ahram Weekly.

“This policy can’t be positively applied in Egypt in the absence of a fair and progressive tax system. Otherwise, there will not be renewable financing and justice will not be served since the rich will get as much cash support as the poor,” she added.

Egypt’s conditional cash-transfer system: Egypt has three main cash-support programmes.

The first is “Solidarity”, a financial support system targeting poorer families with children conditional upon the children’s education and the healthcare of the mother and children.

The second is “Dignity,” an unconditional programme that targets the poorest strata of society, such as the elderly and those suffering from disabilities that prevent them from working.

“Social Security” is a third programme providing cash support for orphans, the elderly, the disabled, working single mothers, unmarried women over the age of 50, and the families of prisoners incarcerated for more than three years.

The Iranian experience

Iran’s application of a basic-income policy was correlated with its inability to channel unconditional cash support to the poor as a result of administrative difficulties in identifying those deserving of it.

The Iranian initiative was meant as compensation for lifting subsidies on energy products, the first phase of which began in December 2010.

Aside from the administrative difficulties, the Iranian authorities were worried at the reaction of higher-income groups who would not receive cash support, since they were the majority of energy consumers. As a result, they allowed every citizen to apply for support under the programme.

The International Monetary Fund (IMF) applauded Iran for this move, considering it enough to end poverty in Iran.

The World Bank was more reserved in its evaluation, while admitting that poverty rates in the country had dropped from 13.1 per cent to 8.1 per cent between 2009 and 2013 thanks to the basic-income policy.

This had helped to alleviate the negative effects of the energy subsidies which benefited the rich more than the poor, it said.

To finance its unconditional cash-support system, Iran first used up 80 per cent of its revenues earned from increases in the price of petroleum products.

However, this was not a renewable source of finance, and within a year of starting the basic-income system the Iranian government found it difficult to finance the programme.

Some 2.5 million Iranians voluntarily gave up their right to the cash support, while 73 million others continued to receive it.

In January 2016, the Iranian government announced it was removing 3.3 million citizens from the cash-support system based on their financial status.

In April of the same year, the country’s parliament passed a law that took 24 million others out of the system.

* A version of this article appears in print in the 4 October, 2018 edition of Al-Ahram Weekly under the headline: Basic income by other means 

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