Business Unity South Africa says a basic income grant must be considered carefully as it may have unintended consequences (Getty Images)
A basic income grant would warrant spending cuts in other priority areas, Business Unity South Africa said on Monday.It could potentially destabilise weak tax revenue growth, and lead to other costly and disruptive impacts on the economy, said BUSA CEO Cas Coovadia.Business instead backs social support through an unemployment insurance-type of product, which meets certain conditions.Funding constraints mean the implementation of a basic
income grant could lead to spending cuts in priority areas, Business Unity South
Africa said on Monday.
The country’s apex business organisation said in a statement
that rolling out a basic income grant could not be done lightly, given the
It also stressed that social support should be targeted at
those in need.
At present, it is not known exactly how much a basic income
grant would cost. But the Financial and Fiscal Commission has said in a
presentation to Parliament that based on a figure of R350 per month – and using
2020 population estimates – a truly universal income grant would cost around
R243 billion per year.
But if this were extended only to unemployed people of
working age, it would cost considerably less at just under R45 billion.
BUSA put its cost estimate at anything between R68 billion
and over R300 billion per year.
“… [I]t is not a decision to allocate a few billion
rand for a few years, but a ‘forever’ decision. It therefore must be considered
very carefully as it realistically – in political and in social terms – cannot
be reversed once implemented and will act like a ratchet within the
budget,” said BUSA CEO Cas Coovadia.
A basic income grant would compete with other policy
measures, for example access to quality healthcare or a broader social security
safety net, Coovadia said.
He called for detailed debate on the impacts of such a grant
on the economy and its implications for debt market and fiscal
In his view, a basic income grant could have “huge
unintended consequences” which could potentially destabilise already weak
tax revenue growth and lead to costly and disruptive economic shocks from which
SA could struggle to emerge.
A different proposal
“Business backs a broad balance of spending priorities
on education, health care, transport, infrastructure, and existing generous
grants (including employment incentives) which should not be put at risk or
crowded out by a basic income grant in a world where funding constraints are
real and binding and cannot be wished away,” Coovadia said.
The only way to afford these spending priorities is to grow
the tax base through faster long-term growth, which requires reforms and
investment, he argued.
According to BUSA, business supports expanded social support
through an unemployment insurance-type product, which must meet certain
conditions – including that it must be phased in alongside “deep” structural and
This includes reforms outlined by Operation Vulindlela, which unblocks
bottlenecks in network industries like energy, water, and ports.
There must also be labour market reforms that support labour
absorption and lowered barriers to entry for small, medium and micro
enterprises, the statement said. These reforms would support GDP growth, faster tax revenue growth
and an expanded tax base.
Fiscal sustainability should not
be compromised by social support, it added.
And, as a third condition, social support should not be
universal, but targeted at those in need, the statement said.
| Govt considering basic income grant, job seeker allowance
to help close poverty gapNational Treasury has commissioned research to reduce the
country’s poverty gap. Options being considered include a basic income grant,
the continuation of the R350 social relief of distress grant, as well as the
extension of the Presidential Employment Stimulus Programme and a job seeker
allowance. Researchers are also looking at grants implemented in Brazil, which
target poor families.
BUSA supported the extension of the R350 social relief of
distress grant, which was paid for by a tax windfall from the commodities boom.
“This is not a sustainable model, however, to fund [a] basic income
grant,” said Coovadia.
Business plans to engage with government and other social
partners on the matter.