Basic income grant could have 'huge, unintended consequences' - business body

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Business Unity South Africa says a basic income grant must be considered carefully as it may have unintended consequences (Getty Images)
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 potential cost.

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 sustainability. 

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 regulatory reforms.

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.  

National 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.

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