Business Unity South Africa (Busa) warned on Monday night that implementing a Basic Income Grant could have “huge unintended consequences” and “should not risk or crowded out” key government spending priorities such as on education, healthcare, transport, infrastructure and “existing generous grants”.
In a statement issued by Busa CEO Cas Coovadia, the country’s main business body noted that such a grant could be a costly affair, costing anywhere from R68 billion to over R300 billion.
“It 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 Coovadia.
“It will also compete for other revenue resources and, even proposals to raise various taxes to pay for it would nullify that option to pay for other policy measures that are critically needed – such as wider quality access to health care or a broader social security safety net that is contributory from employment,” he added.
While Busa pointed out that it has backed a time-limited, post-Covid and post-unrest extension of the SRD (Covid-19 Social Relief of Distress) Grant, paid for from one-off windfall revenues from the commodities price boom, it however stressed that this was “not a sustainable model to fund a basic income grant”.
“Business encourages more evidence-based and detailed debate on the impacts of a basic income grant on the economy, on its implications on debt markets, on fiscal sustainability and interest rates, [and] on the complex outcomes from large tax hikes that are being proposed,” said Coovadia.
“It [the basic income grant] will have huge unintended consequences which can destabilise already weak tax revenue growth and, critically, lead to costly and disruptive shocks to the macroeconomy from which SA may struggle to emerge for a generation…
“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. The only way to afford all these priorities is to grow the tax base through faster long-term growth, driven by reforms and investment,” he added.
Read: Government pulls green paper on mandatory social security