Home South African Implementing basic income grant could have serious unintended consequences – report

Implementing basic income grant could have serious unintended consequences – report

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BLSA chief executive Busi Mavuso said the report makes it clear there are only three ways the grant could be funded and that would mean cutting other expenditure, issuing more debt or raising taxes.

Busi Mavuso, the chief executive of Business Leadership SA. Picture: Ayanda Ndamane/African News Agency (ANA)

A REPORT investigating funding options for a basic income grant (BIG) launched by Business Leadership SA (BLSA) and Business Unity SA (Busa) has said that while the idea had an immediate appeal, it could have serious unintended consequences.

Since the pandemic outbreak in 2020 when the government launched the special Covid-19 Social Relief of Distress (SRD) grant of R350 a month, there has been a national discussion about the introduction of a BIG of at least R600 a month amid rising unemployment and poverty levels.

Much of the modelling in the report commissioned by BLSA and conducted independently by research and consulting firm Intellidex looks at just trying to raise an additional R50 billion to R100bn of revenue.

The report said that given that the latest propositions for a BIG were more like R300bn, the sheer impossibility of funding this within the current tax base was all too apparent.

Lead analyst Peter Attard Montalto said the political economy of a large BIG would be a significant factor in the run-up to national elections in 2024.

“Whatever funding is allocated to a BIG, or any form of a larger, permanent successor to SRD, would then not be available for other social wage spending.”

He said there would have to be clear and well communicated political choices made understanding the consequences, trade-offs and risks.

BLSA chief executive Busi Mavuso said the report made it clear there were only three ways the BIG could be funded and that would mean cutting other expenditure, issuing more debt or raising taxes.

“BLSA is fully committed to finding ways of reducing poverty in our country. But whatever ways we find must be sustainable and free of unintended consequences that may be more serious than the problem being addressed,” Mavuso said.

She said South Africa would do itself no favours by embracing reforms that destabilise government finances and the economy, setting the country on course for collapse into the arms of its creditors, which would have disastrous social consequences.

Busa said that even modest levels of BIG at R600/month it would still cost R300 billion in new spending, rising to double that as the value of the grant increased.

Busa chief executive Cas Coovadia said: “It’s critical not to create risks in undertaking policy that jeopardises other programmes such as existing grants, or to cut spending on health care, education or security.”

Busa chief executive Cas Coovadia. Picture: Simphiwe Mbokazi

Black Sash spokesperson Hoodah Abrahams-Fayker said: “It is important to emphasise the state’s responsibility to its constitutional obligations.”

In their report on the issue, Black Sash said working on the assumption of a BIG of R561 a month, the gross cost of the income transfer for all 56.5 million South Africans would be about R380bn per annum and about R260bn per annum if current social grant beneficiaries were excluded.

Black Sash argued adjustments to the income tax structure could recoup some of these transfers without significantly affecting the net tax burden.

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