Home South African SA business backs basic income grant, not its universal implementation

SA business backs basic income grant, not its universal implementation

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There has been a raging debate in South Africa about the introduction of a basic income grant of at least R600 a month.

File picture: Nadine Hutton/Bloomberg

BUSINESS industry in South Africa has taken a cautious stance on the Basic Income Grant (BIG), saying that it supported the grant in principle but it cannot support its universal coverage.

There has been a raging debate in South Africa about the introduction of a basic income grant of at least R600 a month from March next year amidst rising unemployment and poverty levels.

This would cost nearly R300 billion in new spending in 2023/24, rising to more than double that as the value of the grant increases.

Business unity South Africa (Busa) said on Monday it can back a proposal for expanded social support through an unemployment insurance type product under four conditions.

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One of these conditions is that it is phased in only as deep structural and regulatory reforms such as outlined by Operation Vulindlela, labour market reforms that support labour absorption and reducing the barriers to entry for SMMEs.

Also, Busa said it will back the grant if fiscal sustainability is not compromised and it does not cause a widening of the long-term trajectory of the budget deficit.

The grant should also not be universal but be targeted at those in need, be well designed and not exacerbate social problems through its design, Busa said.

Lastly, it wants cognisance to be given to the fact it was only one of many elements of a broader social wage and that tax options cannot be tapped successively.

Busa chief executive Cas Coovadia said the basic income grant was not a decision to allocate a few billion rand for a few years, but a “forever” decision.

Coovadia said 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.

“The BIG is not an allocation of funds for a few years but rather a ‘forever’ decision that must be carefully considered as, realistically, it cannot be undone once implemented,” Coovadia said.

“There is so much at stake when it comes to the BIG and decisions must be based on meticulous research into how it would be funded.”

This comes after research by Intellidex showed that increasing the Value-Added Tax (VAT) to 17 percent was “the least bad option” to finance the basic income grant as it could raise at least R50 billion for the fiscus.

The Intellidex report was commissioned by Busa and the Business Leadership South Africa (BLSA).

The research shows that there are only three options to fund a basic income grant – which are cutting other expenditure, issuing more debt, or raising taxes.

It found that cutting other expenditure was simply not a viable political or technocratic option.

The report said raising debt may well have been easy in recent years when global and local interest rates were low, but this was no longer the case.

The research finds that raising tax was the only theoretically viable option.

But given the newest propositions for a basic income grant were more like R300 billion a year, it is virtually impossible to fund this within the current tax base.

BLSA chief executive Busi Mavuso said business was fully committed to finding ways of reducing poverty in the country.

However, Mavuso said whatever ways found must be sustainable and free of unintended consequences that may be more serious than the problem being addressed.

“Business has been committed over many years to working with social partners through Nedlac and elsewhere to comprehensively reform social security and healthcare access, but the key consideration is the sustainability of such reforms,” she said.

“We do ourselves no favours by embracing reforms that destabilise government finances and the economy, setting us on course for collapse into the arms of our creditors, which would have disastrous social consequences.”

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