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Busa: Basic Income Grant should not risk or crowd out spending priorities

Business body calls for more debate on proposed grant saying it is a ‘forever’ decision that can’t be taken lightly.
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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.

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“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”.

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“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.

Economists such as Mike Schüssler have also raised concerns about the affordability of a universal basic income grant, considering SA’s constrained tax base and the country’s already large social security spending programme.

Read: Government pulls green paper on mandatory social security

The government seems to now be seriously considering the broader grant in the wake of recent unrest and the ongoing, albeit eased, impact of Covid-19 on the economy, which has pushed the country’s unemployment rate to record levels.

Labour federation Cosatu, the ANC’s alliance partner, is a major backer of establishing a basic income grant, while the idea has also received support from some civil society organisations and opposition parties.

Coovadia, however, stressed that a basic income grant “deals only with one element of the broad array of issues” in SA that need to be resolved.

“The fact that transferring a very large amount of money to households improves outcomes for them along some axes is not in doubt from the evidence, although the consequences of a commitment to an unaffordable basic income grant will quickly undermine this. We need to take a view of the entire system and the entire economy,” he said.

“We must make tough choices and honest trade-offs within these constraints,” noted Coovadia.

Busa said that in the medium-to-long-term, business “can back a proposal for expanded social support through an unemployment insurance type product [that might be popularised as a Basic Income Grant].”

However, this needs to be done under the following conditions:

  • It is phased in only as deep structural and regulatory reforms such as (but not limited to) those outlined by Operation Vulindlela, labour market reforms that support labour absorption and reducing the barriers to entry for small and medium business, are successfully implemented and bear the fruits of faster GDP growth and faster tax revenue growth from an expanded tax base.
  • Fiscal sustainability is not compromised, and a grant does not cause a widening of the long-term trajectory of the deficit which should remain on a path toward debt reducing levels that can help reduce funding costs for government itself and business.
  • It is not universal but is targeted at those in need.
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The basic income grant should be increased to R650 and made permanent. This a small price to pay.

I hope the government learned a lesson from the unrest/looting that occurred in July in Gauteng and Kzn.

If you don’t give people any hope they will resort to looting. Right now unemployment is 40% in SA. That’s 24 million people.

Are you sure you don’t want to give 24 million people hope?

Hi EFF Commissar ,
Your logic is brilliant , but not new. The Mafia has operated on your suggested method for over 100 years. They call it ” Protection Money “.
Hence : if you don’t pay us – we will burn your place down. I think that this is exactly the mindset that you propagate.
You will sooner or later run out of clients to shake down. The process has already started. Many able ones just leave and showing you and your parasitical ilk the middle finger.

Who do you propose should be responsible for financing this donation of hope? The government does not have any money. They tax some citizens to buy hope for others. This implies that the voter uses coercive force to expropriate hope from hardworking people to give hope to the unemployable.

Hardworking people will flee from a hopeless situation and leave behind in misery, those who were hopeless from the onset.

Sensei this is not hope, this is blatant vote buying. The ANC have a voter base that they have kept ignorant and they feed them this type of BS before every election. After the election the amnesia applies.

They were every clever trashing education right from the start.

Government does have sufficient money.
We pay a lot of tax, the mining sector had a super bonus year, agriculture did well also.

South Africa is the 33rd richest country in the world.
A R350 or R700 grant is not much and it is the humane thing to do.

We did not have a drought or a war to waste money on.

A sop is not hope. It is an admission that there is no hope of some people ever getting a job.

You should pay for all these Grants out of your own pocket for a change.
Bet you cant afford it.
Maybe it requires another VBS bank to be looted.

Leave the tax payer out of it.

EFFer: if u regard handouts as “hope” than you are even more clueless than your comments suggest.
However I fear the majority of “our people” are just as clueless and them being able to master an X on a ballot paper makes me thankful that my kids and grandkids have and are emigrating away from this shambles :

Brilliant. The basic income grant will cost R958billion. Let’s also introduce the (also unaffordable) NHI while you at it, and then no govt workers will have any salaries. Everything stops. Govt collapses.

“Throwing good money after bad”, comes to mind.

When cANCer cadres have stolen Billions of Rands of funds meant for PPE Procurement in a pandemic, you realise exactly what the spending priorities are of the ANC.

This is why there are no more funds available for things like tertiary education and basic income grants.

The ANC are bunch of looting thugs.

We have an ANC problem.

With the army of unemployed that the government has created, it will become a simple race to the bottom when political parties start promising R1000 BIG, then R2000, R5000 etc etc. Eventually government will completely run out of money and a R1000000 grant won’t buy a loaf of bread. But hey, no problem, how about R2000000 if you vote for us.

Why would COSATU support the basic income grant? It doesn’t make sense because this grant will reduce their members count as the grant disincentivises employable to get unskilled jobs.

Are there any unskilled jobs available? For the 40% unskilled & unemployed?

I will add my 2c in this manner. Government finds it easy to look for new ways to increase spending, yet rarely focuses on optimal use of assets. Government embarks on new strategies with very little focus on how these strategies really support economic and social objectives. Government typically fails in reaching said objectives over and over, despite increased expenditure every year. If ZA was a business, it would be bankrupt. The pot is not a bottomless coffee at Mugg n Bean. Even a country, to be smart, has to start balancing austerity whilst ensuring economic and social objectives are met in the best possible manner (optimal use and allocation of assets) to achieve the highest impact. The government screams of an insolent child bewilderingly grabbing any toy out of the cot and throwing it all over the place. Who must clean up the mess? Dear old mommy and daddy tax payer. The chronic problem is a lack of actual quality education and jobs. The effect of this UBI will be increased outsourcing of skills via emigration of overtaxed, highly skilled individuals (who barely benefit at all almost for all tax contributed over the years) and a country that spirals deeper into a social oligarchy, dominated by debt, high taxes and decreased quality of life. The poor (more than half the country) will be dependent on government to provide for their livelihoods in every manner and form. If this UBI costs anything more than R50 billion a year, employ those funds to create a more conducive environment for labour demand. South African could be the true economic engine of the Southern Hemisphere. But yes, let’s grab at straws and keep throwing money at problems without any focus on fixing the core issues that causes this problem to exacerbate year after year.

Good news: South Africa has a long term stable equilibrium

Bad news: It’s misery

The major reason why the SA economy is in the position it’s in is because the government has continuously sacrificed any long term sustainability and growth in favour of immediately placating the electorate and cadres.

This is only the latest iteration of this exercise. With each passing year the inevitable point where this will cause the SA fiscus and economy to collapse irrevocably is getting closer and closer.

Our problem since 94 has been that our democracy is dysfunctional, if only half the sheet that happens in SA occurred in a developed democracy the governing party would have been ditched by the electorate a long time ago. But since TIA I guess we will be stuck with the ANC until everything has been destroyed and we have finally achieved the much wanted “equality” they have been striving for.

@Coovadia – Stop pussyfooting and tell the ANC like it is!
We dont need more research!!!

Tell the ANC … SASSA is the biggest SCAM…. there are plenty government officials that are receiving this grant.

There are plenty people that dont need this grant and are getting it…. and they got into the scam through bribery and corruption….paying off SASSA officials to put them on the system!

“The Council for Scientific and Industrial Research (CSIR) estimates that, if the Karpowership projects reach financial close and the PPAs get signed, Eskom will be on the hook for at least R218 billion over the next two decades.” Energy For Growth …

And then there’s the R1 trillion cost of the proposed new nuclear project.

So with a R100 billion or so for this little lark, sooner or later you’re not even talking real money …

After all, it’s only a pittance of the market cap of Apple’s $2,45 trillion. Sigh …

End of comments.

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