Business fully recognises the huge demands for support that our people need. Record levels of un- and under- employment seen in recent data as well as wider metrics recorded by the NIDS-CRAM survey amongst others are testament to this. South Africans’ needs are wide ranging – for an income, for assets, for employment, for skills, for infrastructure to support cheaper transport and data costs, for geospatial integration, for better education, better policing, and better health care – a better quality of life, in the broadest sense, for everyone, of all ages.
Inequality in South Africa runs along all these lines and is deep and multifaceted – intrenched, in part, by the lack of reform led, labour intensive growth. Income inequality is only one element. As a country we need to deal with all these issues in a sustainable way that means we can progressively and continually improve people’s quality of life. 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.
A basic income grant in this context deals only with one element of the broad array of issues 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.
Business has backed a time-limited, post-Covid and post-unrest extension of the SRD grant, paid for from one-off windfall revenues from the commodities price boom. This is not a sustainable model, however, to fund basic income grant.
Basic income grant is not small (with conceptions ranging from ZAR68bn-ZAR300bn+). And 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. 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.
Business believes there are funding constraints in what could realistically be cut elsewhere to fund basic income grant– in the amount of debt that could be raised sustainably over time from already record issuance levels and high interest costs or in terms of the amount of tax that can be raised from an already very narrow tax base. We must make tough choices and honest trade-offs within these constraints
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, but on the complex outcomes from large tax hikes that are being proposed. Far too much analysis of funding options has been one dimensional, with no consideration of dynamic and behavioural effects. Put simply, it 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. These are the reforms that business regularly puts forward to provide a more robust and dependable ‘doing business’ environment.
In other words, the upside generated by reform and fiscal sustainability now must be (and can be) progressively shared to back broad reaching and multi-faceted support for the poorest South Africans.
To chart a path to this point, 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) under each of 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 SMMEs, 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
Business looks forward to engaging with government and social partners on ensuring that the upside from reform-led and labour-intensive growth can be spent progressively on a social wage in the broadest conception, in a sustainable and practical manner over time.
Business Unity SA CEO
For more information, please contact:
Tel: 011 784 8000