Business Unity SA (Busa), which represents almost all big businesses in the country, has weighed in on the contentious and divisive proposal to introduce a basic income grant (BIG) as a mechanism to alleviate poverty in SA.
In a hard-hitting statement, Busa CEO Cas Coovadia said SA has a low tax base that renders the proposal fiscally unsustainable and called on the government to fast-track reforms to enable investment and economic growth.
Coovadia said over the long term big businesses can back a proposal for expanded social support through an unemployment insurance-type product. But this can only be phased in under deep structural reforms such the flexible labour regime that will absorb more workers and reduce barriers to entry for small businesses, he said.
Big business can also back the expanded social support if fiscal sustainability is not compromised, and a grant does not cause a widening of the long-term trajectory of the budget deficit. The social support should also be targeted at the needy rather than be universally applied.
The Covid-19 pandemic and the looting of shops in parts of KwaZulu-Natal and Gauteng in July revived the prolonged debate about the introduction of the universal BIG, which labour unions have long supported. While some support the idea in principle given the persistent poverty levels, others question if SA will be able to afford to fund the proposed grant on a sustainable basis given fiscal limitations.
Nearly 13-million applications were received in August when government reintroduced the social relief of distress (SRD) grant, indicating the extent of poverty levels in SA, where official unemployment rate stands at record 34.4%.
“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 the basic income grant,” Coovadia said.
Busa’s view on the matter came two weeks after research group Intellidex raised red flags about the sustainability of the BIG proposal. Busa and Business Leadership SA had commissioned Intellidex to do an analysts on the funding implications.
Intellidex head of capital markets research Peter Attard Montalto said sustainable financing was unlikely without negative consequences.
“The risk lies in putting spending first, before more sustainable revenue growth is achieved through reform-intensive growth. As such, a BIG might only be sustainable over the longer term where the proceeds of such reform-led growth can be progressively shared with those most in need,” said Attard Montalto, who is also the lead analyst in the report.
With the SRD grant due to expire in the first quarter of 2022, pressure is mounting on the government to find viable options of maintaining special social grants without jeopardising fiscal finances.
Update: September 28 2021
This article was updated with more information.
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