Basic income grant on the cards for South Africa
Finance Minister Enoch Godongwana will deliver the Medium-Term Budget statement next week, with potential insights into a new basic income grant.
The Bureau for Economic Research (BER) said the minister is unlikely to introduce significant policy developments, preferring to commit the government to further fiscal consolidation.
However, further indications may emerge about how the government will transform the Social Relief of Distress (SRD) grant into a more permanent basic income grant.
“This will not be an easy task, and it will be interesting to see how the National Treasury (NT) deals with its assumption for growth in the public sector wage bill, for example,” said the BER.
“It will also be of interest to see NT’s forecast for real and nominal GDP growth in the coming years. Just this week, the IMF released a forecast of 1.1% growth for this year (which is roughly in line with the BER’s thinking) and just 1.5% for next year (which is lower than the BER’s estimate of 2.2% ).”
“Faster economic growth would be the only way to escape the need for more fiscal consolidation.”
The BER recently established the Impumelelo Economic Growth Lab, an independent hub for analytical research capacity to support economic reform.
It said that GDP growth could reach 3% if the Government of National Unity (GNU) fast-tracks reforms in the following areas:
- Electricity reforms – Sustain the reduction in load-shedding by maintaining momentum on the electricity programme
- Ports and rail reforms – Increase export volumes, particularly for industries that are job creators (agriculture and mining)
- Water – Improve service delivery would increase business confidence and encourage investment
- Crime, corruption, governance, and other reforms – Improve business confidence by removing the grey list, finalising visa reforms, and improving local government governance.
Basic income grant
The BER said that the MTBPS may provide further insights into how the NT is planning to deal with a possible extension of the social relief of distress grant (SRD).
Following the outbreak of the Covid-19 pandemic, the R350—now R370—per month SRD grant was created to help the most vulnerable in South Africa.
It has been extended since the end of the pandemic. The grant is expected to come to an end in March 2025, but the Treasury has pencilled in budgetary spending in 2026 and 2027 to account for further extensions to the grant.
The SRD grant was allocated R33.6 billion in 2024/25 (with the hike to R370 later adding about R2.2 billion to that) during the 2024 Budget, with provisional allocations of R35.2 billion and R36.8 billion for the 2025/26 and 2026/27 financial years.
The BER said that the SRD grant could potentially be shaped into a Basic Income Grant.
President Cyril Ramaphosa recently said that a basic income grant for South Africa is still part of the GNU’s plan.
The Parliamentary Budget Office—which supports various finance sector committees with research and analysis—noted this week that there is room in the budget for the grant to be expanded.
It noted that the government’s exclusion criteria for the grant “unfairly” excludes between 3.1 and 5.9 million people who should be receiving the SRD grant. This criteria was amended to keep beneficiaries below the budget allocation
According to Stats SA (2024, Q2) there are 8.4 million unemployed, 3.4 million discouraged job seekers, and 13.1 million not economically active people in the country.
At the same time, SASSA underspent by R4 billion during the 2022/23 Financial Year (AGSA, 2024).
The BER stressed, however, that the basic income grant will likely not be discussed in much detail during the mini-budget, as this falls more in line with the full budget presentation in February.
This is also the case with the National Health Insurance Bill, with many South Africans questioning how the new system will be funded.
“There might also be mention of the government tying itself more firmly to a so-called fiscal rule – for example, to ensure debt remains below a certain level of debt to GDP or maximum deficit per year, but again, such details are more likely in the National Budget in February next year (or even later),” said the BER.
“On the revenue side, tax income growth so far has been somewhat slower than anticipated by NT, but more revenue from higher-than-expected withdrawals following the introduction of the two-pot retirement system may counter this.”
“The lower bond yields in recent months should benefit NT’s debt issuance dynamics over time, but due to the long-dated maturity of much of SA’s debt, this will take some time to feed through and only really help South Africa if sustained.”
The PBO flagged a mixed bag in terms of revenue collection.
SARS collected R28.5 billion more in revenue between April and August 2024, a 4.3% increase year-on year.
However, two of the three major tax revenue sources underperformed
Personal income tax collections increased by R29.1 billion (11.7 % year-on-year). Increased collection is due to employment improving year-on-year and average wage settlement rates increasing from an annual average of 6.0% in 2022 to 6.3% in 2023.
Corporate income tax collections fell by R2.7 billion (-2.2%). This can be largely attributed to contraction of the mining industry’s contribution to CIT.
VAT collections decreased by R1.2 billion (-0.7%), linked to higher VAT refunds, and Fuel Levy collections declined by R1 billion (-2.7%), impacted by government’s relief measures.
Other revenue categories showed mixed results:
- Dividend tax grew by 2.9% to R39.1 billion
- Custom Duties fell by 18.3% to R62.1 billion
- Specific Excise Duties declined by 3% to R53.5 billion
- Skills Development Levy rose by 8.2% to R22.6 billion
- Ad-valorem taxes increased by 33.1% to R7.3 billion, indicating luxury goods consumption growth.
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