The tiny tax base that’s expected to help fund South Africa’s new basic income grant

The social distress grant, reinstituted after July’s riots, is not expected to be permanent and is expected to be replaced by a form of basic income grant (BIG), says Investec chief economist Annabel Bishop.

In a research note ahead of South Africa’s Medium Term Budget Policy Statement (MTBPS) on 11 November, Bishop said that there are now 7.8 million unemployed and 3.3 million discouraged job seekers, bringing the cost of a R350 BIG potentially to R46.8 billion a year, or R32.9 billion a year without including the discouraged job seekers, and both without any additional administrative costs.

“There could also be some overhaul of the structure of the welfare system in South Africa itself, but a quickening of economic growth remains paramount for faster revenue growth, while higher taxation is likely to cause declining real growth in the tax take,” she said.

“The tax base is tiny compared to the size of the 60 million population, although substantial gains are expected to be made by the repair of SARS, which was negatively impacted by state capture, and this has been built into our view of somewhat improved revenues.”

However, Bishop noted social welfare support for the jobless not only aids eventual incorporation into employment, along with other support measures, but also improves the ability to better their quality of life and that of their family.

“In an economy with an extreme unemployment rate, and policies focused more often on bettering the renumeration, and profit of the employed as opposed to the unemployed, South Africa has to
compensate for those left out, given the low labour market participation rate.”

Already a third of South Africans are beneficiaries of a social grant directly, which rises to close to two thirds when those who benefit indirectly are included as per World Bank calculations, the group said.

The World Bank recommends the basic income grant take the form of a “jobseekers’ grant, targeted at the unemployed.

“The implementation of such a grant may provide opportunities to link jobseekers into other programmes, such as the Department of Employment and Labour’s Employment Services of South Africa (ESSA), which may constitute a package of support for the unemployed,” Investec said.

“Indeed, such integration with other services may be important in terms of ensuring that only active jobseekers are eligible for the grant, thereby containing costs to some extent.”

Read: Every rand spent on South Africa’s new basic income grant will be an extra rand of tax