Tax increases and other measures to help fund South Africa’s proposed basic income grant
South Africa will need to consider tax increases and other adjustments if it is to fund a new basic income for working-age individuals between the ages of 18 and 60 in South Africa.
A panel of experts has recommended the country gradually implement a basic income grant, beginning with the institutionalisation of a monthly welfare payment introduced last year to offset damage wrought by the coronavirus pandemic.
While the exact amount of funding will be dependent on how much support government plans to offer to indigent South Africans, it will likely be taxpayers who fit the bill for these additional grants – either through increases or adjustments.
In a presentation on Monday (13 December), the experts said that an entry-level version of Basic Income Support (BIS) can be safely implemented using a mix of financing approaches, including:
- Limited debt financing;
- Tax revenue improvements arising from any demand stimulus; and
- Carefully calibrated tax increases where required.
A report compiled by the group found that 20% of households – nearly 12 million people – fall below the food poverty line (FPL) equivalent to a monthly value of R595.
40% of the population – equivalent to a population of 29 million in 8 million households – fall below the upper-bound poverty line (UBPL) equivalent to a monthly value of R1,300. Amongst the poorest 10% of the population, income from social grants makes up 95% of disposable income.
The experts ascribed this disparity to South Africa’s very high levels of unemployment (48.9% for the broad definition as at April to June 2021 or approximately 12 million people) and very unequal pay scales for those employed.
Approximately 70% to 80% of South Africa’s population, therefore, lives in precarious and insecure conditions with little prospect of any relief in the near future, the panel said.
Data published by the World Bank in September shows that 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.
The World Bank recommends the basic income grant take the form of a “jobseekers’ grant, targeted at the unemployed. It said that a job-seekers grant, set at R350 a month, could cost R16.2 billion a year.
“The dilemma of the future of South Africa’s social assistance system rests in the opposing pull of these two forces: The limited political appetite for cost-saving reforms and the need to consolidate expenditures,” the World Bank said. “Feasible options for broader reform hence need to balance political will and the need to contain costs.”
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