Big announcement about basic income grant for South Africa
The National Treasury effectively poured ice on talk of a basic income grant for South Africa, saying it would cost the economy as much as R400 billion per year—and this is not affordable without permanent and large tax increases.
This goes against the promises politicians and political parties have made to the electorate over the past few years.
The Treasury presented its views to parliament last week in response to debate over the Medium Term Budget Policy Statement (MTBPS).
Addressing the basic income grant directly, it said that there is no means test for a basic income grant in South Africa, making it an immeasurable consideration.
Presuming that the grant could potentially reach 35 million people between 18 and 60 years old, this could carry a cost of R400 billion per year.
“Only two countries in the world had true basic income grants, and both have scaled back on it due to affordability,” it said.
The SRD solution
Even turning to the social relief of distress (SRD) grant as a solution is a problem.
The ANC has long promised a basic income grant to the electorate, particularly in its election campaigning. President Cyril Ramaphosa himself has often promised that such a grant is coming.
He said on several occasion (State of the Nation Address, Worker Day rallies and on the election campaign trail) that the government was working towards a basic income grant, underpinned by the SRD.
Ahead of the May elections, the ANC emphasised this further, saying it will finalise its plan to offer South Africans a permanent basic income grant within two years.
ANC spokeswoman Mahlengi Bhengu-Motsiri said the transition to a permanent basic income payment would be based on the existing SRD.
While the outcome of the elections delivered a government of national unity (GNU) in place of a majority ANC, the idea of a basic income grant, or even a work seeker grant, is supported among GNU members.
Economists and analysts have long noted that the most likely way South Africa would see any form of permanent basic income grant would be through the SRD, which was increased from R350 per month to R370 per month earlier this year.
About 13 million people receive the grant.
The SRD grant is expected to come to an end in March 2025, but given that it has consistently been extended since the end of the pandemic, it is likely that this cut-off will again be pushed out.
In the February budget, the Treasury even 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.
However, the Treasury has even cast doubt on the SRD grant being a viable basic income grant.
Presenting to parliament, the Treasury noted that while the current grant costs around R40 billion per annum, this could very quickly rise to R171 billion by 2032/33 if the grant becomes permanent, uptake increases, and value approaches the food poverty line.
“The fiscus cannot afford these large increases without permanent large tax increases,” it said.
Previous research found that if the government were to use tax increases to fund a BIG (ranging between an additional R20 billion to R2 trillion, depending on the value of the grant and how many people use it), South Africa could see the following tax increases:
- Personal income tax would have to be raised by between 9% and 19%
- Value-added tax (VAT) would have to be raised by between 14% and 29%
- Corporate tax would need to be increased by between 24% and 47%
Given the restrictions on South Africa’s budget, as well as the other major politically-driven big spending items (like National Health Insurance (NHI), there is extremely limited space to move around tax.
Instead, the National Treasury focuses on initiatives that would find work for grant recipients and otherwise decrease the burden on the social system.
It noted that extensive work is underway on Active Labour Market Programmes (ALMPs) to strengthen
pathways into work (public employment programmes, SETAS, ETI, skills development levy, etc).
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