Basic income grant for South Africa is coming – it’s just a matter of ‘when’

 ·13 Mar 2024

Finance Minister Enoch Godongwana says the question is not whether South Africa should have a basic income grant (BIG) but rather how it will be funded.

Godongwana told SABC News that, if properly managed, South Africa can afford to roll out a basic income grant.

The 2024 budget revealed that South Africa is planning to spend R266.21 billion on social grants in the financial year 2024/25, which is equivalent to 3.6% of the country’s GDP.

This amount is a significant increase from the previous financial year, 2023/24, when the government spent R250.97 billion.

It is worth noting that according to the National Treasury, the expenditure on social grants is expected to decrease in the next three years.

Despite this, the government chose to increase grants across the board for 2024/25 – including old age, foster care, and child support grants.

In the fiscal year 2025/26, the government predicts spending of R248.41 billion, and for the following fiscal year 2026/27, estimated spending of R259.79 billion.

The R350 SRD grant was introduced during the Covid-19 pandemic as a temporary financial aid for households facing financial difficulties and has been extended every year since then.

The grant’s introduction and subsequent extension(s) led many to believe it would be used as the basis for introducing a permanent BIG.

The ruling party has been discussing implementing a Basic Income Grant (BIG) for years, but they haven’t taken any significant action to fulfil their promise.

However, at the 2022 ANC policy conference, the ANC announced its intention to finally implement a BIG.

The party suggested the grant would be funded through a wealth tax, closing tax loopholes, addressing base profit shifting by corporations, and implementing a transactions tax.

In his 2023 State of the Nation Address, President Cyril Ramaphosa announced that work is currently underway to develop a system for providing targeted basic income support to those who are most vulnerable, all while keeping in mind our fiscal constraints.

He further stated that this program will build upon the innovations that have been introduced through the SRD Grant, which includes the linking of data across the government to ensure that everyone in need receives the necessary assistance.

There are concerns about the feasibility of the government’s plan to provide the Social Relief of Distress (SRD) grant.

In the 2024 Budget, it was revealed that there would be a deficit of R347 billion in 2023/24, and the government’s debt continues to increase.

In the 2024 Budget Review, the National Treasury stated that any extension of the SRD grant, or any replacement thereof, would require funding from a new revenue source or reprioritisation of other spending items.

“Government is still discussing options for a replacement grant and the balance between policy options to support higher employment,” it said.

An Intellidex study from July 2022 found that, while the grant will improve inequality, “any attempts to expand the budget with the status quo environment will damage debt dynamics further”.

It will increase the unsustainability of the budget and shorten the runway to a fiscal or economic crisis. The study estimated that the cost of a BIG could range from R20 billion a year to R2 trillion. 

If the government were to use tax increases to fund a BIG, South Africa could see the following tax increases, according to the study:

  • 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%

According to a study, implementing a Basic Income Grant (BIG) would have a moderate to severe impact on economic growth due to significant increases in spending.

However, Godongwana mentioned that proper management of spending allocation across different social wages can make it possible to afford a BIG.

He said the grant will be rolled out as the economy expands and resources become available.

Read: Government kisses another R24 billion goodbye

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