The major domestic event this week will be president Cyril Ramaphosa\u2019s State of the Nation Address on Thursday (10 February), during which he is expected to provide an update on a Basic Income Grant (BIG) for South Africa.<\/p>\n
With South Africa’s R350 social relief of distress grant set to expire in March, calls for the introduction of a permanent basic income grant (BIG) have intensified, says Virag Forizs, emerging markets economist at Capital Economics.<\/p>\n
“However, senior policymakers don\u2019t seem to be seeing eye to eye on the \u2018BIG question\u2019,” she said. “Some government officials \u2013 including the president \u2013 have appeared to be increasingly receptive to the idea, while others, like finance minister Enoch Gondongwana, have expressed a preference for other programmes instead.”<\/p>\n
Despite these and other intra-party divisions, the president is widely expected to make an announcement on the question of social support measures in his state of the nation speech, Forizs said.<\/p>\n
“While enormous fiscal costs associated with a fully-fledged BIG-scheme – up to 10% of GDP per year – and South Africa\u2019s poor public finances will probably push Ramaphosa to avoid a total commitment to introducing a BIG, the special Covid-19 unemployment grant is likely to be extended beyond March.<\/p>\n
“Policymakers will probably use the fiscal space afforded by better-than-expected budget outturns in recent years to do so. But it wouldn\u2019t take much to steer the austerity plans off course \u2013 something we have warned about before,” she said.<\/p>\n
Market analyst at Intellidex, Peter Attard Montalto, also expressed similar views<\/a><\/strong>, saying that the SRD grant is likely to be extended for another year at least, in lieu of an announcement on the basic income grant in the 2022 budget speech.<\/p>\n Tax increases<\/strong><\/p>\n While it is not clear how the government will fund an expanded R350 SRD grant, or a permanent basic income grant, experts and economists have indicated that it will almost certainly require tax increases.<\/p>\n A report published by an expert panel<\/a><\/strong> on basic income support in December 2021 mooted possible VAT or income tax hikes to pay for the additional costs.<\/p>\n A separate report<\/a> <\/strong>by the National Economic Development and Labour Council (Nedlac) in January found that a solidarity or wealth tax could be introduced as a long-term generator, but that income tax, corporate tax, and VAT hikes would likely be needed in the short-term for the BIG to be feasible if it plans to raise additional revenue more immediately.<\/p>\n “Given the significance of the cost of a universal BIG, alternative sources of taxation such as those mentioned above, should be assessed for viability in financing partially or wholly the implementation of a BIG,” Nedlac said.<\/p>\n “However, such alternative sources of taxation may only be practically implemented over the medium term, therefore PIT, CIT and VAT remain the alternatives over the short-term if the implementation of a BIG takes place within the short-term.”<\/p>\n