{"id":773812,"date":"2024-05-28T17:00:00","date_gmt":"2024-05-28T15:00:00","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=773812"},"modified":"2024-05-28T14:35:47","modified_gmt":"2024-05-28T12:35:47","slug":"permanent-basic-income-grant-plan-for-south-africa-with-a-tax-warning","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/government\/773812\/permanent-basic-income-grant-plan-for-south-africa-with-a-tax-warning\/","title":{"rendered":"Permanent basic income grant plan for South Africa – with a tax warning"},"content":{"rendered":"\n

The ruling African National Congress (ANC) said it will finalise its plan to offer South Africans a permanent basic income grant within two years.<\/p>\n\n\n\n

ANC spokeswoman Mahlengi Bhengu-Motsiri said the transition to a permanent basic income payment will be based on the existing Social Relief of Distress Grant.<\/p>\n\n\n\n

She added that they would increase the value of the grant and extend it to reach more beneficiaries.<\/p>\n\n\n\n

\u201cThe ANC recognises that the basic income support should complement, not replace, existing social security mechanisms,\u201d she said.<\/p>\n\n\n\n

Bhengu-Motsiri\u2019s comments followed President Cyril Ramaphosa saying there is a \u201cstrong case\u201d for universal credit despite South Africa\u2019s financial problems.<\/p>\n\n\n\n

\u201cThe challenge remains that millions of working-age adults in our country remain unemployed without any form of support,\u201d he said.<\/p>\n\n\n\n

Ramaphosa added that the unemployed have little prospect of gaining employment until economic growth picks up.<\/p>\n\n\n\n

\u201cThere is, therefore, a strong case for a permanent form of a targeted income-support grant for the unemployed within our fiscal constraints,\u201d he said.<\/p>\n\n\n\n

The President added that the temporary stipend introduced during the Covid-19 pandemic had staved off poverty for more than 2 million people.<\/p>\n\n\n\n

Godongwana announced the extension of the R350 monthly payout to March 2025 during his mid-term budget in November 2023.<\/p>\n\n\n\n

The big question, which politicians like Ramaphosa and Bhengu-Motsiri did not address, is where the money for a basic income grant would come from.<\/p>\n\n\n\n

Finance Minister Enoch Godongwana said the question is not whether South Africa should have a basic income grant (BIG) but how it will be funded.<\/p>\n\n\n\n

Godongwana said South Africa can afford to roll out a basic income grant if it is properly managed.<\/p>\n\n\n\n

The 2024 Budget revealed that South Africa will spend R266.21 billion on social grants in the 2024\/25 financial year \u2013 3.6% of GDP.<\/p>\n\n\n\n

This is a significant increase from the 2023\/24 financial year when the government spent R250.97 billion.<\/p>\n\n\n\n

Notably, the National Treasury estimates that its spending on social grants will decrease in the next three years.<\/p>\n\n\n\n

For 2025\/26, it forecasts spending R248.41 billion, and for 2026\/27, it estimates R259.79 billion. Both of these expenditures will constitute 3.1% of GDP.<\/p>\n\n\n\n

This is likely because the Social Relief of Distress (SRD) grant\u2014also known as the \u2018COVID grant’\u2014will end in 2025.<\/p>\n\n\n\n

Concerns about the financial impact of a basic income grant<\/strong><\/h2>\n\n\n\n
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Business Leadership South Africa CEO Busi Mavuso <\/figcaption><\/figure>\n\n\n\n

Many experts have raised concerns about the impact on state finances if a permanent basic income grant is implemented.<\/p>\n\n\n\n

The country is already struggling with a shrinking tax base. The country has around 28 million grant recipients and only 7 million income taxpayers.<\/p>\n\n\n\n

Business Leadership South Africa CEO Busi Mavuso said the SRD grant was only extended because the ANC knows ending it would be \u201csuicidal\u201d ahead of an election year.<\/p>\n\n\n\n

\u201cIt\u2019s going to cost the government another R34 billion, and the government knows that they can\u2019t afford the extension,\u201d she said.<\/p>\n\n\n\n

\u201cHowever, they also know that it\u2019s going to be suicidal to try and remove the R350 grant, especially with the elections that are coming around the corner.\u201d<\/p>\n\n\n\n

Efficient Group chief economist Dawie Roodt said a permanent income grant is a good idea to address poverty in South Africa.<\/p>\n\n\n\n

However, it is quite simply unaffordable when considering the government\u2019s precarious fiscal position.<\/p>\n\n\n\n

The 2024 Budget revealed a deficit of R347 billion in 2023\/24, and the government\u2019s debt continues to grow.<\/p>\n\n\n\n

The National Treasury said any extension of the SRD grant or its replacement needs to be funded by a new revenue source or reprioritisation of other spending items.<\/p>\n\n\n\n

\u201cGovernment is still discussing options for a replacement grant and the balance between policy options to support higher employment,\u201d it said.<\/p>\n\n\n\n

An Intellidex study found that, while the grant will improve inequality, \u201cany attempts to expand the budget with the status quo environment will damage debt dynamics further\u201d.<\/p>\n\n\n\n

It will increase the unsustainability of the budget and shorten the runway to a fiscal or economic crisis.<\/p>\n\n\n\n

If the government were to use tax increases to fund a basic income grant, South Africa could see significant tax increases,<\/p>\n\n\n\n