South Africans may get a basic income grant soon

Finance Minister Enoch Godongwana may announce the indefinite extension of the social relief of distress grant in his Medium-Term Budget Speech (MTBPS) next week.

This is according to Albert Botha, Ashburton Investments’ head of fixed income, who said the upcoming MTBPS will provide a good indication of the new government’s priorities.

“Politicians everywhere are famously good at making promises and statements that sound suspiciously like commitments,” he said. 

“Yet, when it comes to budget time, the public gets to see where the focus truly lies. This is because budgets are about more than money; they are a statement of a nation’s priorities.”

One of the promises the ANC government has made for years is the creation of a basic income grant (BIG) for South Africa.

At the 2022 ANC policy conference, the ANC announced its intention to implement a BIG, financed through a wealth tax, closing tax loopholes, addressing base profit shifting by corporates, and a transactions tax.

President Cyril Ramaphosa reiterated this plan in his 2023 State of the Nation Address, saying work is underway to develop a mechanism for targeted basic income support.

During the Covid-19 pandemic, the government established the R350 social relief of distress (SRD) grant to provide a temporary lifeline for struggling households.

While the grant was meant to be temporary, it has since been extended yearly.

However, this grant’s payout is set to end in 2025, and its introduction and consequent extension have led many to believe it will be used as the basis for introducing a permanent BIG, which could be announced at this year’s MTBPS.

“The widely popular Social Relief of Distress (SRD) grant may be extended indefinitely, with some already including it in their baseline projections,” Botha said.

While many support the concept of a BIG, there are concerns surrounding its affordability.

In the 2024 Budget Review, 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.

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

South Africa’s government has reported consistent budget deficits year after year, and while the economy is showing some green shoots now, it still has a long way to go.

However, these economic green shoots may encourage the government to go ahead with its BIG plans. In addition, the political will to implement this grant could play a role as the two biggest parties in the newly formed Government of National Unity support the implementation of a BIG in some form.

As outlined in their election manifestos, the ANC and DA support the implementation of a BIG.

The ANC’s manifesto promises to strengthen income support through existing social grants over the next five years and use the SRD grant to phase in a basic income support grant.

The DA’s manifesto states it will increase the SRD grant so that, over time, it becomes a BIG. However, the party has elsewhere said it would only investigate a BIG to determine if it was ‘affordable and viable’.

Botha said that, in 2024 so far, there has been a slight underperformance in revenue collection of around R15 billion. 

This was driven by a combination of different factors, including lower import VAT collections resulting from a stronger rand, lower personal income tax, and general fuel levy. 

“This is expected to be mostly unwound by the end of the fiscal year (February 2025) due to a combination of higher spending in the holiday season and additional tax receipts from the introduction of the two-pot system,” he said.

Botha further explained that the gap between spending and revenue needs to be filled with borrowing, and the MTBPS is expected to make some of the biggest strides in this area.

The last budget, in February 2024, saw South Africa’s debt-to-GDP ratio at 73.9%, up from less than 60% prior to 2020. 

The rate of debt accumulation has been a concern over the last couple of years. However, looking forward, most economists expect that the rate of accumulation will slow and then peak at between 74% and 76% of GDP over the medium term. 

“Stabilising the debt position has been a goal of almost all the previous budgets of the last 15 years and is yet to be realised,” Botha said.

“All of this results in a narrowing fiscal deficit of between 4.3% to 4.5% of GDP in 2024/25, with the expectation that primary budget surpluses follow from there in the medium term.”