Basic income grant plan for South Africa

President Cyril Ramaphosa confirmed that the new Government of National Unity (GNU) plans to use the Social Relief of Distress (SRD) grant as the basis for some form of a Basic Income Grant (BIG).

In his Opening of Parliament Speech on 18 July 2024, the President said income poverty is one of the underlying causes of poverty, and the best way to deal with poverty is for people to have jobs. 

“We have, however, made interventions to support the unemployed through a variety of interventions, including during Covid when we introduced the SRD Grant,” the President said.

The SRD Grant was introduced during the COVID-19 pandemic as a temporary relief grant for households. However, the R350 grant has since been extended and is now only set to end in 2025.

For years, the government has expressed its intentions to use this grant as a basis for a BIG in South Africa – something the President reiterated in his Parliament address.

“The SRD Grant has provided a lifeline to millions of unemployed people,” Ramaphosa said.

“We will use this grant as a basis for introducing a sustainable form of income support for unemployed people to address the challenge of income poverty.”

This clarified a question many had over the future of a BIG in South Africa following the 2024 elections and the formation of a GNU.

Many were unsure whether the ANC’s plan to establish this grant would continue to be a priority, considering the conflicting views between some opposition parties within the coalition.

For example, while the DA has supported the establishment of a BIG, it specified that it would only implement one “in the context of economic growth that makes it affordable and viable”.

However, all of the top five political parties in South Africa support the implementation of a BIG or significantly increasing grants.

• The ANC 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’.
• The MK Party promises to introduce a BIG above the poverty datum line of R1,558 for those unable to work.
• The EFF has the most extreme promise – a R5,000 grant for unemployed graduates and has called to double all current social grants.
• The IFP promises to introduce a similar grant for unemployed graduates amounting to R3,000.

Therefore, implementing a BIG seems more likely than ever, supported by the President’s and his administration’s statements on the issue.

Earlier this year, Finance Minister Enoch Godongwana – who was re-appointed to this position under the GNU – said the question is not whether South Africa should have a BIG but how it will be funded.

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

However, many are concerned about how the government would be able to afford this grant, as the 2024 Budget revealed a deficit of R347 billion in 2023/24, and the government’s debt continues to grow.

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.

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%

Such significant increases, the study found, would have a moderate to severe impact on economic growth.