South Africa will get a basic income grant

Finance Minister Enoch Godongwana said 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 will spend R266.21 billion on social grants in the 2024/25 financial year – 3.6% of GDP.

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

Notably, the National Treasury estimates that its spending on social grants will decrease in the next three years.

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.

This is likely because the Social Relief of Distress (SRD) grant – also known as the ‘Covid grant’ – will end in 2025.

The R350 SRD grant was introduced during the Covid-19 pandemic as a temporary lifeline for struggling households and has since been extended every year.

The introduction and consequent extension of this grant led many to believe it would be used as the basis for introducing a permanent BIG.

The ruling party has mentioned the implementation of a BIG for years, but little action has been taken to realise their promises.

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

“Work is underway to develop a mechanism for targeted basic income support for the most vulnerable within our fiscal constraints,” said President Cyril Ramaphosa in his 2023 State of the Nation Address. 

“This will build on the innovation we have introduced through the SRD Grant, including linking the data we have across government to ensure we reach all those in need.”

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 any replacement thereof, 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 said, would have a moderate to severe impact on economic growth.

However, Godongwana said that if the government can properly manage how spending is allocated across all the different social wages currently implemented, it is possible to afford a BIG.

“As the economy grows and more resources become available, we’ll be able to roll out this grant,” he said.