President Cyril Ramaphosa confirmed that 29 million people in South Africa receive monthly grants, which economists warn is unsustainable with the country’s small tax base.
Last week, Ramaphosa said 18 million South Africans receive state welfare grants, with another 11 million relying on the state’s R350 grant.
“We are the only African country giving grants to almost half its population. There is no other country in Africa that takes of its people as we do in South Africa,” he said.
While Ramaphosa boasts about the millions of grant recipients, economists warn that it creates an unsustainable economic scenario.
South Africans receiving government grants increased from 2.5 million in the nineties to 29 million in 2022.
It is unlikely to change as the ANC said the welfare system “should be protected from inflationary pressures and should be expanded to provide for basic incomes as fiscal space allows”.
So, instead of trying to lower the number of grant recipients, the ruling party wants to give more people larger grants.
However, there is a problem. There are not enough taxpayers or economic growth to fund the growing welfare bill.
National Treasury revealed that South Africa only has 7.4 million individuals with taxable income, a quarter of the number of people who receive grants.
Economic advisers appointed by Ramaphosa warned against implementing a basic income grant, saying the cost could deepen debt and hinder economic growth.
Centre for Development and Enterprise (CDE) executive director Ann Bernstein was more direct, saying South Africa cannot afford a basic income grant.
“The government’s finances are already unsustainable, and adding a large and permanent new spending programme will only make it worse,” she said.
The ANC wants to increase taxes, which may include a wealth tax, to fund a basic income grant.
Bernstein warns that there is a high price for higher taxes, which includes slower economic growth and less employment.
“The slowdown in growth will make the rest of the government’s spending even less affordable than it is now, and the consequences of that will be terrible for the poor,” she said.
Efficient Group chief economist Dawie Roodt warned that the tax burden is getting heavier on a smaller number of individuals.
The economy is not growing, and many taxpayers are leaving the country, which places tremendous pressure on South Africa’s finances.
Roodt said he is very concerned about South Africa’s economic situation because so many people rely on the state for income.
“The state cannot afford this anymore. The tax base is simply not strong enough to carry it,” Roodt said.
Eunomix economist Claude de Baissac has also warned that South Africa is too dependent on tax from rich citizens, who are leaving the country in droves.
De Baissac said a large part of personal income tax comes from higher-income earners and that working-class taxpayers are disappearing.