If some iterations of basic income grants are finally rolled out, it will not be because the treasury has succumbed to political pressure, Finance Minister Enoch Godongwana said on Wednesday.
He was speaking at a media conference before the budget speech on how basic income grants can be financed. “The budget for this election – 2024 is too late to deal with the election,” he said.
“Now if you’re saying we’re going to have pressure to raise taxes next year for this election … I don’t think so.”
Last October, during his mid-term budget speech, Godongwana announced the extension of the R350 social assistance grant (SRD) until the end of March 2024. At that time, the government is considering options for a more permanent replacement. Grant, although there is no decision yet on how it will be financed.
According to the treasury’s 2023 budget presented on Wednesday, the department of social development has been allocated R35.7 billion to finance the additional funds of the SRD. The South African Social Security Agency will get R400 million to manage it.
“The government is considering alternative options to provide appropriate social protection for the working-age population that could replace or complement current grants,” the document notes.
Social assistance from the hardship grant, which covers around 7.8 million people, was introduced in May 2020 as a Covid-19 pandemic lifeline for the most vulnerable in society. It has been expanded several times since.
Earlier this month, President Cyril Ramaphosa said the R350 grant would continue, but it was unclear how long it would last. He also announced that work is underway “to develop a mechanism for basic income support targeted at the most vulnerable, within our fiscal limits”.
The statement of the treasury’s medium-term budget policy notes that the introduction of new grants in the fiscal framework is an increase in permanent spending and, in order to be sustainable, “needs to be financed by increasing permanent revenue, spending reprioritization, or a combination of both”.
Keeping the R350 grant in place for another year costs the state R44 billion. “Assuming current grant values and take-up rates to remain constant and extended indefinitely, grant costs could grow by an average of 8.8% per year to reach R64.9 billion in 2030-31. Without a permanent source of funding, this would threaten financial sustainability common,” said the October mid-term budget policy statement.
The government and civil society have disagreed on the form of the replacement grant.
In the August 2022 presentation, the treasury floated the idea of replacing part of the R350 grant with a jobseeker’s grant or a household grant for some. The idea seems to align with the 2021 proposal made by the World Bank to replace the grant with a target for active job seekers.
The July 2022 paper drafted by the president also proposed alternatives to the R350 grant, including a jobseeker’s grant.
The South African Federation of Trade Unions responded to the government’s proposal by saying it would limit access to the grant.
“The president and the national treasury are prejudiced against BIG [basic income grant] on an unaffordable basis based on the neoliberal fiscal framework. Our government is acting in line with the dictates outlined by global financial institutions such as the World Bank, showing the interests of the ANC government,” the federation added.
Meanwhile, organizations such as the Institute for Economic Justice (IEJ) have disputed the government’s argument that it cannot be paid. According to IEJ – which has proposed several financing options, including wealth tax – part of the amount the government spends on the basic income grant will certainly be clawed back through the value-added tax.
Spending these funds will return to government revenue in other ways through increased local economic activity, IEJ said.