The Treasury has shot down the idea of extending the social relief of distress (SRD) grant, proposing a new form of income support for 4.4-million fewer people that it said was a more acceptable compromise that will maintain SA’s fiscal stability.
The proposals, contained in a Treasury document obtained by Business Day, are based on a confidential paper, also in Business Day’s possession, in which President Cyril Ramaphosa’s office divides the 10.5-million recipients of the R350-a-month SRD grant into the “extremely poor”, “very poor” and “poor”.
Under the proposal, the R350-a-month gratuity, which is called a jobseekers and caregivers grant, would be extended to 6.1-million people, a move that would cut off 4.4-million people who may be eligible under the current support system, which was introduced in 2020 to provide a soft landing for millions of South Africans affected by pandemic-induced lockdown restrictions.
It proposes reprioritisation of the social budget (R1.121-trillion), which includes allocations to health, basic and higher education and community development, to fund any expansion of the support.
The Treasury estimates that an extension of the existing support programme could cost up to R50bn a year.
“The permanent extension of the SRD and higher government compensation add to household consumption and GDP growth, mainly in the near term,” the Treasury said in the document dated August 2022.
“However, the negative implications of breaching the compensation ceiling, not fully funding the SRD grant extension in a deficit-neutral manner and providing further funding to state-owned companies outweighs the positive impact these have on the economy, with a timing lag.”
The presidency did not comment on the document, saying information on all budget issues will be made in the medium-term budget policy statement. The Treasury declined to comment, saying it is in a closed period before the medium-term budget. Neither confirmed nor denied the authenticity of the documents.
Proposals in a presidency document titled “Putting SA to Work” are a continuation of the SRD grant, a jobseekers grant, a minimum income guarantee of R350 to those who have no other form of income on condition that they are available for work, and a combination of a jobseekers and caregivers grant.
But the Treasury said the proposals, except one that narrows the recipients to those seeking jobs or taking care of children under the age of two, are unworkable because of the country’s fiscal constraints.
“The three mechanisms which can be used to finance such an expansion are through increasing borrowing, reducing public expenditure elsewhere or increasing tax revenue,” it said.
VAT increase
During 2021/2022, the government generated the bulk of its tax revenue from personal income tax (R554bn, or 35.5%, of total tax revenue) and VAT (R390.8bn, or 25.1%). The Treasury document shoots down the possibility of raising personal income tax, citing the R4.4bn it raised in 2017 when it hiked taxes for those earning more than R1.5m a year. SA Revenue Service “data suggests that taxpayers responded ... by reducing their taxable income”, it said.
It considers an increase in VAT to either 16% or 17% as a better mechanism to fund the expansion of the grant as it could raise about R24.5bn or R49.4bn.
“Raising VAT will have a (albeit very small) negative impact on inequality (increase regressively) unless compensated for through expenditure programmes (social grants, etc).”
The pro-basic income grant organisation, the Institute for Economic Justice (IEJ), which publicly released its response to both government departments on Wednesday, said the proposals are unworkable. But the presidency proposals are more realistic as they “take a more detailed and thoughtful approach to wider issues”.
The IEJ said of the Treasury proposals: “It has no assessment of its workability, nor its impact on the population.”
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