Social development minister Lindiwe Zulu says her department plans to take its proposed basic-income support policy to cabinet before the end of this financial year.
She said the R350 social relief of distress (SRD) grant, which has been extended for a further year to end-March 2025, will form the basis of what will become the basic-income support grant in future.
There has been much debate about the affordability of a basic-income grant, which has become all the more pertinent given the fiscal constraints facing government that were highlighted in the recent medium-term budget policy statement (MTBPS).
National Treasury has also been considering the feasibility of a basic-income grant and has commissioned a study on the various options.
In a written reply to a parliamentary question by DA social development spokesperson Bridget Masango, Zulu said positive progress had been made over the past three years on the draft basic-income support policy with consultations completed in the 2022/23 financial year.
“I would like to place it on record that the ANC-led government has made unprecedented progress by world standards through the provision of social grants to about 28-million, including 19-million social grants to children, older persons and persons with disability, and the recent Covid-19 social relief of distress grant accessed by more than 8.5-million additional beneficiaries who have no means of income,” Zulu said.
Independent studies, the minister said, had shown that the grants have been used for food in the main and basic needs such as services, including electricity, data and transport.
“The success of the SRD grant has created room for my department, to reopen the discussions on the basic-income support (BIS) policy gap, which by the way started as far back as 2002, through the Taylor Commission, which recommended to government that introduction of the basic-income grant at the time — we have resuscitated this work.
“Given the extent of unemployment, and the current economic climate, we have chosen to take a prudent approach of progressive realisation of the basic-income support policy through incremental changes to the SRD grant over time.
“Central to our proposal is the need for recipients of the basic-income support grant to be linked to various programmes to access economic opportunities through active labour market policies.
“It is important that the links be established through government integration and [the] co-ordination of efforts among government and various agencies, including SASSA [SA Social Security Agency] and we have started this work by integrating government data systems through the National Integrated Social Protection System,” Zulu said.
In reply to another parliamentary question by ANC MP Dikgang Stock, Zulu said the key funding options that had been proposed for funding the basic-income grant were through an increase in taxation, reallocation of current budget allocations or through borrowing.
“The borrowing option has the advantage that it would provide additional funding without a need for budget reprioritisation or tax increases. However, this would be expensive for the country as it would increase the country’s debt burden and also increase the already very high interest payments,” Zulu said.
The reprioritisation of current budget allocations would have the advantage of shifting funds from some government expenditures that are less effective and/or efficient but would be very complex and difficult to implement quickly.
“The tax options considered include wealth taxes, removal of tax expenditure subsidies, increases in VAT or personal income tax. The advantage of VAT is that it would be a broad-based tax, which enables government to collect sufficient revenue to fully fund the grant, which would be fairly easy to introduce and collect.”
The disadvantage, however, Zulu said was that an increase in VAT would be regressive in that the poor would pay the same as the rich. She said such an approach would negate the motivation for the grant as the poor would, in effect, pay proportionally more than the rich because VAT is a flat rate for everyone.
The wealth tax has the advantage of being quite progressive as it would target the rich only. The disadvantage was that it could result in significant tax avoidance and thus result in inconsistent revenue on a year-to-year basis as the wealthy find ways to avoid it.
The tax expenditure subsidies on retirement savings were also considered a possibility but the disadvantage was that it would be difficult to quantify and would be unreliable as the only source of revenue, and may result in deterring retirement savings among some high-income earners.
“The personal income-tax approach has the advantage of being a more progressive tax that would take a greater contribution from the high-income earners than the lower income earners, thus ensuring a more sustainable revenue source,” Zulu said.
“It is also more reliable than the other tax approaches, thus ensuring sustainable funding in the long term. The additional advantage of using personal income-tax to finance the grant is that it would also improve the income inequality in our country, as the poor would receive an increase in their income while the rich would have a reduction, based on the increase in the tax rate that they have to pay.”
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