National Treasury Cools Prospects of Basic Income Grant for South Africa

National Treasury Questions Affordability of Basic Income Grant for South Africa

The proposed Basic Income Grant (BIG) for South Africa faces major financial hurdles. National Treasury recently projected that the program could cost up to R400 billion per year. This expense, they warn, would require significant tax increases to fund, casting doubt on the program’s affordability despite strong political support.

High Costs and Potential Tax Increases

If implemented without a means test, a BIG that serves roughly 35 million South Africans aged 18 to 60 could quickly cost R400 billion each year. Funding this initiative would demand major tax hikes. Experts estimate it would require up to a 19% rise in personal income tax, a 29% increase in VAT, and a 47% hike in corporate tax. The Treasury cautions that the national budget is already stretched with other major priorities, such as National Health Insurance (NHI).

Social Relief of Distress Grant as a Temporary Solution

The African National Congress (ANC) has repeatedly promised a Basic Income Grant, with President Cyril Ramaphosa describing it as a key goal. However, Treasury officials suggest that the existing Social Relief of Distress (SRD) grant, which provides R370 per month to around 13 million citizens, is a more viable interim solution. Currently costing approximately R40 billion a year, the SRD grant may grow in expense by 2032 if continued. While the SRD was initially set to end in March 2025, extensions continue to appear in recent budgets.

The SRD grant, however, does not fully replace a BIG and faces challenges in becoming a permanent solution.

Active Labour Market Programs as an Alternative

Rather than a BIG, Treasury supports Active Labour Market Programs (ALMPs) that aim to improve skills and connect unemployed citizens with job opportunities. Key initiatives include public employment programs, the Skills Development Levy, and Employment Tax Incentives (ETI). These efforts aim to build pathways into employment and reduce dependence on social grants.

Looking Ahead

With the 2024 election approaching, the future of a BIG remains uncertain. The concept has broad support, but National Treasury’s analysis highlights the serious financial challenges. For now, the government is prioritizing economic recovery strategies that focus on job creation and support programs.