SOUTH AFRICA:‘Large and unpopular’ tax hikes the only way to fund South Africa’s basic income grant
- 10 September 2021 / News / 211 / Fares RAHAHLIA
The National Treasury is working with the presidency and the Department of Social Development to tackle the poverty gap, and this will include finding an alternative for the R350 SRD grant, says finance minister Enoch Godongwana.
Answering oral questions in the National Assembly on Wednesday (8 September), Godongwana said all options also need to be considered concerning their availability and their financial and revenue implications before a final decision can be made.
He said that in terms of achieving sustainable relief for vulnerable households, the baseline budget for a social assistance grant is R205 billion from 2022 to 2023.
While the government has formally committed to investigating the introduction of a basic income grant, the debate is likely to come back to affordability, scope, and already questionable long-term debt sustainability, said Jeff Schultz, senior economist at BNP Paribas South Africa.
“Paring back the current relief of distress grant of R350 a month to more than 10 million recipients when it is scheduled to end on 31 March 2022 will be challenging.
“Narrowing the scope of the current grant to only those seeking active employment, not making it eligible for existing grant recipients, could be one such compromise.”
Schultz said that this would still come at a non-negligible R25 billion per annum (0.5% GDP). However, Shultz said that this would fall well short of a broader basic income grant that would apply at a minimum of R585 a month at the cost of R75 billion – R150 billion – between 1.3% and 2.5% of GDP per annum.
“(This) is something which looks unaffordable without large and unpopular tax hikes.”
5% of GDP
The Financial and Fiscal Commission (FFC) has indicated that a ‘true’ basic income grant could cost the fiscus even more, depending on how the government plans to implement it.
The FFC is an independent constitutional advisory institution. Its role is to advise and make recommendations to parliamentt, provincial legislatures, organised local government, and other state organs on financial and fiscal matters.
In a presentation to parliament at the end of August, the FFC said that a true universal income set at R350 per month would cost approximately R243 billion per year, based on the 2020 mid-year population estimates.
This amounts to 5% of GDP. The cost would increase the revised budget deficit from 15.67% of gross domestic product (GDP) to 20.15%.
However, a more streamlined grant of R350 per month to target the unemployed – using the expanded definition – between the ages of 18 and 59 years would cost R44.8 billion per annum or 0.9% of GDP, it said.
“Naturally, the total costs estimated here are high and would be lower if the BIG were to partially or totally displace grants in the existing system.”
In August, a green paper published by the Department of Social Development formally proposes introducing a basic income grant for South Africa.
The paper, which has since been retracted, proposes three options for a universal income, ranging from R585 to R1,268 a month, based on the country’s existing poverty lines.
To raise enough funds for even the lowest of these options, the green paper suggests an income tax hike of 10 percentage points to raise the approximately R200 billion needed.
Nigeria : LCCI sees debt stock at N40tr, warns against borrowing abuse under amended FRA
- 13 January 2022
The Lagos Chamber of Commerce and Industry (LCCI) has projected that Nigeria’s debt stock may hit N40 trillion by the end of the 2021 financial year, citing concerns about elevated debt-servicing to r...
Nigeria : FG to lift 35m people out of poverty, create 21m new jobs through NDP
- 11 January 2022
The Federal Government has projected that its National Development Plan (NDP) will lift 35 million Nigerians out of poverty and create 21 million jobs within the next three years.The federal and state...
Nigeria : $130m fraud: Court remands Saipem MD, Peviana, Chinakwe in Port Harcourt prisons
- 10 January 2022
Issues warrant of arrest for 3 expats, Zingali, Testaguzza, and AnelliA Rivers State High Court has remanded the Managing Director of Saipem Contracting, Mr. Walter Peviana and Kelechi Sinteh Chinakwe...
Egypt: Cabinet, FRA discuss proposed amendments to capital gains tax with stakeholders
- 07 January 2022
The Cabinet discussed on Wednesday the legislative amendments proposed on the capital gains tax with some government and industry stakeholders, including the Financial Regulatory Authority and the Egy...
Egypt: Suez Canal Bank participates in 2 securitisation issuances worth EGP 200m
- 07 January 2022
The Suez Canal Bank participated — with a value ranging from EGP 195m to EGP 200m — in the securitisation processes of two financial leasing and mortgage finance companies.The bank participated with E...