November 30, 2021

These taxes could finance South Africa’s proposed basic income grant

Coverage think-tank the Institute of Financial Justice (IEJ) has revealed an evaluation of a basic income grant for South Africa and the way a lot it can value taxpayers.

Relying on the grant’s objectives and the variety of folks it’s given to, the last word annual value of the grant will fluctuate drastically, it stated.

The group primarily based its calculations on the nationwide poverty traces measured by Stats SA, chosen due to their direct linkage to poverty discount.

The evaluation reveals that an 80% grant uptake would value R192 billion a 12 months on the meals poverty line (FPL) of R585 a month. This could rise to R275 billion on the lower-bound poverty line (LBPL) of R840 a month and R415 billion on the upper-bound poverty line (UBPL) of R1,268 a month.

The tink tank additionally included casual sector staff due to the precarity and vulnerability which characterises this group.

The not formally employed (NFE) group contains the unemployed, these not within the labour drive (for instance, caregivers), and casual sector staff.


The IEJ thought of 19 financing choices for a basic income grant, which it estimates would garner between R275 and R355 billion every year.

These will not be exhaustive, nor essentially all to be applied concurrently, however illustrate totally different modalities for financing a common income, it stated.

Chief amongst these proposed taxes is:

  • The introduction of a Social Safety Tax – This tax is a ring-fenced tax on income, devoted to financing an extension of social safety. It goals to function equally to Unemployment Insurance coverage Fund (UIF) contributions, and consideration needs to be given as as to if employers and staff every contribute 50% in the direction of this tax.
  • A Useful resource Hire Tax (RRT) – An RRT is a further tax levied on the financial hire of extractive industries.
  • A wealth tax – A wealth tax of 1% for the highest 1% and a wealth tax fee of three% for the highest 0.1% is proposed. This may generate R59 billion in income.
  • Luxurious VAT – A luxurious VAT is a gross sales tax positioned on items and providers thought of accessible solely to the wealthiest. A great or service is outlined as a luxurious when not less than 70% of its consumption is from the highest 10% of income earners.

“Often, when tax increases are proposed, it is met with resistance followed by rebuttals around the high tax burden in South Africa,” the assume tank stated.

“It is important to recognise that those in the middle of the income distribution have experienced negative growth in earnings over time and that the top income percentile has disproportionately captured the income growth.”

Nevertheless, respectable issues across the “middle-class squeeze” are sometimes used to protect high earners, the IEJ stated.

“The financing proposals, therefore, aim to remove or limit fiscal measures that currently disproportionately benefit the wealthy, thus promoting greater redistribution.”

Authorities’s proposals

The IEJ’s calculations and methodologies align with a inexperienced paper revealed by the Division of Social Improvement this week, which formally proposes introducing a basic income grant.

The division stated it could be a lot simpler to implement a reform that can require a big adjustment to taxes, as will probably be simpler for presidency to ‘sell’ a rise in taxes on the working-age inhabitants with an elevated switch to that very same inhabitants.

“Microsimulation for common income assist on the degree of the meals poverty line (R585) recommend that the monetary value can be roughly R200 billion and would require a 10-percentage level enhance on income taxes.

“At face worth, these quantities seem like astronomically excessive and even not possible. For almost all of the inhabitants, relying on the switch degree, it’s doubtless that the profit obtained can be bigger than their enhance in taxes.

“The wealthiest deciles of the population will only see a slight reduction in income on average, and the impact of this may be reduced if phased in over a period of time.”

The inexperienced paper additionally proposes funds primarily based on the nationwide poverty traces, relying on what targets authorities want to obtain first:

  • Cut back starvation – With this selection, the grant worth must be across the Meals Poverty Line (FPL). As of the 2020 changes, that is R585 a month.
  • Cut back poverty – This selection would require the grant worth to be pitched across the lower-bound poverty line (LBPL). As of the 2020 changes, that is R840 a month.
  • Enhance folks’s lifestyle –  On this case, the worth needs to be considerably larger, however not less than beginning on the upper-bound poverty line (UBPL). As of the 2020 changes, that is R1,268 a month.

“Studies done on a decent standard of living suggests income of around R7,500 per person, per month. This is an aspirational value that government should strive to achieve through a mix of transfers, labour and economic policies,” the division stated.

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