December 8, 2021

What a basic income grant will actually cost South Africa

The Monetary and Fiscal Fee (FFC) says that the Covid-19 pandemic and introduction of the R350 Social Reduction of Misery Grant have offered some impetus for discussing a basic income grant in South Africa.

The FFC is an impartial constitutional advisory establishment. Its function is to advise and make suggestions to Parliament, provincial legislatures, organised native authorities, and different state organs on monetary and monetary issues.

Whereas the talk round a common income remains to be ongoing, the group mentioned that finance minister Enoch Godongwana would wish to contemplate such a grant’s fiscal impression.

In a presentation to parliament this week, the FFC mentioned that the prices related to a commonplace basic income grant are giant. A real common income set at R350 per thirty days would cost roughly R243 billion per yr, based mostly on the 2020 mid-year inhabitants estimates.

This quantities to five% of GDP. The cost would enhance the revised funds deficit from 15.67% of gross home product (GDP) to twenty.15%.

Nevertheless, a extra streamlined grant of R350 per thirty days to focus on the unemployed – utilizing the expanded definition – between the ages of 18 and 59 years would cost R44.8 billion every year or 0.9% of GDP, it mentioned.

“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.”

Treasury officers cautious 

In August, a inexperienced paper revealed by the Division of Social Improvement formally proposes introducing a basic income grant for South Africa.

The paper proposes three choices for a common income, starting from R585 to R1,268 a month, based mostly on the nation’s present poverty strains.

To lift sufficient funds for even the bottom of those choices, the inexperienced paper suggests an income tax hike of 10 share factors to boost the roughly R200 billion wanted.

Nevertheless, deputy finance minister David Masondo cautioned towards the aspirational plans proposed by the division – warning that it’s not one thing the nation can afford.

“We have to ask ourselves what are the preconditions for a social security grant proposed in these reforms,” he mentioned. “As a nation, we must always sequence our present financial priorities, and we must always not confuse our aspirations with what is feasible economically.

“Many countries that have social security funds have good economic growth. Currently, we have an economy that is faced with many fiscal risks.”

Related issues have been raised by the Treasury director-general, Dondo Mogajane, who mentioned that South Africa’s debt to gross home product (GDP) is without doubt one of the largest on the earth.

The foremost driver of this debt is the wage invoice and the perennial bail-out of state-owned enterprises (SOEs), and there are requests within the pipeline for added funding for some SOEs.

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