Treasury says state not looking at basic income grant

There are no discussions in the government about the introduction of a basic income grant (BIG) at this time, says National Treasury budget office head Edgar Sishi.

The Treasury is, however, looking into the possibility of a wealth tax once it has examined the data on the levels of wealth in the country.

Treasury officials appeared before parliament’s two finance committees on Friday to respond to comments made during public hearings on the medium-term budget policy statement (MTBPS).

The BIG decision came from a political party, not a cabinet consideration or decision

—  Edgar Sishi, National Treasury budget office head

“The BIG decision came from a political party, not a cabinet consideration or decision,” Sishi told Business Day on the sidelines of the meetings.

Civil society organisations have lobbied long and hard for the conversion of the Covid-19 social relief of distress grant of R370 a month into a permanent BIG, as did former social development minister Lindiwe Zulu.

Before the May 29 election, the ANC committed itself to implementing a BIG within two years. The ANC’s partner in the government of national unity, the DA, also supports a BIG but only in the context of economic growth that makes it affordable and viable.

“A BIG technically has no means tests and could go to 35-million people between 18-60 years. This could cost close to R400bn per annum. Only two countries in the world had a true BIG and both have scaled back on it due to affordability,” Sishi told MPs.

He noted the Covid-19 social relief of distress grant cost about R40bn per annum but this could rise to R171bn by 2032/2033 if the grant became permanent, there was an increase in uptake and its value approached the food poverty line (which is now R796 a month). The increase from R350 a month to R370 cost the fiscus R1.6bn.

“The fiscus cannot afford these large increases without permanent large tax increases,” Sishi said.

Extensive work was under way on active labour market programmes to strengthen pathways into work through public employment programmes, Setas, the employment tax incentive and the skills development levy, he said. The aim was to overcome fragmentation between the different programmes, which the MTBPS said made the system difficult to access and navigate as there was no single point of entry.

“The department of social development and the South African Social Security Agency need to work with other government institutions to strengthen the transition of grant beneficiaries to a range of jobs and skills programmes,” he said. They also needed to increase the use of large data cross-checks to improve assessment of income and better validate beneficiaries. The Treasury would impose conditions on this sector after passage of the Adjusted Appropriation Bill 2024, Sishi said.

Social development expenditure had overtaken health to become the second largest area (after basic education) of government spending, excluding debt service costs. It is projected to rise from R357.6bn in 2024/2025 to R418.5bn in 2027/2028. Social protection expenditure on a range of grants would rise from R281.7bn in 2024/2025 to R345bn in 2027/2028, an average increase of 4.7% a year, he said.

It was not true that South Africa lagged behind other countries in social security and the social wage. It has one of the highest levels of social spending relative to GDP among developing countries, he said.

Wealth tax

On the possibility of introducing a wealth tax — another demand of a number of civil society organisations — Treasury acting head of tax and financial sector policy Chris Axelson told MPs the Treasury was working in conjunction with the South African Revenue Service (Sars) to understand the levels of wealth that had been declared to the tax authority and what a potential wealth tax could be.

“We will consider a wealth tax as we get that data from Sars,” Axelson said.

The question was still open on whether to tax wealth itself or the returns on wealth which were now taxed in a variety of ways, including through an effective personal income tax regime as well as through capital gains tax, interest and rentals.

Sishi said the funding environment for South Africa had improved.

“After the formation of the government of national unity (GNU), demand increased, aided by global interest rate reductions. The sovereign risk premium, which reflects investor concerns about economic and fiscal risks, has improved significantly between end-February and end-September 2024, from 327 basis points to 240 basis points. Over the same period, the generic 10-year bond yield declined by 153 basis points, indicating improved investor sentiment.

“South Africa's sovereign credit risk premium has outperformed other emerging markets in 2024 as investors became confident the new administration will continue with the fiscal strategy that stabilises public debt levels.”

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