Social Development Minister Lindiwe Zulu said her department was planning to take the proposed basic income support grant (BIG) policy to the Cabinet before the end of the financial year.
Zulu said Minister of Finance Enoch Godongwana had supported the extension of the R350 social relief of distress grant until March 2025, based on their proposed policy.
“This forms the basis of what will become the basic income support grant in future,” she said.
The minister was responding to parliamentary questions from DA MP Bridget Masango, who asked what date Zulu envisaged to table the proposed basic income support grant policy before the Cabinet.
Zulu said they had made positive progress in the past three years on the draft policy for the basic income support and that “rigorous” consultations were completed in the 2022/23 financial year.
“The success of the social relief of distress grant has created room for my department to reopen the discussions on the basic income support policy gap, which by the way started as far back as 2002 through the Taylor Commission, which recommended to the government the introduction of the BIG at the time.
We have resuscitated this work.” There was a need for a more comprehensive response by the government in the form of a basic income support grant for the unemployed aged between the ages of 18 and 59.
“Given the extent of unemployment, and the current economic climate, we have chosen to take a prudent approach of progressive realisation of the basic income support policy through incremental changes to the social relief of distress grant over time.
“Central to our proposal is the need for recipients of the basic income support grant to be linked to various programmes to access economic opportunities through active labour market policies.”
When ANC MP Dikgang Stock asked about the different funding models being explored to fund the basic income grant, Zulu said the key funding options that have been proposed for funding the grant were through an increase in taxation, reallocation of current budget allocations or through borrowing.
She said the borrowing option has the advantage because it would provide additional funding without a need for budget re-prioritisation or tax increases.
“However, this would be expensive for the country as it would increase the country’s debt burden and also increase the already very high interest payments which are already one of the biggest spending items in our government expenditure, which could crowd out other important spending priorities of the government.”
Zulu also said the re-prioritisation of current budget allocations would have the advantage of shifting funds from some government expenditures, which were less effective, and redirect it to the urgent needs of the poor.
“Such a re-prioritisation would be very complex and difficult to implement quickly, since some projects would require significant time and careful planning to wind down without negative unintended consequences.”
The tax options considered included wealth taxes, removal of tax expenditure subsidies, increases in the VAT or personal income tax.
While the advantage of the VAT was that it would be a broad-based tax, which enabled the government to collect sufficient revenue to fully fund the grant, it would be regressive on the poor who pay the same as the rich.
“Such an approach would negate the motivation for the grant as the poor would in effect pay proportionally more than the rich because VAT was a flat rate for everyone.”
Zulu stated that the wealth tax had the advantage of being quite progressive as it would target the rich only.
“The disadvantage, however, is that it could result in significant tax avoidance and thus result in inconsistent revenue on a year-to-year basis as the wealthy find ways to avoid it.”
Cape Times