President Cyril Ramaphosa reaffirmed that the Government of National Unity (GNU) continues to consider a basic income grant for South Africa. In his address at the opening of Parliament on Thursday, July 18, Ramaphosa outlined the GNU’s principal objectives for the next five years: driving inclusive growth and job creation, reducing poverty and tackling the high cost of living, and building a capable and ethical developmental state.

To mitigate the rising cost of living, Ramaphosa highlighted plans to expand the list of essential items exempt from VAT and to conduct a comprehensive review of the petrol price structure for potential cost reductions. However, he acknowledged that the core challenges of unemployment and insufficient support structures remain pivotal in addressing poverty.

“The best way to deal with poverty is for people to have jobs,” Ramaphosa stated, adding that the government has implemented several support measures for the unemployed, including the Social Relief of Distress (SRD) Grant introduced during the COVID-19 pandemic. The SRD grant has provided crucial assistance to millions of unemployed individuals and will serve as a foundation for a sustainable income support system to combat income poverty.

The promise of a basic income grant has persisted across various administrations and now underpins the GNU’s policy agenda. The ANC, during pre-election rallies, pledged to finalize the basic income grant within two years, building on the SRD grant. This grant, recently increased to R370 as of April 1, has been extended multiple times since the pandemic’s end. Finance Minister Enoch Godongwana announced in the 2024 Budget that the SRD grant would extend to 2025, with provisional funding allocated until March 2027.

Despite this commitment, details and financing plans for the basic income grant remain vague. Godongwana has expressed confidence that South Africa can afford the grant if managed effectively, suggesting funding through a wealth tax, closing tax loopholes, addressing corporate profit shifting, and implementing a transactions tax. However, the potential impact on state finances has raised concerns, given the country’s shrinking tax base and the current ratio of grant recipients to income taxpayers.

The 2024 Budget revealed an allocation of R266.21 billion for social grants in the 2024/25 financial year, equating to 3.6% of GDP, with projections indicating a decrease in social grant spending over the next three years. This reduction is anticipated due to the planned end of the SRD grant in 2025.

The financial sustainability of a permanent basic income grant remains contentious. Business Leadership South Africa CEO Busi Mavuso criticized the extension of the SRD grant, labeling it a pre-election necessity despite its substantial fiscal burden. Efficient Group chief economist Dawie Roodt also warned that, while addressing poverty is essential, the grant is fiscally untenable given South Africa’s current economic conditions.

The National Treasury emphasized that any continuation or replacement of the SRD grant requires new revenue sources or the reprioritization of existing expenditures. An Intellidex study highlighted that expanding the budget without addressing structural issues could exacerbate fiscal instability and hasten an economic crisis. Significant tax increases might be necessary to fund a basic income grant, potentially impacting economic growth.

Despite these challenges, Godongwana maintains that with prudent fiscal management, a basic income grant could become a reality as economic conditions improve and resources expand.

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