Ramaphosa is about to blow the budget
President Cyril Ramaphosa announced during his State of the Nation Address (SONA) that South Africa’s social grants would be getting an inflation-based increase in 2023 – something which economists say will have one of the most significant impacts on the fiscus.
During his address on Thursday (9 February), the president announced two big changes for social spending in the country: the first is that the social relief of distress (SRD) grant would be extended; the second is that the monetary values of non-SRD grants will rise in line with inflation.
According to economists at the Bureau for Economic Research (BER), both these changes were largely expected. However, the impact of the changes remains to be seen and will be a key focus in the 2023 Budget, scheduled for 22 February.
In the medium-term budget in October 2022, finance minister Enoch Godongwana announced that the R350 SRD grant would be extended through to March 2024. Ramaphosa has now indicated that this would be pushed further.
The extension of the SRD grant to March 2024 is already using up social spending in the country and eating up the ‘extra’ unallocated budget.
Pushing the end date even further, while also raising non-SRD grant values by inflation, means that these unallocated funds will be used up entirely – and then some, the BER said.
“In October, the Treasury budgeted for a 2.3% rise in total expenditure on social grants (including the SRD) in 2023/24. This was set to decline by about 10% in 2024/25 as the SRD was assumed to fall away and then to increase by 4.5% in 2025/26,” it said.
“Assuming grant expenditure increases by 5.5% in 2023/24 – in line with consensus expectations for headline CPI in 2023 – and 4.5% in the following two fiscal years, social grant outlays over the next three fiscal years will be roughly R100 billion more than set out in October.
“This will more than consume the unallocated expenditure reserve that totals R89 billion through 2025/26.”
According to Ramaphosa, approximately 7.8 million people in South Africa are currently on the SRD grant. SARS commissioner Edward Kieswetter noted that there are around 29 million people on social grants in South Africa – a situation he described as “unsustainable“.
More grants incoming
Most economists and analysts expect that the R350 SRD grant will become a permanent grant in the country. However, in his SONA, Ramaphosa announced that a new – separate – grant is also in the works.
The president noted that 60% of the national budget is spent on social wages, which includes providing free services to indigent households and setting up social grants to support millions of South Africans.
Work is now underway to develop a mechanism for targeted basic income support for the most vulnerable, he said.
“This will build on the innovation we introduced with the SRD grant, including linking the data we have across government to ensure we reach all those who are in need,” he said.
Research has been done on how much a new basic income grant in South Africa would cost the fiscus each year.
According to a report compiled by Intellidex in 2022, the total cost to the taxpayer varies, depending on the value of the grant and who receives it.
As such, the total cost can range from R20 billion a year for a R240 grant targeting SRD recipients, to R2.5 trillion a year for a truly universal living grant of R3,500 a month.
Most proposals, however, fall into the range of R60 billion, which is roughly the cost of expanding the SRD to more people, and R250 billion, which is a grant of about R800 per month targeting unemployed adults.
A continuation of the R350, targeting the original recipients, would start at R27 billion a year, and move upwards if more people are included in the net.
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