Social distress grants, a Catch-22 that may haunt the state

Finance Minister Enoch Godongwana may have sternly pronounced that the Covid-19 Social Relief of Distress (SRD) grant will be extended for only a year in his budget speech on Wednesday, but signals in his budget also point to it morphing into a more perennial feature in South Africa’s social welfare story.

Although there is acknowledgement from Godongwana that the grants are unaffordable and pose a fiscal risk to the country’s outlook, discussions about how it may take shape should it be converted into a basic income grant, or something similar, continue between National Treasury and other government departments.

Read: Covid-19 social distress grants extended until March 2024

For the 2023/2024 financial year, Godongwana has allocated R35.7 billion for the SRD grant, R7 billion more than was spent last year.

This year’s Budget Review document states that the government is considering alternative options to provide appropriate social protection for the working-age population. These measures could mean the grant is either replaced or complemented.

Complexities

“What we have in the book is still the SRD as defined, but we’re working with the department of social development to try and see what shape this grant should take,” says Boipuso Modise, acting head of economic policy in the finance minister’s office.

“It’s taking longer than anticipated because of the different complexities; for example, do we have systems in place, do we link this grant to employment, do we have enough funding to augment the amount that we have, [and whether] to look at households as opposed to individual recipients,” she adds.

Read:
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Should there be any permanent increases in government spending fuelled by a new social grant, those will need to be matched by permanent revenue increases or spending reductions elsewhere, Godongwana cautioned on Wednesday.

The Covid-19 SRD grant was introduced in 2020 as a temporary fix for financially distressed households and the unemployed poor as the pandemic ravaged economies across the world including South Africa.

“We may live with it forever,” Professor Bonke Dumisa, an independent economist tells Moneyweb.

“These grants were necessary at the time [during Covid] but have now taken a life of their own,” he adds.

“I don’t advocate that it be adopted permanently … If you try to adjust it upwards, there is no provision for it,” says Dumisa.

Read: Social relief grant will be impossible to withdraw – Sachs

Seeking favour?

The extension of the grant comes at a time when the ANC is seeking favour with the public ahead of the 2024 national elections.

“The elections, for the ruling party whose popularity is waning, have a bearing on the spending plans or grant plans,” says Professor Jannie Rossouw of Wits Business School.

“The ANC is very concerned that it may not be re-elected in all the provinces where it currently holds power,” he adds.

A contentious issue in the continuation of the SRD grants is where in the fiscus Godongwana can pull money from to fund it.

In a budget press briefing on Wednesday, Godongwana hinted at raising taxes to either improve or convert the SRD grant it into a basic income grant.

“For argument’s sake, if someone said ‘We want to continue with the SRD [grant] …we want to increase the SRD, or we want to improve it and make it a basic income grant’, you’re also calling for me to tax you,” he said.

Read:
No tax increases for hard-hit South Africans
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But taxing the working class is no real option, says Rossouw, who cautions against this.

“South African personal income taxpayers are not captives in South Africa. If you tax them too highly, they’re going to simply leave. So, you have to be very careful.

“The problem is that state-owned enterprises [SOEs] put such a burden on the fiscus that there’s little room to manoeuvre … It is the SOE problem that squeezes out other social spending,” he says.

SOEs such as Eskom, national carrier SAA and the Post Office were allocated hefty sums in the budget. Eskom received R254 billion in debt relief while SAA and Post Office received R1 billion and R2.4 billion bailouts.

Read:
Eskom to get a massive R254bn in debt relief
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