South Africa: 28 Million People On Grants With Only 7.4 Million Tax Payers Paying The Bill

South Africa has 28 million people on grants – but only 7.4 million taxpayers Daily Investor • 14 October 2024 Social grants The South African Social Security Agency’s (SASSA) annual report for the 2023/24 financial year revealed that it pays grants to 28 million South Africans. In turn, the National Treasury’s 2024 Budget Review shows that 7.4 million individuals in South Africa pay income tax. SASSA CEO Busisiwe Memela told Parliament on 11 October 2024 that South Africa serves two groups of clients. The first group is their ‘core clients, which are traditional grant recipients, and the second is recipients of the Social Relief Distress (SRD) grant of R350. Memela said 19 million South Africans receive grants, including older people, children, people with disabilities, war veterans, and people in distress. 55% of these grant recipients are from four regions – KwaZulu-Natal, Gauteng, Limpopo, and the Eastern Cape. There are also 9 million SRD grant recipients, which started during the Covid-19 pandemic in 2020. Memela told Portfolio Committee on Social Development members that South Africa has 28 million grant recipients. Put differently, approximately 45% of South Africa’s 64 million population benefits from social transfers. Social development is the third-largest line item in South Africa’s 2024/2025 national budget, with R387 billion planned to be spent this year. This amount includes R107 billion in old-age grants, R89 billion in social security funds, and R86 billion in child support grants. The budget further includes R73 billion for other grants, R22 billion for provincial social development, and R10 billion for Policy oversight and grant administration. National Treasury said R1.17 trillion is allocated for social grants and welfare services over the medium-term expenditure framework (MTEF) period. Social grants constitute 81.8% of spending in this function over the medium term, including helping women, youth and people with disabilities. Expenditure on social grants, excluding the SRD grant, will increase from R217.1 billion in 2023/24 to R259.3 billion in 2026/27. The SRD distress grant will receive R33.6 billion in 2024/25. Provisional allocations for social protection will be added to the fiscal framework in 2025/26 and 2026/27. Tax revenue to fund social grants Tax revenue to fund South Africa’s budget comes from three main sources: personal income tax, value-added tax (VAT), and corporate income tax. Personal income tax is the largest contributor to tax revenue at R739 billion, followed by VAT at R467 billion and corporate income tax at R303 billion. However, South Africa faces a challenge. It has only 7.4 million personal income taxpayers, while the state supports 28 million people through grants. The National Treasury’s 2024 Budget Review revealed that 7,409,406 people earn a high enough salary to pay income tax. There are 6.8 million registered individuals in South Africa with taxable income below the income‐tax threshold of R95,750 per year. The biggest contributors are people who earn above R1.5 million per year. They contribute R236 billion, or 32%, to personal income tax revenue. What is concerning is that there are only 197,866 people in South Africa who earn over R1.5 million. This means that 2.7% of people who pay personal income tax account for 32% of all collections from this important revenue source. Even more concerning is that South Africa’s expenses, particularly related to social grants, are increasing much faster than tax revenue. For the past decade, the government has consistently outspent its revenue, and it expects to run a deficit of R347 billion in the current financial year. To fund these deficits, the government takes on more debt. South Africa’s debt-to-GDP ratio is around 75%, growing from 2% to 3% annually. This is unlikely to stop. President Cyril Ramaphosa said in July that the government plans to use the SRD grant as the basis for some form of a Basic Income Grant. “We will use this grant to introduce a sustainable form of income support for unemployed people to address the challenge of income poverty,” he said. Creating a permanent basic income grant will add billions to the budget annually, which the country cannot afford. Renowned economist Dawie Roodt said South Africa’s growing debt burden is the biggest threat to the country’s future. “We are heading for a financial crisis in South Africa. The state owes too much money. We cannot afford to spend like we do,” Roodt said. Maybe someone far cleverer has the answer to where the money will come from to repay the debt. Or, is the plan of this government to knowingly default on its debt repayments? Warm regards Cliff photo CLIFF HALL indlovu@axxess.co.za 0827810544