Institute for Economic Justice Calls for SASSA SRD Grant Increase to R700, Funded by Progressive Tax Policies

Institute for Economic Justice Calls for SASSA SRD Grant Increase to R700

The Institute for Economic Justice (IEJ) has proposed increasing South Africa’s Social Relief of Distress (SRD) grant from the current R370 to R700 per month, with funding sourced through a series of progressive tax policies. These recommendations, including the introduction of a luxury value-added tax (VAT), seek to address poverty and provide a meaningful economic boost to the nation’s most vulnerable populations.

Background: The Need for an Increased SRD Grant

The SRD grant was introduced in 2020 as a temporary financial aid program in response to the COVID-19 pandemic. Initially set at R350, it was intended to assist unemployed individuals and others who found themselves in difficult economic situations due to the pandemic. In April 2024, the government raised the SRD grant to R370, a step welcomed by some, yet widely viewed as inadequate. This figure remains well below South Africa’s food poverty line, currently at R700, which marks the minimum income necessary to meet basic nutritional needs.

According to Zimbali Mncube, a budget policy researcher at the IEJ, the current SRD grant falls short in covering even the most essential expenses for food and shelter. Mncube emphasized that increasing the SRD grant to match the food poverty line would provide vulnerable South Africans with a stronger safety net. This increase, he argued, would also have a positive impact on local economies, as recipients of the grant are likely to spend their funds within their communities, helping stimulate economic activity.

Funding Proposal: Progressive Tax Policies

To support this substantial increase in the SRD grant without shifting the burden onto low-income citizens, the IEJ has outlined a series of progressive tax policies. The primary funding method proposed is a luxury VAT—a tax specifically targeting high-end goods purchased by affluent South Africans. The rationale is to levy taxes on luxury items, thereby easing the financial strain on essential goods and services consumed by lower-income individuals. By focusing on wealthier citizens’ spending habits, a luxury VAT would enable the government to generate additional revenue without impacting the broader population.

In addition to a luxury VAT, the IEJ has also suggested a wealth tax aimed at high-income earners, which would include changes to tax rebates and an increase in duties on dividends and estates. This approach seeks to create a fairer tax system that requires those with higher incomes to contribute a larger share toward social welfare. Mncube asserts that these tax measures if implemented in a gradual and well-structured manner, could significantly reduce economic inequality in South Africa while sustaining vital social programs.

The Economic and Social Benefits of a Higher SRD Grant

The proposed increase in the SRD grant aligns with broader goals of reducing poverty and inequality, key issues that South Africa continues to grapple with. Approximately 16 to 22 million people are eligible for the SRD grant, yet current budget limitations allow only about half of these individuals to receive aid. This discrepancy leaves millions in need without support, making the case for an increase even more compelling.

A higher SRD grant would not only help recipients cover basic necessities but also provide a foundation for improved mental and physical health, education, and workforce engagement. By injecting additional funds into low-income communities, the increased grant could foster local business growth and strengthen communal bonds. According to Mncube, “Putting money in the hands of those who need it most stimulates local economies,” as recipients tend to spend their funds locally, creating a multiplier effect that benefits surrounding businesses and services.

Challenges and Criticisms

While the IEJ’s proposal has garnered significant support, there are concerns about the feasibility and long-term sustainability of raising the SRD grant through progressive tax measures. Economists warn that additional taxes on high-income individuals and corporations may lead to capital flight, as wealthier South Africans and businesses may relocate to avoid increased tax liabilities. Economist Dawie Roodt highlighted that only 1.12% of taxpayers are responsible for about 30% of personal income tax revenue, making South Africa’s tax base unusually narrow. In a tax environment where a small number of individuals bear a substantial portion of the tax burden, increasing taxes on this group could potentially destabilize the nation’s tax structure if these individuals decide to leave the country.

Furthermore, South Africa’s corporate tax landscape reveals similar vulnerabilities, with just 0.09% of companies paying 62.5% of corporate income tax. An additional tax load could prompt businesses to explore more favorable tax jurisdictions, potentially reducing government revenue and economic activity within South Africa.

Balancing Social Welfare and Economic Stability

The debate over increasing the SRD grant to R700 is emblematic of South Africa’s larger struggle to balance social welfare needs with economic sustainability. With 44% of the population projected to depend on social grants in the near future, a significant portion of the country is reliant on government support. Given South Africa’s high poverty and unemployment rates, expanding social assistance is a priority. However, the methods for funding such expansion need careful consideration to avoid placing undue stress on the limited tax base.

Implementing a luxury VAT and other wealth-based taxes, while promising in theory, must be weighed against the potential risks of capital flight and reduced compliance among high-income taxpayers. Policymakers will need to navigate these complexities carefully to develop a system that both strengthens social support programs and maintains South Africa’s economic viability.

The IEJ’s call to increase the SRD grant to R700 presents a meaningful opportunity to address poverty and uplift low-income South Africans. While progressive taxes, such as luxury VAT and wealth-based levies, offer potential funding avenues, these measures must be implemented cautiously to avoid negative repercussions. Balancing social and economic needs remains a challenge, yet the proposed grant increase could play a pivotal role in providing financial security and stimulating economic growth in disadvantaged communities.