President Cyril Ramaphosa and Social Development Minister Lindiwe Zulu are proposing that a basic income grant be implemented to alleviate poverty in South Africa, the world’s most unequal nation, as ranked by the World Bank.
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The only way to achieve this would be to increase taxes, which would slow the country’s economic growth and likely lead to a mass migration of taxpayers.
Intellidex, a leading research and consulting firm that specialises in capital markets and financial services in Africa has cautioned against it, saying that it is not sustainable and South Africa cannot afford to introduce a basic income grant.
The research group explains that South African taxes are paid by a relatively small number of people and companies, while its personal and corporate tax rank as the 24th highest out of 118 countries assessed by the OECD. Most of the proposals for a basic income grant would necessitate raising between R50 billion and R100 billion a year.
Adding that borrowing the money to finance the payment, which depending on its structure and level could cost anything between R20 billion ($1.2 billion) and R2 trillion a year, is unfeasible given the state of South Africa’s finances, Intellidex said in the July 22 report. That leaves higher taxes as the sole way of raising the funds.
Intellidex estimates that personal income tax would have to be raised by between 9% and 19% on the current personal income top rate of 45% to raise the funds if this proposal was to be implemented to create a basic income grant.
Value added tax would need to be increased by 14% and 29%, meaning an effective increase of about 2 percentage points from its current level of 15%, while corporate tax would need to be increased by between 24% and 47%.
Hiking VAT would be the best option as the level is relatively low by international standards, Intellidex said.
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