Mandatory tax increase to fund new grant scheme

The Minister of Social Development, Lindiwe Zulu, has published the Green Paper that proposes increasing income taxes to fund a Basic Income Grant (BIG) and mandatory contributions to a state-run pension scheme. According to Zulu, this is part of the Comprehensive Social Security and Retirement Reform plan. The Department of Social Development said a 10% increase on income taxes would be needed to raise R200 billion to fund the lowest level of its proposed universal basic income grant,. However, the 10% income tax hike would only fund the lowest level proposed for the Basic Income Grant, which is at the food poverty line.

Depending on the government’s objectives, the green paper proposes the following options for the BIG: R585 per month, a grant value set near the food poverty line. R840 per month, a grant value set around the lower-bound poverty line. R1 268 per month, start the grant value at the upper-bound poverty line. The paper further states that basic income for all South Africans should be at least R7 500 per month, using a combination of the grant and labour. Ruffling even more feathers, in addition to the Basic Income Grant, the green paper also proposes creating a mandatory pension and insurance system called the National Social Security Fund (NSSF). This will be funded with payroll contributions ranging between 8% and 12% of earnings.

Trade union Solidarity announced that it would fight the green paper. It warned it would result in legal action if the proposals in the paper are implemented in formal legislation. Solidarity stated that South African workers are already overtaxed, and tired of paying more taxes for fewer and fewer services. “Workers in South Africa are tired of seeing their hard-earned money being wasted by the state. At best, the state is just inefficient and clumsy, but more often, funds like this and the NHI is simply an excuse for looting and corruption. On top of that, tax money is still looted at a large scale,” said Dirk Hermann, chief executive officer of Solidarity. Apart from the new tax proposals, Hermann said the country’s tax rate is already high, and ordinary people have to incur expenses for which they are already taxed. The green paper is out for public comment on the government’s website, and submissions close 10 December 2021.