President Cyril Ramaphosa has played a major role in implementing a basic income grant in South Africa. However, the country needs to be realistic about where the money can come from. And consider the possibility of future tax increases.
Extra Financial Aids
Michael Sachs was head of the National Treasury’s Budget Office between 2013 and 2017. And he estimates that South Africa has a few options for extra income to help with paying for the new basic income grant. Some examples are, removing the tax breaks on retirement savings. Which would raise the effective rate of Personal Income Tax for the most affluent. Or, Government could step harder on the brake of fiscal drag. But this would create a certain degree of inefficiency. Sachs maintains that a better route would be to raise the rate of value-added tax (VAT).
One way or another, the fact is that the additional expenses created by the new implementation of a basic income grant will need to be covered by additional funds. So it is not the government being generous, but rather the employed citizens and the affluent that may need to be generous. But Sachs emphasizes that the president will need to explain clearly why he believes it is necessary that these citizens pay higher taxes.
Plus, any tax increases, for whatever reason, “must be announced far in advance”.
He also adds that “taxation is the most transparent, accountable, progressive, and efficient mechanism. It has also proven to be the only mechanism that is compatible with sustained growth, especially in large social states.”
Sacrifices for a Better Future
Sachs believes “An income support grant that reaches poor and unemployed workers can become an effective and prideful part of our fiscal constitution. It will mean sacrifices from the wealthy, but also from those in secure jobs, including public-sector workers and other unionised insiders. And this will take political courage to push through.”
However, any additional support such as the basic income grant will need to be managed well and closely monitored. So as not to result in the deterioration of key government services such as basic education, healthcare, and policing. And end up having a negative impact on the generations to come.