Almost 15 million South Africans, or more than a quarter of the population, now receive social grants, and this figure is set to increase substantially in the years to come as the government raises the thresholds for the means test.
The means test thresholds, which determine who qualifies for social grants, will be raised in forthcoming Budgets until they are in line with the income tax threshold, according to the 2011 Budget Review.
In other words, eventually everyone who does not qualify to pay tax will be eligible for a social grant.
The income tax threshold for the 2011/12 tax year is R59 750 if you are under the age of 65. The threshold is R93 150 if you are between the ages of 65 and 75, and R104 261 if you are over the age of 75.
According to the Budget Review, the means tests are complicated, prevent households whose incomes are marginally above the thresholds from receiving support, increase administrative costs and give employees an incentive to liquidate their savings before they retire.
A means test based on your annual income and the assets you own is used to determine whether or not you qualify for a social grant. You do not qualify for a grant if you earn an annual income above, and/or own assets that are worth more than, the amounts set down in the means test thresholds.
The annual income threshold for old-age and disability grants has been raised from R31 296 to R44 880 and the asset threshold for old-age and disability grants has been increased from R518 400 to R752 400, Selwyn Jehoma, the deputy director- general of Social Development, says.
People who earn an annual salary up to a certain level – the disregard level – qualify for the full grant. The grant decreases on a sliding scale as your income rises above the disregard level.
In this week’s Budget, Finance Minister Pravin Gordhan increased the disregard level for an old-age or a disability grant from an annual salary of R7 272 to R13 680.
“It is expected that the disregard level and the means test threshold will be raised in subsequent Budgets until the means test threshold is in line with the tax threshold. This reform will benefit households with limited means, and alignment with the tax threshold will reduce administrative complexity,” the Budget Review says.
More than 729 000 pensioners over the age of 75 will benefit from changes in the social grant system this year. If you are over the age of 75, you will receive an additional R20 a month, taking your old-age grant to R1 160. Pensioners over 75 who still pay tax will also benefit from an additional tax rebate of R2 000 a year, which means that the income tax threshold for pensioners over the age of 75 will increase to R104 261 a year.
The Budget Review says that social grants should not cultivate dependency or act as a disincentive to look for work but should provide income security in old age, family support in the event of disability and help children to stay in school.
Social grants expenditure is projected to increase at an average annual rate of 10.6 percent over the next four years.
“Over the next three years, government will spend R336 billion to fund social grants,” Jehoma says.
Social grant payments for the 2010/11 tax year went mainly to pensioners (38 percent), children in poor households (35 percent) and the disabled (19 percent).
The old-age grant was the biggest single grant in the 2010/11 tax year: it cost the government R33.8 billion.
The child support grant was the largest grant by number of recipients in 2010/11, accounting for 69 percent of total grant recipients, or more than 10 million children.
According to the Budget Review, the number of foster care beneficiaries increased by 12 percent over last year, to 613 000. This was largely as a result of a growing number of orphans associated with the impact of Aids.
The government spends more than R9 billion a year on the administration of “our fragmented social security system”, Gordhan says. The government plans to align and consolidate unemployment insurance, occupational injury compensation, the Road Accident Fund (RAF) and the social grant system to offer better protection to vulnerable households at a lower administrative cost, he says.
One of the main reasons for the high cost of administering the grants system is the duplication of functions, such as the collection of contributions, the management of accounts and the disbursement of benefits, Gordhan says.
The Budget Review states that over the next six months the South African Social Security Agency will develop a new social grant payment system to ensure:
* Security of funds – grants will be transferred electronically and be kept in accounts at regulated organisations; and
* Accessibility of funds – beneficiaries should be able to access their funds anywhere and at any time.
The fuel levy that funds the RAF will increase by eight cents in April, from 72 cents a litre to 80 cents a litre. The RAF provides compensation for losses due to the wrongful or negligent drivers of another vehicle. Losses covered by the RAF include the loss of earnings, medical expenses and funeral costs.
SOCIAL GRANTS INCREASES
With effect from April 1 this year, social grants will increase as follows:
* The old-age, disability and care-dependency grants will increase from R1 080 to R1 140 a month;
* Pensioners over the age of 75 will receive an additional increase of R20, taking their old-age grant to R1 160 a month;
* The foster care grant will increase from R710 to R740 a month;
* The child support grant will increase from R250 to R260 a month, and in October it will increase to R270 a month; and
* The war veterans’ grant will increase from R1 100 to R1 160 a month.