Welfare grant recipients get modest inflation-beating increases

Treasury has given to the poor with one hand and taken with the other as it scales back on its original plans to hike VAT by two percentage points but reduces planned increases to welfare grants.

The tabling of this year’s budget was postponed to March 12 after cabinet refused to sign off on finance minister Enoch Godongwana’s February plan to raise VAT by two percentage points. Critics viewed the increase to 17% from 15% as a revenue-raising measure that would have a disproportionate impact on poor households and were not convinced by his assurances the blow would be cushioned by increases to welfare grants and an expanded basket of VAT zero-rated foods.

VAT is now set to increase to 15.5% on May 1 and by another half a percentage point on April 1 2026.

“VAT is a tax that affects everyone. By opting for a marginal increase ... its distributional effect and impact were cautiously considered. The increase is ... the most effective way to avoid further spending cuts and to enable us to extend the social wage,” Godongwana said in his speech to parliament.

Welfare grant spending will rise by just R8.2bn over the medium term instead of the R23.3bn increase proposed in February.

For welfare grant recipients, other than those claiming the Covid-19 social relief of distress (SRD) grant, this means smaller increases to their monthly allowance will come into effect on April 1. The R2,185 old age grant, R2,205 war veterans grant, R2,185 disability grant and R2,185 care dependency grant will each increase by R130 instead of R150. The R1,180 foster care grant will increase by R70 instead of R80, while the R530 child support grants and grants-in-aid will get an extra R30 instead of R50.

The increases remain above inflation but by a smaller margin than before. Treasury has revised down its inflation estimate for 2025 to 4.3% from 4.5%. As there is a 5.7% nominal increase in the child support and grant-in-aid grants, they increase by 1.4% in real terms compared to the 4.9% real increase planned in February. The rest of the grants grow 5.9% in nominal terms which translates to a real increase of 1.6%, compared to the 2.4% real increase proposed in February.

A total of R35.3bn has been set aside in 2025/26 to extend the SRD grant for another year to March 31 2026 but it remains frozen at R370 per month. No provision has been made for the following years as the government still needs to take a “fundamental, comprehensive decision” on its future, said Edgar Sishi, the head of Treasury’s budget office.

The SRD grant was introduced in 2020 to compensate low-income workers for the effects of the lockdowns imposed by government in response to Covid-19.

Treasury anticipates the number of social grant recipients, excluding the SRD grant will increase to 19.3-million in 2027/28 from 19-million in 2025/2026 primarily due to the growing population of older people.

Treasury plans to expand the basket of VAT-exempt food to include offal, tinned vegetables and dairy liquid blends which are similar to milk but do not require refrigeration.

Treasury said the benefit from items that were zero-rated in 2019 did not appear to have been fully passed through to low-income households, but had led to price decreases for products such as cake and bread flour. Treasury said it had evaluated VAT zero rating requests for new products by considering the revenue forgone against the impact on lower-income households.

It considered consumption and expenditure patterns by income decile, and used equity-gain analysis to determine which products were disproportionately consumed by low-income households.

“The additional food items proposed for zero rating in the 2025 budget are well targeted, with relatively limited revenue forgone to the fiscus,” said Treasury.

kahnt@businesslive.co.za