Furious pushback on mandatory social security plan

The Department of Social Development asked for comment around its green paper on Comprehensive Social Security and Retirement Reform – and got it loud and fast.

Of the more than 17 000 comments received by participative democracy platform Dear South Africa, 99% were against what many perceive as yet another tax on a war-weary middle class.

“I think the pushback against this green paper is about as furious as we’ve seen on any campaign we have run,” says Dear South Africa campaign director Rob Hutchinson. “It’s an indicator of how out of touch the government is with the general population. However, it should be borne in mind that this is a green paper and still has to go through a lot of regulatory hoops before this becomes law – which it may not do.”

The green paper proposes setting up a new National Social Security Fund (NSSF) into which employers and employees will have to pay up to 12% of their earnings, with a ceiling of R276  000 per year or R2  760 per month. “This payment will be mandatory, effectively a tax. South African workers will not be able to opt out of paying into this state-run fund,” says the Institute of Race Relations (IRR).

The main beneficiary of the proposed NSSF will be the ANC, says the IRR.

The plan amounts to State Capture 2.0 and will feed the ruling party’s patronage networks by allowing corrupt politicians to tap into large pools of private savings “while providing opportunities to create jobs for pals and family members in the enormous new bureaucracies that will have to be established for nationalising private pensions into the NSSF”.

‘More power to the state’

The Efficient Group’s chief economist Dawie Roodt says the proposal outlined in the green paper is a move in the right direction by trying to consolidate existing systems such as the Unemployment Insurance Fund (UIF), social security grants and the South African Revenue Service (Sars), but that the green paper implies an increase in taxes, with the state handing itself more powers to force working South Africans to save, while granting politicians more power over our savings.

“What’s being proposed is a kind of negative income tax, which is something famed monetarist Milton Friedman spoke about, meaning as you earn less and less you receive income from the state rather than paying it over in the form of income tax, but I don’t see this proposal as being affordable – nor do I see it being implemented.”

‘Illegal and invalid’

Trade union Solidarity says it has started a legal process to stop the proposed NSSF and mandatory state-controlled pension fund in its tracks. It has given the Department of Social Development 30 days to withdraw its green paper, failing which it will continue with its legal process.

According to Solidarity, the publication of the Green Paper in the Government Gazette was illegal and therefore invalid.

The organisation argues that the minister and her department failed to conduct an initial and a final impact study on the implications of the proposed legislation before it had been published, as required by law.

“It is not only the process that is flawed; the content is also irrational and unaffordable,” says Solidarity chief executive Dirk Hermann.

“The minister does not heed the provisions of the Constitution. She simply did not follow the correct procedures with the publication of the Green Paper and must withdraw it immediately. Ordinary hard-working people cannot handle additional tax pressures. The government also has a history of failed central management and looting of funds.”

The Dear South Africa campaign provides some insight into ordinary South Africans’ anger over the proposals.

“I think it’s unfair on the general public to fund these ludicrous proposals. We are already tax[ed] to the extent that a quarter of our salaries already go towards funding the government,” says one commentator.

Says another: “The fact that [President Cyril] Ramaphosa has not immediately, openly, and publicly repudiated the minister, only means that we should distrust his motive in this matter. The dishonesty of not distancing him from the thinking behind this idiotic policy can actually be construed as his concurrence with it. I have never seen any other weakling as a president who is unable to respond publicly when such an idiotic Green Paper is released under his watch.”

SA citizens are among the most taxed in the world, says another. “[I am] not prepared to pay more tax to assist an inept government, failing at every level!”

The green paper has drawn fire on multiple fronts, from Dr Lumkile Mondi, senior lecturer at the School of Economics and Business Science at Wits University, to Mike Schüssler of Economists.co.za, who says if implemented, these proposals would “improve” SA’s ranking to seventh most taxed country (in terms of personal income taxes) in the world.

Read: A universal basic income grant isn’t the solution

The real solution …

What’s needed is massive job creation to reduce the number of people relying on social security (who now outnumber those who have jobs).

“A job is still the best form of security” says Dr Stephen Smith, senior policy advisor at the Association for Savings and Investment SA (Asisa).

“Social security is a safety net when all else fails.”

He says the Covid-19 pandemic and the consequences of the economic lockdown have highlighted the urgent need for the appropriate social protection, particularly of informal and vulnerable workers.

“We need solutions to provide protection for these workers to provide support through unemployment and saving through to retirement as existing legislation and structures are not designed to cater for their needs.”

Listen as John Anderson of Alexander Forbes shares his thoughts on the proposal with Fifi Peters (or read the transcript here):