Proposed ‘social security fund’ would cost South Africans an extra R2,750 a month in tax

 ·20 Aug 2021

The opposition Democratic Alliance has warned that the government’s proposal to introduce a new National Social Security Fund (NSSF) will effectively lead to a steep monthly tax on working South Africans.

In a green paper this week, the Department of Social Development said that the proposed NSSF would fill a significant gap in South Africa’s social security arrangements and complement social assistance programmes, social insurance funds and private arrangements.

The NSSF would also provide pensions to formal, informal, and self-employed workers who reach retirement, disability benefits to those who are physically unable to work, and survivor benefits to their dependants should they not live until retirement, the paper states.

Under the proposals, employers and employees would have to pay up to 12% of their earnings into a state-run national social security fund.

The contributions would be between 8% and 12% of earnings, up to the current Unemployment Insurance Fund (UIF) ceiling of R276,000 annually. The DA said that this would amount to around R2,750 a month for those earning R275,000 a year or more.

The proposal should be withdrawn and binned, it said.

“The proposal shows a lack of basic understanding of how the tax system works and is bizarrely regressive in that it is aimed at low earners rather than high earners. The proposal is essentially to tax low-income workers and the struggling middle class much more.

“South Africans are already facing extraordinary financial pressure in a shrinking economy, as millions have lost jobs or had their businesses shut or looted. The tax base is shrinking.”

The opposition party said that no nation could be taxed into prosperity. Only economic growth that delivers more work for more people and grows the tax base can fund a larger social safety net.

Treasury responds

As taxpayers and analysts warn of the potentially harmful effects of the NSSF, Treasury has been quick to note that the green paper is not yet official policy.

Treasury deputy director-general Ismail Momoniat told BusinessDay that the proposal reflected ‘some of the aspirations’ of the various constituencies in the National Economic and Labour Council (Nedlac). Still, these constituencies had not reached a consensus after several years of discussion.

He added that the publication of the green paper on Wednesday by social development minister Lindiwe Zulu took the Nedlac constituencies by surprise and that the proposals had not been tested against fiscal and tax policies.

This was echoed by the Association for Savings and Investment South Africa (ASISA), which said that the core proposals set out in the green paper are not new and have been the subject of discussion and debate for almost twenty years.

Dr Stephen Smith, a senior policy advisor and member of the ASISA social security standing committee, said that the green paper contains significant proposals to streamline and restructure the social security system.

“These are complex and wide-reaching reforms, which will not result in immediate change. Members of the public must have an opportunity to comment. ASISA, therefore, supports the consultative process being followed by the minister.”

Smith said it is important that future social security reform programmes build, rather than disrupt, the existing contractual savings and life insurance arrangements of both public and private sector employees.

“It is these savings pools that finance much of the country’s investment requirements and fund South Africa’s capital market.”

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