Social security fund: Low levels of employment and state's corruption track record breed scepticism

19 August 2021 - 14:10 By nomahlubi sonjica
Economist Mike Schussler says the government is trying to adopt a policy that works well in Europe, where income levels are high. Stock photo.
Economist Mike Schussler says the government is trying to adopt a policy that works well in Europe, where income levels are high. Stock photo.
Image: 123RF/ALLAN SWART

With a history of corruption and maladministration in government and many cash-strapped citizens, the proposal that employees should contribute up to R2,760 a month to a social security fund is a step too far.

This is according to economists who were reacting to proposals made in a green paper published by social development minister Lindiwe Zulu.

According to the paper, there is a need for mandatory retirement, death and disability insurance to be offered through the fund, particularly to counteract reliance on the social grant system as the only source of income in old age. The proposed fund is based on “social security principles of risk pooling and social solidarity”, added Zulu.

The contributions will be between 8% and 12% of earnings, up to the current Unemployment Insurance Fund (UIF) ceiling of R276,000 a year.

In rand terms, this means all citizens will be forced to deposit up to a maximum of R2,760 per month into the scheme, Johan Kruger of AfriForum calculated. The organisation said its legal team is ready to contest the proposal "to prevent this plan from getting the green light."

DA MP Geordin Hill-Lewis called for it to be binned, saying: “The proposal is essentially to tax low-income workers and the struggling middle class much more.

“Only economic growth that delivers more work for more people, and which grows the tax base, can fund a larger social safety net.”

Chief economist of Efficient Group Dawie Roodt said the government’s proposal was moving in the direction of trying to consolidate existing systems that the country already has, including the UIF, the grants system and Sars.

This is just a left, socialist kind of idea which in practice is not going to work.
Dawie Roodt, chief economist of Efficient Group

“Many of these suggestions are not bad ideas, but the important part is the ideological basis on which this whole thing is built.

“Clearly what this [green paper] has in mind is the increase in taxes and for the state to force us to save more and for politicians to get more power over our savings. This is just a left, socialist kind of idea which in practice is not going to work. I don’t believe this will ever be implemented,” Roodt said.

Economist Mike Schussler said the government would be taking a lot of people's money and spending power away.

“I agree we should be saving, but I think a simpler way is you continue with the private providers we have [such as pension giants Old Mutual and Sanlam] and encourage them to put 5% aside, then you make it mandatory.

“You can slowly lift it over the years to 7%. I know it’s not enough, but less than 40% of people work in SA,” said Schussler.

Schussler said the government was trying to adopt a policy that was working well in Europe, where income levels were high.

“We want to be like Europe when we don’t have the income or tax base. It’s not possible. Don’t make it too high to start with.

“I think it’s just another tax, as such it’s going to be a problem. Our unemployment levels are enormous. You cannot be Europe when you don’t have the income levels of Europe. At this stage of our development, it’s not possible. We need to think this through.”

We want to be like Europe when we don’t have the income or tax base. It's not possible.
Mike Schussler, economist

Dr Lumkile Mondi, senior lecturer at the school of economics and business science at Wits University, said the idea the government has of “forcing” people to save was “shocking”.

“There’s chaos there in government. We are going through the most difficult period. Our unemployment has shot up tremendously. Corruption in government is still going on. We saw with the procurement of protective PPE, how money has been misused.” 

He said the state capture commission of inquiry had revealed so much corruption, yet the government expected the public to have confidence in it and allowing it to take people's savings.

“It’s horrendous. Government has to do more to clean its house. As a principle it’s a good principle, but this government cannot be trusted because it steals from itself, it steals from us. This will be another scheme for personal savings to be looted.”

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