Social Development Minister Lindiwe Zulu opened the door to the outflow of billions of rands of pension money from the country with her proposal that up to 12% of wages and salaries be deducted for contributions to a state-run “social security fund”.
There have also been warnings that it could lead to a revolt among taxpayers.
The Green Paper on Comprehensive Social Security and Retirement Reform was published in the Government Gazette for public comment in August and was withdrawn two weeks later without any reasons provided.
The document proposed the creation of a social security fund to help protect working people who retire without a pension.
However, the green paper also said that the state must strive to transfer as much as R7 500 a month to every South African to increase living standards.
“This is an aspirational value that government should strive to achieve through a mix of transfers, labour and economic policies,” the social development department said.
The proposed fund must be financed by a contribution of 12% of affluent people’s wages and salaries, or with a tax increase of 10 percentage points.
The document’s proposals are described in great detail and have been updated with adjusted figures to allow for inflation and other variables.
In protest, the Solidarity movement’s research department began working on proposals for a type of tax protest, while the NGO Pension Protector, which was established after thousands of Transnet pensioners were robbed by the state, said it would help members of pension funds move their funds abroad.
Connie Mulder, head of the Solidarity Research Institute, says that proposals for a type of tax protest are being prepared for the union’s main council meeting at the end of this week, but it looks like it will result in proposals for how members of the union will be “helped to pay as little tax as possible”.
The movement has about 350 000 members.
About 111 000 South Africans currently pay the maximum income tax rate of 45%. If Zulu’s proposals for an additional 10% income tax were to be accepted, it would increase this select group’s tax rate to 55%, even though experts say they receive virtually nothing from the state in exchange for this huge tax burden.
This could cause emigration to skyrocket, warns Mulder.
“If 30 000 of them decide to leave the country, we will have a huge problem with income tax.”
Advocate Ig Bredenkamp, executive director of Pension Protector, says there is a fundamental breach of trust between the taxpayer and government because the proposals for a state pension fund could harm existing funds by dividing members’ contributions between a private and compulsory state fund.
“If government does not want to listen to alternative proposals to create pensions for the poor, we will actively assist anyone who wants to secure their pensions by means of activism, court cases where necessary and advice on moving pension funds to safe jurisdictions,” he said.
Regarding remarks by Treasury spokespeople that the green paper was not government policy, that Treasury had not been consulted about it and that the proposals in it had not been tested against the state’s fiscal models at all, Mulder said that would not be of any help.
“It is part of the legislative process. It was published for comment until December 10, after which a white paper will be drafted and legislation will be developed for it. It could take five years, but it seems that government is determined to do so.
“The damage that its publication has already done to the pension fund industry and to broad investor confidence is enormous,” says Mulder.
He points out that Treasury offered just as much resistance to initial proposals to create a national health insurance system that also had serious tax implications, and yet the process continued.
“The ANC began to act much more authoritarian after the riots and has become accustomed to publishing only regulations,” Mulder says.
He believes this can be traced back to the ANC’s strategy and tactics document.
“This [green paper] is a way to test how much resistance there is. If there is a lot of resistance, then they will store it for a year or two and then try again.
“We must not be under any illusions, we will have to start getting used to a government that is increasingly hostile to taxpayers, which has stopped trying to increase the tax base and which only focuses on redistributing the tax revenue.
“If this is not really government policy, then the green paper must be withdrawn and appropriate action taken against Zulu. Surely it is not acceptable that a minister should publish such a far-reaching proposal in the Government Gazette on her own and that no steps are taken,” he says.
“This is a government that fundamentally does not understand how taxes work in a modern economy. Throwing such numbers around randomly has enormous implications; simply publishing them in the Government Gazette without any consultation as part of an official process is past recklessness – it’s people playing at Sun City instead of ruling a country.
“It is actually a recognition that our economic policy has failed and that it is being replaced by a progressive social policy.
“We think the tax burden in South Africa is already absurd and now our government wants to increase it by another 20% in certain areas to collect R112 billion that the National Health Insurance [system] will cost us.”