Zulu backtracks on 12% social security tax with no reasons given

Social development minister Lindiwe Zulu withdrew the controversial green paper on comprehensive social security and retirement reform on Monday, without providing reasons.

The green paper was roundly condemned by business, labour and opposition parties, while National Treasury insisted it was not government policy.

There is also concern that the proposed mandatory social security system would upend the private savings sector, which provides coverage to more than 60% of SA’s workforce – all of it voluntary.

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.

The mandatory savings proposal was widely regarded as yet another tax on the middle class that would give more power to the ANC and allow corrupt politicians to tap into the country’s private savings.

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The proposals drew fierce criticism across the board. A Dear South Africa campaign elicited more than 17 000 public comments, some 99% of them against the green paper in its entirety.

Listen to the SAfm Market Update with Moneyweb interview between Fifi Peters and John Anderson from Alexander Forbes on the issue:

Some representatives at the National Economic Development and Labour Council (Nedlac) said the green paper did not consider amendments proposed by business.

Business Unity South Africa (Busa) said the green paper’s proposals were not new, and had been the subject of discussions for several years. Any new system introduced would have to build on the existing savings mechanisms, and would have to be considered in the context of SA’s current fiscal crisis.

Economist Mike Schüssler told Moneyweb, if implemented, these proposals would “improve” SA’s ranking to seventh most-taxed country (in terms of personal income taxes) in the world.

Several commentators point out that the best social security the country can offer its citizens is a job. Social security payments from the state should only be made available when all else fails, says Dr Stephen Smith, senior policy advisor at the Association for Savings and Investment SA (Asisa).

One possible reason for Zulu’s withdrawal of the green paper is the fact that it does not appear to have been subjected to an economic impact assessment study, as required by law.

Trade union Solidarity threatened to take the minister to court unless the green paper was withdrawn, arguing that the process in introducing it was flawed, and that the content was irrational and unaffordable.

By Ciaran Ryan

This article first appeared on Moneyweb and was republished with permission. Read the original article here.