Zulu pension scheme could lead to taxpayer revolt

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Minister of Social Development Lindiwe Zulu. Photo: File

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Social Development Minister Lindiwe Zulu has opened the door to the exit of billions of rand from the country’s pension funds by proposing that up to 12% of wages and salaries be deducted from contributions to a “social security fund” managed by the state.

There have also been warnings that it could lead to a revolt among taxpayers.

The Green Paper on Comprehensive Social Security and Pension Reform was published in the Official Journal on Wednesday for public comment.

The document proposes the creation of a social security fund to help protect workers who retire without a pension.

However, the Green Paper also says the state should strive to transfer up to R7,500 per month to every South African to raise living standards.

“This is an ambitious value that the government should strive to achieve through a mix of transfers, labor policies and economic policies,” the social development department said.

The proposed fund is to be financed by a contribution of 12% of the wages and salaries of the well-to-do, or by a tax increase of 10 percentage points.

READ: Lindiwe Zulu: the ANC, a buffer between the rich and the poor

The proposals in the document are described in detail and have been updated with figures adjusted for inflation and other variables.

In protest, the research department of the Solidarity movement began to work on proposals for a type of tax protest, while the NGO Pension Protector, which was created after the theft of thousands of retirees from Transnet by the State said it would help pension fund members move their funds. abroad.

Connie Mulder, director of the Solidarity Research Institute, said proposals for some 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 lead to proposals on the way union members will be “helped pay as little tax as possible”.

The movement has around 350,000 members.

Around 111,000 South Africans currently pay the top tax rate of 45%. If Zulu’s proposals for an additional 10% income tax were accepted, it would raise the tax rate for this select group 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, Mulder warns.

READ: The Benefits of Setting a Lower Corporate Tax Cap

“If 30,000 of them decide to leave the country, we will have a huge income tax problem.”

Lawyer Ig Bredenkamp, ​​executive director of Pension Protector, says there is a fundamental breach of trust between the taxpayer and the government, as public pension fund proposals could harm existing funds by dividing contributions from members between a private and compulsory public fund.

Any government move that appears to jeopardize existing pension funds will cause investors and pension fund members to go into combat mode or flee and withdraw their pension funds, and move abroad despite the cost. , said Bredenkamp.

“If the government does not want to listen to alternative proposals to create pensions for the poor, we will actively help all those who want to secure their pensions through activism, court cases if necessary and advice on the transfer of funds. pension to secure jurisdictions, ”he said. noted.

READ: Recourse for members as GEPF sets up its own complaints office

Regarding the remarks of the Treasury spokespersons that the Green Paper was not a government policy, that the Treasury had not been consulted on this subject and that the proposals it contained had not been tested at all compared to state budget models, Mulder said this would be of no help.

“It’s part of the legislative process. It has been posted for comment until December 10, after which a white paper will be drafted and legislation will be developed on it. It could take five years, but it looks like the government is determined to do it.

“The damage its publication has already caused to the pension fund industry and to general investor confidence is enormous,” Mulder said.

He points out that the Treasury offered just as much resistance to the initial proposals to create a national health insurance system that also had serious tax implications, and yet the process continued.

“The ANC started to act in a much more authoritarian manner after the riots and got used to only issuing regulations,” Mulder said.

He thinks this can be attributed to the ANC strategy and tactics document.

“This [green paper] is a way to test resistance. If there is a lot of resistance, they will keep it for a year or two and then try again.

“We must not be deluded, 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 focuses solely on redistribution of tax revenues.

“If this is not really government policy, then the Green Paper must be withdrawn and appropriate action must be taken against the Zulu. It is certainly not acceptable that a minister alone publishes a proposal of such significance in the Official Journal and that no action is taken, ”he said.

“This is a government that basically doesn’t understand how taxes work in a modern economy. Throwing such numbers at random has huge implications; just publishing them in the Government Gazette without any consultation as part of a formal process is a past recklessness – these are people playing Sun City instead of running a country.

“It is in fact 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 an additional 20% in some areas to collect 112 billion rand as national health insurance [system] will cost us.


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