Free Market Foundation: State-Run Fund an ill-considered idea, will add to economic woes
24 August 2021
The Department of Social Development’s Green Paper on Comprehensive Social Security and Retirement Reform will, if adopted, result in the most harm for those it is ostensibly intended to benefit. The Free Market Foundation (FMF) calls on government to urgently reconsider any proposals that increase the state’s power over citizens’ financial affairs and urges all South Africans to resist the proposals contained in the Paper.
The Paper proposes the establishment of a National Social Security Fund (NSSF). All employers and employees will initially be obliged to contribute up to 12% of their earnings up to a certain ceiling – currently proposed as earnings of R276 000 per year. Therefore, those who earn more than R276 000 a year will pay a maximum of 12% of R276 000 a year – around R33 100, or R2 760 a month.
The Paper goes on to explain that the first 10% of the contribution will go to the mandatory fund and the next 2% will go towards unemployment insurance. In many cases, that would leave the average formal sector earner paying a 38% marginal tax rate, unheard of at this level of income in the world. The increase in taxes at this level of income would result in debt defaults, a collapse in consumer spending, and a host of further economic disasters.
FMF Deputy Director Chris Hattingh said, “On the one hand, the Paper contains rhetoric that is aimed at punishing higher-income earners and therefore wealth creation itself. On the other hand, the proposals will punish low-to-middle-income citizens and dependents, by forcing them to rely on a state-run fund – which will never deliver returns to the level that people could attain through private sector options.”