Social development minister Lindiwe Zulu recently published a Green Paper which proposes comprehensive social security and retirement reform.
The Department of Social Development’s plan includes a mandatory social insurance scheme called the National Social Security Fund (NSSF).
The NSSF would complement social assistance programmes, social insurance funds, and private arrangements.
It would also provide pensions to workers who reach retirement and offer disability and survivor benefits to those who need them.
South African taxpayers will be forced to contribute between 8% and 12% of their earnings to the new government fund.
The paper further proposes a Basic Income Grant (BIG) for working-age South Africans while maintaining the existing social grants for children, the elderly, and people with disabilities.
The plan is to pay all South Africans of working age a basic income grant of between R585 and R1,268 a month. SARS will then recoup the grant paid to wealthy individuals.
Even at the low end of the scale, the cost of this grant will be approximately R200 billion and will require a 10 percentage point increase in income taxes.
Economist Mike Schussler slated the basic income grant and the national social security fund proposals, saying it is not the solution to poverty.
He said South Africa already has one of the world’s biggest social welfare programmes funded through some of the world’s highest taxes.
Instead of increasing taxes further, which will put strain on the economy, Schussler said the government should focus on job creation.
Jobs should come from the private sector, which requires the government to create a business-friendly environment that attracts investors.
Efficient Group director and chief economist Dawie Roodt shared Schussler’s view, saying it is not viable to increase taxes in South Africa.
Roodt added that the South African government has a poor track record regarding financial management.
He said the government is known for inefficiency and corruption, which destroyed many state-owned enterprises.
Roodt said to fix unemployment and poverty in South Africa, the government must start at the right place — grow the economy.
“We must make it easier for people to invest and grow the economy. We also have to improve the efficiency of the government,” said Roodt.
It is, however, unlikely that the ANC government and politicians like Zulu will listen to economists like Schussler and Roodt.
The ANC has been toying with the concept of a basic income grant for years and is so proud of the increase in grant recipients that it uses it as part of its political campaigns.
Therefore, its focus is not on creating an investor-friendly business environment and growing employment but rather on growing welfare benefits to citizens.
This strategy brings South Africa closer to a fiscal cliff, where civil service remuneration, social assistance payments, and debt-service costs will absorb all government revenue.
Schussler highlighted that the country only has around 5 million private-sector taxpayers.
These 5 million taxpayers have to support a growing number of people who rely on government grants.
To put this into perspective, the number of South Africans who rely on government grants increased from 3 million in 1996/7 to over 18 million in 2019/20.
In 1996, the number of grant recipients was far lower than the number of employed people in South Africa.
It changed after President Jacob Zuma took power, and the number of grant recipients is now far higher than the number of employed people.
Nkosana Mashiya, executive of Risk Management at Capitec, South Africa’s employment and social grants numbers one of the biggest risks for the country.
He said the situation where grant recipients outnumber employed taxpayers is unsustainable and should be addressed.
The table below shows the number of grant recipients between 1996 and 2020.
|Social grant recipients in South Africa|
|Year||Social grant recipients|
|1996/97||3 018 909|
|1997/98||2 832 156|
|1998/99||2 923 718|
|1999/00||3 034 381|
|2000/01||3 864 463|
|2001/02||4 033 384|
|2002/03||4 969 666|
|2003/04||6 494 115|
|2004/05||9 421 654|
|2005/06||10 974 076|
|2006/07||12 015 059|
|2007/08||12 423 739|
|2008/09||13 072 173|
|2009/10||14 057 365|
|2010/11||14 935 832|
|2011/12||15 407 194|
|2012/13||16 106 110|
|2013/14||15 932 473|
|2014/15||16 642 643|
|2015/16||16 991 634|
|2016/17||17 200 525|
|2017/18||17 509 995|
|2018/19||17 811 745|
|2019/20||18 290 592|