The SACP is gearing up for its 15th national conference, to be held before the end of this month. Its revised programme, entitled the South African Struggle for Socialism, was supposed to be released in the form of a discussion document in April, but has yet to be made public.
According to the party’s central committee, the new programme ‘remains grounded on the necessity to drive a second, more radical phase of the national democratic revolution as our most direct route to socialism’.
Against a backdrop of rising fury at the failures of the ANC government to keep the lights on, fix the potholes, run the trains, punish the perpetrators of last year’s riots, or protect people from surging crime, the SACP is determined to ‘produce concrete programmes, campaigns and policies that will re-ignite the hopes and confidence of our people in our movement’.
One of its key aims is to ‘reinstate prescribed assets’, which it says will ‘go a long way towards re-igniting employment creation and the redistribution of wealth’. It also wants to move towards ‘a universal basic income grant, as part of building a comprehensive social security system’.
In the light of this SACP statement – and the party’s long-standing influence over the policy decisions of its ANC ally – it is worth re-examining where the country stands on prescribed assets, comprehensive social security via the proposed National Social Security Fund (NSSF), and the introduction of a basic income grant (BIG).
Prescribed assets and the NSSF
For many years, the ANC has been calling for a return to the ‘prescribed asset’ rules used by the National Party government to compel pension funds to invest more than half their assets in government bonds and state-owned enterprises (SOEs). Yet recently gazetted changes to the relevant rules (Regulation 28 under the Pensions Act) avoid prescription and merely authorise pension funds, with effect from January 2023, to invest up to 45% of their funds in infrastructure projects as broadly defined.
Also relevant, however, is the ‘Green Paper on Comprehensive Social Security and Retirement Reform’. This was gazetted in August 2021 by social development minister Lindiwe Zulu and then hastily withdrawn in the face of mounting criticism. But Zulu made it clear that the Green Paper would be back as soon as it had been ‘clarified’ to avoid further ‘confusion’ and ‘misrepresentation’.
The Green Paper proposes the introduction of the NSSF, into which employees will have to pay 10% of monthly earnings between R1 860 (the amount of the old age pension in 2021) and R23 000 (the earnings ceiling for contributions to the Unemployment Insurance Fund or UIF).
The relatively few employees who earn more than the UIF ceiling will be able to contribute to approved private pension funds out of their remaining or ‘supplementary’ earnings. Private funds and their members will nevertheless be hard hit (as the late Allan Greenblo, a pensions expert, has commented) as ‘roughly 75% of present retirement fund members will be transferred from the private sector into the…NSSF’.
What of the savings that pension fund members have already accumulated? According to the Green Paper: ‘Members of retirement funds may be granted the opportunity to transfer their accumulated retirement savings to the NSSF but will not be obliged to undertake any actions relating to accrued rights that would leave them in a poorer position.’
This is ambiguous at best, especially as the ANC is unlikely to see the NSSF as putting people ‘in a poorer position’. Like its SACP ally, moreover, the ruling party views social security as a ‘public good’ which the state and not the private sector must provide. These factors suggest that the transfer of accumulated savings to the NSSF will in time become obligatory. This will give the state control over accumulated pension and other savings worth some R6 trillion.
Will this enormous savings pot then be made subject to prescribed asset rules requiring investment into Eskom and other bankrupt and failing SOEs? SACP support for this idea suggests Regulation 28 could in time be changed to demand just this.
However, the same outcome could also be achieved in a less obviously coercive way. As Greenblo pointed out last year, just as the risk of prescribed assets seemed to be waning, so the Green Paper brought it back – though in a different guise.
The board that oversees and controls the NSSF is to be drawn from the four Nedlac constituencies of the government, labour, business, and civil society. Business representatives will be significantly outnumbered, while the representatives of the other three groups are likely to be deployed cadres of the SACP/ANC alliance in the main.
According to the Green Paper, all board members will be appointed by the minister. Overall, the board is likely to be a pliant instrument of the revolutionary alliance and may in any event (as Greenblo has warned) have little choice but to ‘do the state’s bidding’ in making its investment decisions.
Other problems with the NSSF
According to the Green Paper, the NSSF will provide retirement, disability, and ‘survivor’ benefits (monthly payments to the dependants of those who die prior to retirement) to all employed South Africans, including the self-employed and those working in the informal sector.
In doing so, it will largely push the private sector out of both the retirement and life insurance industries. According to the Green Paper, it will also reduce the costs and complexity of the present fragmented system and improve ‘coverage, administrative efficiency, delivery and transparency’.
But business representatives at Nedlac have warned that there are multiple risks and problems in the Green Paper’s proposals – which have also remained unquantified and uncosted since they were first put forward in 2012.
One major concern is that contributions to the NSSF will have to rise substantially if the ‘defined benefits’ it promises to all pensioners are to be sustained in an environment of low growth, high unemployment, and escalating public debt.
Modelling of the NSSF proposal by the International Labour Organisation (ILO) has confirmed this risk. According to the ILO, there is likely to be ‘a significant escalation in contributions in the future’, which will erode individual earnings.
This may encourage people to opt out of the NSSF by working informally, as has happened in many Latin American countries where employees have likewise confronted rising mandatory contributions to state pension funds.
The perverse upshot in Mexico, for example, is that the proportion of the Mexican workforce contributing to the country’s compulsory pension scheme is lower than the proportion of the South African workforce that currently contributes to the country’s voluntary pension arrangements.
If people start moving into the informal sector to avoid mandatory NSSF contributions, pension coverage will diminish rather than expand. The tax take will also decrease, making it more difficult for the government to sustain its spending not only on retirement and survivor benefits, but also on education, healthcare, and other vital needs.
Inefficiency and corruption are also likely to loom large, as experience with the Public Investment Corporation (PIC) has shown. The PIC has some R2.5 trillion in assets under its management, mostly for the Government Employees’ Pension Fund.
In the past ten years the PIC was widely seen as having come under political pressure to make a number of dubious investment decisions. Though many of these investments were ostensibly aimed at advancing black economic empowerment (BEE), in practice they also seemed to benefit the ANC or factions within it.
In response to these concerns, President Cyril Ramaphosa established a judicial commission of inquiry into the PIC, which began its work in January 2019. Chaired by retired Judge Rex Mpati, the commission was mandated to investigate all transactions which contravened PIC policy. It was also called upon to assess whether the PIC had ‘adequate measures in place to ensure that its investments did not unduly favour…prominent people and their families or close associates’.
The Mpati commission reported in March 2020. As City Press commented in an editorial, the report found there had been ‘gross negligence, complete disregard of the PIC’s investment processes, suspicion of collusion, and egregious violations of fiduciary duties by board members’. The PIC had also made various investments in politically connected entities without following its own processes.
To overcome these problems, Mpati made 377 findings and recommendations, most of which require action by the PIC and have largely been implemented. A number of additional forensic investigations recommended by the commission remain in progress, however.
Basic income grant (BIG)
The Green Paper also calls for a basic income grant (BIG) to supplement existing old-age, child support, and disability grants. It proposes that the BIG be paid to all adults between the ages of 18 and 59, rather than being confined to those who meet a means test.
A universal grant has two advantages, the document says. First, it will be simpler for SARS to claw back grants paid to wealthy individuals than for the South African Social Security Agency (Sassa) to ‘interview millions of applicants to determine whether they qualify based on their income’. Second, a universal system will make it ‘easier for government to sell an increase in taxes on the working population’.
How big a tax increase does the Green Paper foresee? If the BIG is introduced at the food poverty level, it says, ‘the financial cost will be approximately R200 billion and will require a 10-percentage point increase on income taxes’. (The document also recommends increasing the grant over time to some R7 500 per person per month, through a mix of state interventions.)
The Green Paper begins by acknowledging that the tax increases needed to fund the initial R200bn might seem ‘astronomically high’, but it soon discounts this objection. Most people will find that ‘the benefit received is larger than their increase in taxes’, while ‘the wealthiest deciles will only see a slight reduction in income on average’.
This perspective was echoed last month by the Institute for Economic Justice (IEJ), which said that a BIG would require only a ‘slight’ increase in taxes on the wealthy. The IEJ wants the BIG to go to all adults aged 18 to 59, start at the food poverty level (currently R620 a month), and rise in time to the upper bound poverty level (around R1 300 a month).
According to the Centre for Development and Enterprise (CDE), a BIG starting in 2023 at the food poverty line (increased by 6% for inflation) would cost R280bn in its first year alone. It would also require each of the 3.5 million people in the wealthiest 10% of households to pay an extra R80 000 a year in personal income tax or roughly R6 500 a month.
For most individuals in this category, the extra tax would reduce their disposable income from some R25 000 to R18 500 a month. This is not a ‘slight’ reduction in income, as the Green Paper claims and the IEJ echoes. It will be a major blow to most of these households – and one that will intensify each year as the value of the BIG rises towards the upper bound poverty level and the costs of the grant approach R600bn a year.
Imposing a tax increase of this magnitude on a skilled and relatively mobile group could spark a further flight of capital and skills. It would also reduce consumer spending, diminish the tax take, deter direct investment, and curtail economic growth. This in turn would weaken the rand, push up inflation, trigger additional interest rate hikes, and increase the country’s already massive burden of public debt.
A poor substitute for jobs and self-reliance
Though current social grants (including a ‘social relief of distress’ grant initiated during the Covid-19 lockdown) help some 28 million South Africans to survive, they are an inadequate and increasingly unaffordable substitute for the jobs and self-reliance most people would prefer to have.
The grants have also increased dependency on the state and given the ANC a vital instrument of social and political control, especially at election times. As political analyst Moeletsi Mbeki has noted, ANC voters do not support the ruling party for ideological or policy reasons but ‘because of their material dependence on the ANC government’.
This, of course, is why the SACP/ANC alliance wants increased dependency on the state for pensions and/or a BIG in the run-up to the 2024 election. This is also why it wants prescribed asset rules and/or the NSSF to give it control over the country’s enormous pot of pensions and other savings – and so expand its patronage machine.
This is also why the revolutionary alliance’s self-serving stratagems must be defeated so as to throw off the dead weight of the failing state and start building up the country once again.