Wednesday, January 26

SA proposes mandatory contributions to the welfare fund


South Africa should impose mandatory levies on companies and workers to create and capitalize a public welfare fund, the Department of Social Development proposed.

All employers and workers should contribute up to 12% of their earnings to establish a fund that could provide unemployment, retirement and disability benefits, the department said in a so-called green book on social security and retirement reform. The levies should be mandatory for those who earn at least R276,004 ($ 18,190) a year, the current limit for unemployment insurance contributions, and the government should subsidize contributions for low-income workers, the department said.

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While elements of the proposal date back more than a decade, riots that erupted last month and claimed 354 lives have revitalized those calling on the state to increase support for the vulnerable. South Africa is one of the most unequal nations in the world, a legacy of the apartheid system that disadvantaged the black majority and ended in 1994.

A move to impose additional taxes could accelerate an exodus of high-income people from South Africa. It would also mark a significant change from former Finance Minister Tito Mboweni’s February budget, who reversed the decision to raise an additional R40 billion in taxes, provided a tax break for people who beat inflation, and signaled a one percentage point cut. full on corporate taxes in the country. next fiscal year.

Enoch Godongwana, a former unionist and head of economic policy at the ruling African National Congress, which replaced Mboweni as finance chief on August 5, told investors last week that he does not anticipate significant changes in budget policy.

The social development department also suggested that social assistance subsidies be universally available to all, regardless of income or assets, and that financing be secured by changing the structure and amount of tax refunds, and possibly introducing new subsidies and additional taxes. The proposals could take up to two years to become law if they are adopted.

A basic income subsidy of R1 306 a month, an inflation-adjusted upper-limit poverty line for South Africa, could drive the country’s debt burden through 100% of gross domestic product in two years and could trigger downgrades on the credit rating, according to Michael. Kafe, an economist at Barclays Bank Plc.

South Africa’s debt assessments are at the lowest levels since it first obtained credit ratings 27 years ago. The International Monetary Fund warned last month that deviations from the National Treasury’s projection that debt will peak at 88.9% of gross domestic product in fiscal 2026 could put public finances on an “explosive path.” .

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