10 May 2018

9. Affordable Comprehensive Social Security Framework for Future Generations

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Introduction

South Africa has an extensive social security system that provides for many of its citizens, despite weaknesses and inefficiencies in the system. However, the country does not have an affordable basic social security framework that prevents its citizens from falling below a certain poverty level and that meets best practice standards, as set out by the International Labour Organization. It is estimated that 4 million South African workers have no social security coverage, which includes pensions, child grants and health, disability and employment injury and illness benefits.

 

Guiding principles

BUSA believes that more can and should be done to develop a comprehensive social security framework that can realistically meet the needs of the country and a productive labour market. This requires participation by the public and private sectors. An effective social security framework requires social budgeting, clear planning, good governance, integration and compliance by business and government.

 

The design and costs of the framework should be sustainable and contributed to by business, government and individuals. Businesses and employees should not bear a disproportionate share of the costs, as this would increase the cost of doing business, reducing the competitiveness of South African enterprises. The social security system should be funded on a contributory basis – people should pay towards the benefits they eventually receive – to ensure that it is sustainable and does not undermine necessary fiscal consolidation and stability in South Africa.

 

Social budgeting – the process by which society’s goals and priorities, such as those set out in the National Development Plan, are better reflected in government policymaking and budgeting – is key to creating a sustainable, comprehensive social security system that contributes to fiscal stability and the growth and development of the economy.

 

Challenges

Health

  • South Africa spends 8.7 percent of its gross domestic product (GDP) on health, significantly more than the 5 percent recommended by the World Health Organization. However, the private sector spends 4.3 percent of this to provide for 16 percent of the population. The public sector spends 4.3 percent of this, but must provide medical services to 84 percent of the population.

 

Retirement

  • The state old-age pension covers 3.3 million people at a cost of R68 billon a year. There is no universal contributory system for all South Africans, leaving 7 million workers partially funded or self-funded and 9 million workers unfunded. This is a massive risk to the fiscus.

 

To be effective, social security programmes require good governance, integration and compliance by business and government. South Africa’s existing social security framework is fragmented and suffers from duplication and gaps. To date, government has been unable to coordinate its different departments to develop a coherent, comprehensive framework of social security laws.

 

Analysis

National Health Insurance (NHI) and comprehensive social security are important, as are education and other social and economic development programmes necessary to address the challenges of poverty, inequality and unemployment. However, BUSA advises government to be cautious in announcing policies that commit it to significant expenditure, such as NHI and comprehensive social security, as these are not sustainable. Institutional design and credible cost-benefit analyses must be undertaken as part of any consideration of fiscal commitments.

 

Notwithstanding its support for universal health care, business believes it is imperative to recognise the financial implications of the present White Paper on National Health Insurance. If adopted, NHI would pose a significant risk to the debt-to-GDP ratio, making it significantly higher than any other government commitment.

 

The proposal to create a single, mandatory National Social Security Fund, to provide retirement and risk benefits, reduces people’s freedom of choice as to how to spend their discretionary income and provide for themselves, and implies additional taxation. If the national savings pool is reduced to pay grants, there will be significantly less funds available for investment in infrastructure, businesses, and government and corporate bonds, among other things.

 

The pay-as-you-go National Social Security Fund proposed by government effectively transfers risk between generations, as the money put into the fund by those working will be used to pay benefits to those in need or retiring. This proposal has not been effectively costed. Given South Africa’s structural unemployment problem and huge social demand, the proposal poses significant fiscal risks to the country, despite the stated intention of the National Social Security Fund to always hold on to 25 percent of its reserves.

 

Tax policy has been an effective tool for redistribution, funding extensive public services such as education and health as well as a massive social grants system. However, over the long term, business believes in transforming the economy to include lower-income, disadvantaged individuals, which would mitigate the need for social grants and free public services, and increase the tax base.

 

The way forward

BUSA is undertaking research aimed at developing a unified business position on a comprehensive social security framework, which it will use to engage its social partners in the National Economic Development and Labour Council and other forums. A task team has been established to deal with NHI, which, if not managed properly, represents a considerable risk to the country’s fiscal stability.

 

Conclusion

Business is committed to contributing to the creation of a comprehensive social security system at a pace that is affordable, sustainable and fiscally responsible. The best form of social security is a job in a growing economy. Provision of social security is dependent on government sustaining its pro-poor, pro-growth policies. A clear and comprehensive social security framework and fiscal consolidation through cost-containment measures over the medium term are needed to achieve these policies.

 

Sources

ASISA. Comprehensive Social Security Reform. November 2017.

BUSA. Submission to the National Treasury in Advance of the National Budget 2018.

BUSA. Triple Challenge of Inequality, Poverty and Unemployment. Presentation. 26 July 2017.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_raw_html]JTVCcXVpY2tfbGlua3MlMjBwYXJlbnQlM0QlMjJzb2NpYWwtc2VjdXJpdHktYm90dG9tJTIyJTVEJTVCJTJGcXVpY2tfbGlua3MlNUQ=[/vc_raw_html][/vc_column][/vc_row]