FINANCE Minister Nhlanhla Nene’s decision to hold back on a proposed Unemployment Insurance Fund (UIF) contribution holiday is a sensible one.
The UIF has built up a R72bn accumulated surplus, following reforms several years ago that brought higher-income earners into its net.
Mr Nene said in his February budget speech that he would reduce the monthly threshold for UIF contributions from R14,872 to just R1,000. That would provide support to the economy, effectively putting R15bn back in the pockets of workers and employers.
The trouble was that the February move appeared to be rather ad hoc. It was not clear that it was necessarily for the right reasons — nor was there any indication of what would happen after the contribution holiday, which was planned to last for just one year. Would contributions then be raised again, even though the economy is not expected to pick up much momentum between now and then?
No doubt the issue of the UIF surplus should be addressed, but that should ideally be as part of a package of reforms to employee benefits. Such a package should align unemployment with retirement, death and disability benefits in a comprehensive social security system. In other countries, social security often covers all of these.
There have long been efforts by the National Treasury and Department of Social Development to find consensus on a social security reform package.
And though the UIF falls under the Labour Department, the Treasury has a say over contributions and it would make sense for all concerned to conduct a proper review of what to do about the UIF and its surplus.
There was a sense that the February proposal was designed mainly to sweeten the 1% hike in the personal income tax rate and protect lower-income earners from its effect. Withdrawing the UIF proposal means the hit on personal incomes will be a bit steeper.
But labour and business had expressed concerns about the proposal and, correctly, Mr Nene will now allow space for the engagement they seek on social security reform and UIF benefits.