EDITORIAL: Loony pension plan reveals desperation

South Africans are used to shrugging off irrational policy proposals by cabinet ministers. But the vastly unaffordable and distinctly unworkable social security reforms published by social development minister Lindiwe Zulu last week really take the cake.

Zulu’s paper proposes that all workers — including those with existing pensions — contribute 8%-12% of qualifying earnings up to a R276,000 ceiling to a new national social security fund, which would provide retirement, survivor, disability and unemployment benefits for all. The government would subsidise the contributions of low-income workers.

The outcry from public sector workers, who have their own pension fund, was predictable. So was the alarm raised by the R6-trillion private retirement and savings industry. This is understandable: by threatening to destabilise an industry which forms the bedrock of government borrowing and infrastructure funding, the proposals pose a clear risk to the economy and the fiscus.

The National Treasury was quick to stress that the proposals are not policy, have not been to cabinet and have not been quantified or tested against SA’s tax or fiscal policies. And they fly in the face of research from the National Economic Development & Labour Council, which raised so many objections that the proposals are still stuck there in limbo since 2016.

In the ensuing uproar, the fact that the green paper also proposes a R200bn universal basic income grant (BIG), also to be financed through higher taxes, has been completely overlooked.

The whole debacle raises two major issues.

The first is that the government clearly still hasn’t grasped how much damage policy uncertainty does to investor confidence. This is especially so when policy proposals are not costed or evidence-based. This undermines SA’s investment case and harms the government’s credibility.

It makes SA an international laughing stock.

The second is not just that there is chaos in the government, where the left hand doesn’t know what the right is doing, but that it is fundamentally conflicted.

This is because SA has a government that wants both fiscal consolidation (to avoid a debt crisis) and fiscal expansion (as an insurance policy against further unrest) at the same time.

And it’s not just a simple dichotomy between the department of social development wanting to spend big and the National Treasury wanting to cut spending. President Cyril Ramaphosa evidently wants both, and the ANC wants both.

This inability to confront the trade-offs required means that the government typically understates the cost implications of its proposals — if it costs them at all. It wants a BIG, and National Health Insurance, and subsidised pensions for the poor, and free higher education. And because the need is so great, it convinces itself that SA’s small, stagnant tax base can somehow afford them all.

For instance, the green paper agrees a R200bn BIG seems "astronomically high", but then cites a microsimulation which shows that the net effects will be positive for the majority, while only slightly denting the income of the rich.

However, static microsimulation models are ill-suited for fiscal policy analysis. Better models would likely show that implementing the proposed policy in the current context would cause a tax shock that would hammer investor confidence and undermine SA’s long-term fiscal sustainability. The upshot would be higher interest rates and slower GDP growth, pushing SA closer to the fiscal cliff and nullifying any positive effects from the BIG itself.

This is why the National Treasury needs to undertake its own robust modelling urgently, before the momentum building behind the BIG becomes unstoppable. But above all, it must convince the rest of the government that the most potent poverty relief would be to get growth going.

The reforms needed to achieve growth will cost nothing more than political capital. In contrast, flighting loony and unaffordable grand schemes exposes our increasing desperation.