A pension contribution holiday for the state is among the proposals from Cosatu to offset the R60bn hole in the budget after the National Treasury was forced to postpone the budget presentation over a proposed two percentage point VAT hike.
Finance minister Enoch Godongwana has gone back to the drawing board to come up with a more politically palatable budget after his initial attempt was shot down by the cabinet on the eve of the delivery of his budget speech last week, due to the proposed VAT hike.
The ANC’s government of national unity partners rejected the tax plan, which would have raised R60bn, with the DA putting forward alternatives in a media briefing on Tuesday.
The ANC has further rejected austerity measures and cuts in spending to front-line services. A special cabinet meeting was held on Monday when the Treasury presented further proposals.
Cosatu has urged the Treasury to initiate discussions with the Government Employees Pension Fund (GEPF) in a bid to raise about R53bn through withholding the employer portion of pension payments for one year.
“Right now the GEPF is funded at 110% of its capacity, which means that it can afford for everybody to retire tomorrow, not receive another contribution and still have change. So it’s overfunded and look, you can’t do it forever, but there is space to have a one-year contribution holiday, that’s R53bn,” Cosatu parliamentary co-ordinator Matthew Parks said.
“The benefit of that is that, number one, the GEPF is a defined benefit scheme. So whether the GEPF makes profits or makes losses, what’s paid to the workers is the same.”
The GEPF is a defined benefit fund, managing pension and related benefits on behalf of government employees. It is the largest pension fund in SA and one of the largest in Africa and the world, managing more than R2-trillion for more than 1.2-million members.
Parks said fund managers are the one’s benefiting from the GEPF fund. During Covid-19, Cosatu unions had direct experience when an employer in the clothing sector requested a break from paying pension fund contributions due to financial trouble. Cosatu affiliate, the SA Clothing and Textiles Union agreed and this helped businesses to remain afloat during that difficult period. The difference was that these companies had to then make up the payment later on.
“The GEPF holiday, that’s an easy thing to do ... it can be done because you don’t want to see the state implode,” he said.
The proposal would carry no risk for workers, but this would have to be explained to them carefully. Parks said the federation has egged on the Treasury to begin such a conversation.
“We don’t have the power to say, do this, do that. All we can say to them is go and have a discussion. You may find it can be a positive discussion. Go in and hear some modalities and conditions and options,” he said.
“They’d have to do an actuarial study to see what can they afford, what can’t they afford and work out the legalities,” he said, adding that the government had done something similar before, during former president Nelson Mandela’s tenure when state pension contributions were dropped to raise revenue.
Business Day understands that the Treasury — which is in a closed period ahead of the tabling of the budget on March 12 — has reached out to the GEPF and initiated discussions around the possibility of a contributions holiday, or a reduction in contributions for a short time.
Parks said further conditions could be attached to ensure workers were on board with the idea, including honouring the wage agreement recently signed, ensuring that front-line services would not be affected by budget cuts and also strengthening revenue collection.
Parks said giving more resources to the SA Revenue Service (Sars) is another way to increase revenue, without disruptive taxes. Cosatu suggested increasing the allocation to the tax agency from R500m to R2bn for each of the next three years, on condition that it improves tax compliance.
“Sars estimates it can boost tax compliance by 1% for each R1bn it is allocated thus recovering R20bn in existing tax owed to the state. Sars has shown it has the capacity to do this by raising tax compliance from 61% to 64%.
“It should be remembered that during the decade of state capture and corruption that R1bn was removed from Sars’ baseline as part of efforts to decapitate it and weaken its efforts to tackle tax evasion and corruption,” Parks said.
Cosatu was confident that the tax agency could boost tax compliance by 2% a year, if provided with additional resources to do so.
• Marrian is Business Day editor at large
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