People just don’t trust the government

It is safe to assume that the social security proposals that emerged last week are dead in the water. It is hard to know what went on in the mind of social development minister Lindiwe Zulu or those of her officials.

It was wrong and irregular to release a bombshell policy proposal to the public in the form of a green paper without presenting it first to the cabinet. It was also foolish to ignore the views of other stakeholders, especially after spending five years in discussion with them.

While the National Economic and Development and Labour Council (Nedlac) does not have to reach consensus, the department of social development’s treatment of the consultation process was astonishing. It ignored expert research and ignored entirely the concerns of business and the Treasury, essentially republishing the same paper five years later, as if grave reservations had not been expressed.

The biggest blunder, though, was releasing the proposal on a weary and distrusting public, who do not trust the state with their money and have no intention of sending any more its way. Even Cosatu, which has supported the proposal (assuming a state subsidy for low-income workers), was forced to come out and say it opposes the taxation of workers. Non-Cosatu unions, which do not sit in Nedlac, were damning.

The consultation process had pointed out big and serious consequences. As the fund was to offer defined benefits, there was the very real possibility — as has happened in many other countries — that future generations would face everrising contributions if it turned out there was no growing pool of working contributors to fund the retirement benefits of the elderly as they retired.

The proposal has opened the state up to serious risks. Retirement and other life products provide the pools of capital that finance the government’s operations on a daily basis. If these pools were to be depleted, the government — which until now has been able to use domestic savings for borrowing — would have to go offshore, exposing itself to higher costs and currency risk.

The proposal also had built into it a subsidy from the fiscus for low-income earners. None of these aspects, nor the impact on the tax system or the ability of the government to guarantee and stump up for benefits, were costed in the proposal.

In dropping the bomb — without even an explanatory media statement to go with it

— Zulu killed her own proposal. In some ways this is a pity, as there were some important aspects to the proposal. These included reforming the bankrupt Road Accident Fund and establishing a system in which lower-paid people would retire with more to live off than the state’s old-age pension. It is now going to be difficult to get a productive discussion going in wider society even for a dramatically scaled down proposal.

There are two takeaways from the debacle the government should note.

The first is the low level of trust it has among citizens, especially those who work and earn money. Future attempts to impose new taxes are likely to meet with the same response.

Both the case for the basic income grant (BIG) — which Zulu’s department is working on separately — and that for National Health Insurance (NHI) are now more at risk. It is hard to see how the BIG will not result in a tax increase in the region of 3%.

The policy formulation process for NHI bears disturbing similarities to the social security paper. In both cases the Treasury has been sidelined by the line departments and no costing has been done, despite many years of talking.

The second takeaway is what the green paper on social security says about the policy-making and budget process in the cabinet.

In the past a minister would not have gazetted a green paper without it first being presented to the cabinet. The Zuma years gave rise to a cabinet that did not function as a collective but in which individual ministers pursued their own policies and interests — usually with an eye to extracting rents — and there was an unspoken rule that the collective did not override anyone.

This has not been corrected in the cabinet of President Cyril Ramaphosa. Ministers are still able to pursue their own agendas with an aim to imposing them on the budget process when events have gone too far to reverse.

An example is public enterprises minister Pravin Gordhan’s manipulation in extracting taxpayers’ money for SAA through a series of emergencies rather than a considered budget process.

Ramaphosa must restore the Treasury to its former role as guardian of the country’s finances and pull his ministers firmly into the collective.