The higher cap on Unemployment Insurance Fund (UIF) contributions may seem like a small thing, but it raises some big questions. To end speculation, government should explain its thinking.
By Jerry Botha,
Master Reward Specialist and Executive Committee Member, South African Reward Association (SARA)
On 17 March this year, the Labour Minister, Mildred Oliphant, amended the UIF’s Scale of Benefits. The result is that from 1 April 2017, the maximum contributions to the Fund by employers and employees will increase from R148.72 to R177.12. This move will have no effect on lower earners, but it increases the amount payable for higher earners.
In concrete terms, employees whose UIF contributions are greater than the previous threshold of R148.72 will now find themselves paying an extra R28.40 per month, thus effectively reducing their take-home pay by that amount.
On the face of it, this might not seem worth even raising—but when it is considered in the light of two other factors, some important questions present themselves.
The first is that the 2017 Budget speech gave lower inflationary adjustments to the tax table than usual. For example, an individual earning R150 000 per year only received a R135 adjustment for the whole year, while somebody earning R250 000 per year only received R285. Both individuals would be liable for the extra UIF contribution of R28.40 per month, a total of R340.80, which effectively wipes out the paltry tax relief granted in the Budget and reduces their take-home pay.
One might be tempted to argue that this could be simply the result of two government departments failing to connect the dots. But when one remembers a bit of history, one is tempted to speculate a bit more wildly. In his 2015 Budget speech, then-Minister Nhlanhla Nene noted that the UIF had a surplus of R90 billion. He therefore proposed reducing the UIF contribution threshold for the 2015-16 tax year to an effective R10 per month each for employees and employers, “putting R15 billion back into the pockets of workers and businesses”.
The Treasury later indicated that it would not, after all, implement the proposal. This decision was reportedly based on discussions at NEDLAC to consider increasing benefits to workers and the speeding up of overall reforms to the social security system. We have not heard anything more about this matter.
One thing that perturbs me is that R90 billion is a lot of money at the best of times, but particularly now at a time when the fiscus is under tremendous pressure thanks to reduced economic activity. It is also a juicy prize for those intent on looting the state. The coupling of adjustments to the UIF regulations with social security reform also rings some alarm bells in the context of the ongoing social grants debacle, and the strong whiff of corruption that surrounds it.
At the same time, we should remember the fate of the fuel levy, which was introduced in the 1970s and never ring-fenced. Instead of being applied to the maintenance and expansion of the roads network, as originally envisaged, it was simply absorbed into the fiscus and thus applied to current government priorities. In those days, this meant propping up the apartheid state; today, we are not sure.
I would argue that fact that the UIF contribution has risen despite the existence of such a large surplus, combined with the fact that this raised contribution wipes out already-miniscule tax adjustments, points to a worrying lack of policy cohesiveness. It may also prompt speculation about the possibility that this surplus could in fact be seen as a useful supplement for budget shortfalls, or even present a target for corrupt elements in the polity. It is time for government to make its thinking clear.
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