Pension fund contribution holiday could help address VAT increase impasse, says Cosatu

The Congress of South African Trade Unions (Cosatu) has weighed in on the contentious issue of the proposed value-added tax (VAT) hike, including a suggestion that Treasury start discussions with the Government Employees Pension Fund (GEPF) over a pension contribution holiday as the government scrambles to find a solution to the R60 billion shortfall in the budget.

Finance Minister Enoch Godongwana is expected to provide a revised budget to Cabinet today after last month's budget was postponed as Government of National Unity (GNU) partners could not reach consensus on Godongwana's decision to increase VAT by 2%.

It is understood that President Cyril Ramaphosa will propose a VAT increase of between 0.5 and 1% tomorrow but the DA led by John Steenhuisen is adamant that VAT should remain at 15% and no hike should be allowed.

The new date for the budget is March 12 and Cosatu parliamentary co-ordinator Matthew Parks has urged the Treasury to initiate discussions with the GEPF in a bid to raise about R53bn through withholding the employer portion of pension payments for one year.

He said the federation had given government a variety of options to consider.

"Some may be practical and others not, but the idea is to give government different options to consider.

"One option could be a government employee pension fund holiday."

Parks said fund managers are the real beneficiaries of the GEPF and the fund is funded at 110% of its capacity, is overfunded and there is space for Government to have a one-year contribution holiday, which would amount to R53bn.

He said the GEPF is a defined benefit scheme and whether it makes profits or makes losses, the amount paid to workers remains the same.

”The GEPF is a defined contribution benefit scheme, 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 if Government chooses the option of a pension contribution holiday then it must provide guarantees to the public wage agreements.

"It must ensure that vacancies are filled as promised and that the conditions of workers are improved," Parks said.

He said the GEPF holiday was possible and was an alternative to the implosion of the state and while the proposal would carry no risk for workers, this would have to be explained to them carefully.

Parks said the federation was against any tax increase for the poor.

"We have been opposing any VAT increase because it's an unnecessary burden upon the poor. Workers are already struggling to survive, and there has been a high cost of living increase, especially with regards to electricity and petrol prices,” Parks insisted.

He emphasised that Cosatu is not opposed to taxation, but rather the unfair distribution of the tax burden. 

"We think there are alternatives. We have been engaging the government, we think there are easy ways to shift expenditure, it is easy to raise money by increasing the tax among the wealthy and improving tax collection by supporting Sars.

"Cosatu's stance on the matter is in stark contrast to the government's proposal to increase VAT by two percentage points, from 15% to 17%."

The proposed hike has been met with fierce resistance from opposition parties, with the DA threatening to vote against the budget if the VAT hike is included.

The DA has proposed alternative measures to cut expenditures, which it claims would cause savings equal to the extra R60 billion that the government had estimated would be raised through the VAT increase. 

These proposed cuts include a 50% reduction in government advertising budgets, a 33% reduction in travel and catering expenditure for government officials, and a hiring freeze for all non-essential government employees.

"We are not opposed to taxation, but we are opposed to taxation that disproportionately affects the poor," said Steenhuisen.

"We believe that there are alternative measures that can be taken to address the budget shortfall, without placing an undue burden on the poor,” the DA leader said in a statement.

The controversy surrounding the VAT hike has sparked a heated debate about the fairness of the tax system in SA. While the government argues that the VAT hike is necessary to fund essential public services, critics argue that it will disproportionately affect the poor, who already bear a significant burden of the tax burden.

"Cosatu's call for the government to tax the wealthy more than the poor is a step in the right direction," said political analyst, Sandile Swana.

"The current tax system is regressive, and the poor bear a disproportionate burden of the tax burden. It's time for the government to rethink its tax policies and ensure that the wealthy are contributing their fair share."

Another political analyst, Dr Thabo Mokoka said the Cosatu and the DA were correct in asking the ANC to reconsider its position.

“It remains to be seen whether the government will heed Cosatu's call to tax the wealthy more than the poor," Mokoka said.

Economic analyst Siyabonga Sibiya said even a 0.75% increase would be difficult for people to digest.

“It's only the GNU that can decide. The Cabinet meeting on Monday will leave us with more questions than answers…The main question that South Africans are asking themselves is where is all this money going?” Sibiya said. 

Cape Times