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Audit of COSATU Positions onSocial SecurityOctober 2000 |
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Audit of COSATU Positions onSocial SecurityOctober 2000 |
Table of Contents
1. GENERAL SOCIAL SECURITY
1.1 Central Committee Resolution, 1998
Problem Statement
1. South Africa has inherited a fragmented social security system, which was not based on comprehensive coverage for the population as a whole, but started as a social security net for mainly whites. As a result of such discrimination, the amount of welfare going to Africans was considerably restricted. The low spending on African non-pension welfare primarily resulted from the exclusion of Africans from certain non-pension benefits, such as child maintenance grants.
2. Social insurance on the other hand is generally tied to formal sector employment. The coverage of social insurance schemes does not cover more than two thirds of the formal sector. A large sector of those in informal employment, and the unemployed are not covered. Moreover, the level of social insurance benefit is generally considered very inadequate. For example, in the case of the Unemployment Insurance Fund (UIF) an unemployed contributor can claim only 45% of his/her last wage, and then only for a maximum period of six months.
3. Due largely to the lack of adequate social assistance and compulsory social insurance protection, many basic services and benefits are increasingly being provided through private employment related systems. There is also a bias against part-time and temporary workers. With the absence of publicly provided social security and income-earning opportunities, remittances (sharing of wages) within households play a de facto social security role. In particular, remittances play a decisive role in supporting the poorest households.
Vision
1. The social wage comprises of direct income transfers (such as social security benefits, UIF, old age pensions, and retirement funds); and social subsidisation of the costs of basic needs (such as housing health, education, electricity, transport) primarily through public provision financed through the fiscus. Although, in general, the social wage needs to be publicly funded, if it is to benefit everyone, some aspects of the system are funded , at least partly, by contributions from only some members of society e.g. employer and worker contributions to retirement funds and UIF. This is known as "social insurance". Social security benefits which are paid entirely from the fiscus (budget) e.g. old age pensions, are known as "social assistance". Some areas of the social wage may be funded by a combination of private contributions, and the fiscus e.g. the national health system
2. COSATU’s vision on social security and social wage derives from the overall vision of the Reconstruction and Development Programme. The RDP advances the need for a comprehensive approach to the meeting of basic needs such as shelter, food, health care, work opportunities, income security and all those aspects that promote the physical, social and emotional well-being of all people in our society, with special provision made for those who have been historically disadvantaged.
3. This vision is further cemented by the new Constitution which guarantees that: "Everyone has the right to have access to social security, including if they are unable to support themselves and their dependants, appropriate social assistance." The Constitution further extends fundamental rights to housing, education, health care, food and water.
4. The state is further obligated under the Constitution to "take reasonable legislative action and other measures, within its available resources, to achieve the progressive realisation of each of these rights.
5. To reverse the legacy of apartheid requires a comprehensive social security system in South Africa. Complimenting this should be the expansion of the provision of the range of social services such as housing, transport, water provision, health care, which improves workers’ ‘social wage’. Social wage benefits include those types of benefits that should be publicly supplied, even if they are currently privately supplied.
1.2 "Accelerating Transformation"
COSATU has proposed that engagement on the shape of a comprehensive social security system needs to happen at various levels:
restructuring of the retirement system in South Africa.
restructuring of the UIF.
investigating the basic income grant proposed at the job summit, and its relationship to other grants.
debating the correct mix between social assistance and social insurance, the former largely being direct grants coming from government (from the fiscus); while Social insurance is predominantly funded by employers and workers.
Scrutinising the implications of current macro economic policies on social security provision.
Finally, there needs to be a rigorous debate on the notion of "developmental social security", which as advanced by certain technocrats, is interpreted to mean that communities should in the first instance ‘look after their own’, purportedly to avoid dependency. This approach arguably contributes to an abdication by the state of its social security responsibilities, and a deepening of poverty and dependency.
The COSATU Policy Conference held in May 1997 noted the following historical weaknesses in social policy and called for these issues to be addressed: The absence of social security targeted at the majority of the population; The apartheid housing legacy and reliance on the private sector to deliver on the housing programme; Current policies aimed at privatising public transport; The lack of a strategy to harness the important role of retirement funds in reconstructing our economy; The need for all levels of government to play a central role in the provision of basic infrastructure; The escalating cost of medical care, and the actions taken by the health industry to frustrate measures aimed at promoting affordable and accessible health care.
COSATU’s Policy Conference articulated a vision of the provision of a ‘social wage’ package to working people. Under this conception, recognition is given to the fact that social security and the provision of more affordable social infrastructure, such as public transport, health, housing and services, increases the effective wage of workers- both directly and indirectly, in terms of support given to their dependants. In other words, the provision of more affordable public goods complements the direct money wage paid to workers, in particular, and redistributes wealth to working class and poor communities. To increase the size of this ‘social wage’ requires that policies are put in place which aim at progressively increasing the provision of basic affordable public goods.
The September Commission outlined eight economic and social benefits of establishing a comprehensive social wage package:
"Its impact as part of an active strategy to stimulate demand in the economy ;
Its impact in reducing inequality ;
Its impact in bringing the working poor and the unemployed more directly into the mainstream economy, through addressing conditions of extreme poverty, degradation and disease ;
Reduction of direct non-wage costs to employers, by socialising the provision of elements of the social wage and by socialising provision of areas such as health care, reducing costs by taking them out of the private sector
Combined with a new approach to urban planning, reduction of the hidden costs of apartheid geography (in terms of well-located housing and infrastructure, transport etc) ;
Helping to lower input costs into the economy through socialising areas such as Infrastructure, health and transport
Laying the basis for raising the overall productivity of the economy, through improved health conditions, reduced travelling time etc ;
Improving quality of life of society as a whole, and creating conditions for addressing crime and violence in a sustainable way."
COSATU’s submission on the Social Welfare White Paper called on government to
"deepen its commitment to improving the co-ordination of the social security system in order to provide people, those who are working as well as those who are unemployed, with the knowledge that government is committed to putting into place a system which will ensure that no South Africans should live in poverty."
In the submission it was noted that:
"South Africa remains one of the world’s most unequal societies, with great wealth existing side by side with extreme levels of poverty. The poorest 40 percent of households earn less than 6 percent of total income, while the richest 10 percent earn more than 50 percent of total income. The poorest sections of the population also have severely limited access to housing, electricity, piped water, modern sanitation, health care and education. These inequalities are not accidental. They are the natural outcome of low wage policies, followed by the private sector, and the deliberate policies of the old government to under-spend on social services for black people. These inequalities can now only be overcome through government programmes to boost economic activity, redistribute wealth and extend social security."
COSATU was critical of the draft White Paper, released for discussion in 1996, which failed to address the RDP’s commitment to a "national social security system… designed to meet the needs of workers in both formal and informal sectors, and of the unemployed.
As a result, it recommended that a new White Paper should be drafted, focused particularly on transforming the system of social security. COSATU argued in the Parliamentary Welfare Committee’s public hearings on the matter that instead of engaging in piece-meal tinkering with elements of the inherited, fragmented social security network, policy should seek to create a comprehensive social security system, consisting of social assistance transfers and the restructuring of the social insurance system.
ANC members of the Welfare Committee were supportive of the issues raised by COSATU and ultimately incorporated the proposal that the draft White Paper be amended to include the following commitment:
"[A] transformed social security system should be built on two pillars. Firstly, it will require comprehensive social assistance to those without other means of support, such as a general means tested social assistance scheme. Secondly, it will require the restructuring of social insurance, including the retirement industry, unemployment insurance and health insurance."
Despite the fact that the amended White Paper supported the establishment of a comprehensive social security system, it was apparent that further engagement would be required, since this commitment was purely a statement of intent. To take the matter forward, COSATU commissioned research during 1997-98 on the gaps and weaknesses in the present social security system, which also assessed the viability of a basic income grant, as an element of a more comprehensive social security system (CSSS).
COSATU has also advocated that approaches to delivery need to be linked to other strategies which government is developing to empower people, particularly the poor and rural communities. One example is the proposal of setting up a restructured post office bank. This would enable everyone in the country to be linked into the banking system through the network of post offices. This has obvious advantages in relation to delivery of social welfare.
1.3 NEDLAC Framework Agreement
The framework agreed by the post-Job Summit task team at NEDLAC is as follows.
Ensure that social assistance provides a safety net to all citizens: The social assistance system must provide all citizens, especially the poorest, with a basic safety net. Currently South Africa is recognized as having a wide-reaching Old Age Pension for the elderly poor. There are also child grants for the young. Crucially, however, there is no support for 90 percent of working age people who are unemployed. In this regard, non-work related (basic) income grants were proposed in the Job Summit, and are included as part of NEDLAC’s follow-up process.
Restructure existing social insurance institutions: The objectives of this restructuring include the following:
Increase coverage to all: All working people should be covered by work-related social insurance.
Promoting greater equity: This objective entails a pooling of risks, and incorporating high- and low-income earners.
Improve and expand public sector service delivery: This must provide essential goods and services to all, especially the poorest. The provision of better services lowers the cost of living and improves living conditions. Public services should not be seen as a cost – but rather performing a role in maintaining critical social infrastructure.
Replace or rationalize privately provided employment-related benefits: Employment-related benefits such as transport, retirement, health care, and housing amount to about 30 percent of labour costs. Socialising these benefits into an overall social wage package will reduce the costs to employers. More importantly, through reducing duplication and increasing economies of scale, the publicly provided safety net will be more resourced and sustainable.
- Promote the redistribution of economic assets: This includes the restructuring of income-generating assets, such as land and credit. This will increase the ability of the poor to improve their conditions, will increase levels of economic activity, and promote the reduction of high levels of economic concentration. There is also a need to increase the investment in the infrastructure of disadvantaged communities. This will result in both employment opportunities coupled with the development of stable communities.
2. NATIONAL HEALTH INSURANCE (NHI)
2.1 Central Executive Committee Resolution
1. Current Policy Developments
Although classified as a middle-income country and spending 8,5% of GDP on health care, South Africa exhibits major disparities and inadequacies. This is the result of former apartheid policies, which ensured racial, class, gender and provincial disparities.
The majority of the population has inadequate access to basic services including health, clean water and basic sanitation. Up to 55 percent of the population live in poverty. All these factors combined have adverse effects on the health of our society, particularly historically marginalised communities.
Severe distortions and a general collapse in service marked the public health system. One of the distortions was that is was hospital-based with an emphasis on expensive curative tertiary care. The primary health sector which focuses on preventing diseases, and community based medicine was generally undeveloped.
Compounding this is the imbalance between the public and private health sectors. At present about 60 per cent of all health spending is in the private health sector, which serves only 23 percent of the population. Most health personnel except nurses work in the private sector (e.g. 60 percent of doctors and 93 percent of dentists).
2. National Health Insurance Scheme
Guided by our overall vision to build the public health system, COSATU supports the introduction of the National Health Insurance Scheme. Our long-term aim is to move away from medical aid schemes towards a National Health Service, which provides comprehensive care for the whole population, employed, and unemployed, without distinction. This should be funded from general taxation, supplemented by additional contributions from workers and employers. We propose that each stakeholder – government, business and labour – contribute one percent towards the NHI.
It is vital that this contribution is levied on everyone in employment, with no exemption for members of medical schemes. The money raised must be securely earmarked for health and must not be offset by a reduction in the share of general tax revenue.
The percentage level of contributions should be set in negotiation in NEDLAC, with regard to potential impact on the cost of employment and level of employment. Exemptions should be considered with care, given the danger of creating an incentive for employers to lock workers into a low wage ghetto below the cut-off point for contribution. Consideration should be given to a programme of gradual increase in the level of contribution, which should still be substantially lower than those for medical schemes.
Any new system should be publicly administered and not sub-contracted to medical aid administrators. Administration should be streamlined as far as possible to minimise cost.
Public sector primary health care is already free at the point of service. Public sector hospital care will be free at the point of service (funded by a combination of general taxation and the NHI contributions). There will be no need for additional cover in the form of private medical schemes or private health insurance. These need not be abolished for those who choose to seek health cover in the private sector, but they should not be subsidised in the form of tax concessions, which should be phased out. Progressive union-sponsored initiatives to provide affordable primary care in jointly funded schemes should be encouraged by appropriate concessions from state health authorities (e.g. access to essential drugs at low cost or free).
The special situation of the mining industry should be recognised. The industry has a substantial network of facilities, which should be retained and upgraded, to form the basis for family services in the areas around the mines. The historical debt to the rural areas, from which the mine labour force was and is drawn, should be recognised by a joint undertaking by the mining houses to assist the state in developing and supporting rural health services, which will care for the families of migrant miners and for retired and disabled miners who have returned to these areas.
3. Approach to medical aid schemes
Medical schemes may not exclude an individual on the basis of health risk. Contribution rates for the full package of benefits will be set according to income and number of dependants.
Medical schemes are obliged to continue providing health benefits to continuation members (i.e. pensioners, widows, widowers), and to individuals for a limited period after their becoming unemployed. In addition, the practice of transferring private patients to public hospitals once their medical aid benefits are exhausted should be discontinued.
2.2 COSATU Submission on the White Paper on the Health System, 1998
COSATU supports the principle of access to free health care at the point of delivery. The proposal to introduce the Social Health Insurance (SHI) is essentially about realizing this goal for workers and their dependants. We note that there are forces in society bent on obstructing the introduction of the SHI and the transformation of the health system in general.
The scheme will be rendered problematic if it allows medical scheme members to opt out. This will reduce the pool of contributions to the lowest paid, thereby cutting the extent of cross subsidization and redistribution. The system of contributions should be progressive and ensure that society across the board contributes to the public health system, according to their income.
An administrative model needs to be designed to contain administrative costs without undermining the credibility of the SHI. Another cost consideration to take into account flows from the notion of shared contributions between employer and employee. While COSATU accepts the need for workers and employers to contribute, this should be combined with the allocation from the fiscus. There is a need for a balance between fiscal contributions and the SHI to avoid this acting either as a disincentive to employment, or a progressive reduction in fiscal allocations.
The vision of SHI needs to be integrated with the goal of developing a comprehensive social security system. SHI should positively contribute towards the long-term goal of moving away from medical aid schemes towards a National Health Service, which provides comprehensive care for the whole population, including the employed and the unemployed. Such a national health care service should be funded by allocations from the fiscus and contribution by employers and employees. Measures need to be introduced such as a prohibition on compulsory medical aid membership as a condition of employment.
A broader concern is that SHI may be conceived as a countervailing mechanism to cuts on health as a result of fiscal austerity. This will be inappropriate and will place undue pressure on workers in particular. If the macroeconomic programme compromises government policy, then the programme should be changed, rather than transferring the burden to workers.
Having said this, COSATU supports the principle of the SHI as a way to improve the quality of the public hospital service and as an incremental strategy to move away from reliance on private provision of health care, as long as it takes the above concerns into account.
2.3 "Accelerating Transformation"
The issue of a national health system is linked to the question of regulation of private medical schemes. COSATU made the following intervention in relation to the Medical Schemes Act, linked to its vision of promoting a national health system.
COSATU supported the following key elements of the new regulatory framework:
The introduction of a community rating system which, by prohibiting schemes from charging different rates based on age and health status, were designed to ensure that there is an element of cross-subsidisation, preventing schemes from ‘cherry-picking’ the young and healthy at the expense of the older and ill.
The requirement that all medical aids adhere to a core set of services to their members by authorising the Minister to prescribe a minimum package of benefits.
The strengthening of consumer protection, including appeal mechanisms, requirements that schemes pay-out claims promptly, and measures designed to protect the financial stability of schemes.
Notwithstanding support for the legislation’s main proposals, COSATU raised various issues of concern at the Health Portfolio Committee’s hearings. These included a limited extension of medical aid cover for workers leaving their employment, as a result of retrenchment, and that the establishment of medical aids schemes by bargaining councils should be regulated by the Medical Schemes Act and not precluded by it.
COSATU’s proposal for an extension of medical aid benefits to workers who had recently lost their jobs until a new job with medical aid cover was found, or until a stipulated period had lapsed, has not yet been accepted. However, amendments to the LRA in 1998 address the concern raised by COSATU with regard to medical schemes established by bargaining councils.
Despite the relative improvement in the number of people covered by medical schemes, a significant proportion of workers and their families do not have medical cover. This imposes a burden on the public health system without in many cases the benefit of payment for services. To remedy this situation the White Paper proposed the introduction of a Social Health Insurance. In principle, COSATU supports a Social Health Insurance or National Health Insurance and has historically lobbied for its introduction.
COSATU’s support is premised on the view that the NHI will provide cover for workers and their families and inject much needed resources into the public health system. Ultimately, the goal should be to shift from private medical schemes to a public National Health Insurance, as part of a comprehensive social security system. Despite the White Paper’s commitment, however, national legislation to establish the NHI has not been introduced due to differences within government, mainly opposition from the Department of Finance.
While COSATU supports the principle of the NHI there are important differences with government’s approach. First, COSATU believes that the NHI must supplement rather than replace funding of public health from the fiscus. Secondly, the scope in terms of contributions must go beyond the formal sector to include sections of the ‘informal sector’ such as the taxi industry. This will contribute towards formalising the informal sector and eradicate the ‘free-riders’ from the system. Thirdly, the question whether members of medical scheme members will contribute to the NHI is unclear.
If medical schemes member were to opt out, this will render the scheme problematic as it reduces the pool of contributions to the lowest paid, thereby undermining the principle of cross subsidisation. This issue is comprehensively addressed in COSATU’s submission to the White Paper on Transforming the Health System.
2.4 Congress 2000 Resolution
Believing
That comprehensive health care can be achieved only by
1.1 Improving the funding and efficiency of the public health system
1.2. Limiting the growth of the private health system
1.3 Asserting the major role of the labour movement in advancing the free health care system
Resolves
Systematically to move toward a public health care systems for all.
COSATU reaffirms our fight for a National Health Insurance (NHI) programme that would
cover everyone under a single public health insurance programme that takes into account the cost and affordability, timing and introduction of the programme;
pay all hospitals, clinics, nursing homes an annual amount that would cover operating expenses,
gradually limit the extent of the private health care and improve the services of the public health system, and
go hand in hand with increases in the health budget, in order to maintain a strong public-health system.
Private insurance coverage for services included under the NHI would be eliminated, leading to substantial savings for society as a whole.
The NHI would permit doctors and other health professionals either to charge fees at NHI rates, or to take salaried positions in clinics or hospitals.
Funds for NHI could be raised though a variety of mechanisms, including
a progressive tax that raises revenues at least equal to the sum currently spent on private health care, adjusted for inflation, and
a uniform employer contribution covering all employees.
Together with Alliance and progressive health formations, to work for introduction of the legislation needed to implement this proposal in the 2001 Parliamentary session.
To campaign for government support and funding for sectoral provision of primary health care services by the labour movement and bargaining councils.
To avoid conflicts of interest, union investment companies should avoid investment in private health care and health insurance, and should redirect existing investments of this kind
3. UNEMPLOYMENT INSURANCE AND MATERNITY
3.1 "Accelerating transformation"
COSATU’s primary intervention on this matter has aimed to ensure that progressive proposals made in the Ministerial Task Team’s report, such as widening the coverage of the UIF net and increasing the progressivity of benefits, are brought into effect through amendments to the UIF Act.
Throughout this process COSATU stressed the fact that the UIF, in its current form is a measure designed to deal with short-run ‘frictional’ unemployment, rather than the longer-term problems associated with the South African reality of structural unemployment. As currently constituted, the UIF benefits less that 10 % of the unemployed. COSATU called in its 1999 submission on the Task Team Report for the establishment of comprehensive social assistance based mechanisms, to compensate for the narrow scope of the UIF system.
Those who are covered by unemployment insurance (UIF) are covered on a temporary basis. They are only covered for a 6 month period and then, only if they have been in employment for a certain period of time. Those who are long term unemployed and who have never been employed are not covered at all by UIF.
COSATU supported restructuring proposals in the task team report, aimed at increasing both the fairness and financial viability of the UIF. With regard to increased fairness, the Federation argued that
"UIF benefits should be designed to ensure that low income employees are given a greater proportion of their wages as a benefit than more well paid employees, who should receive a smaller proportion of their wages. The proposals for a flat rate maximum for high income earners and a flat rate minimum for low income earners is also supported as being in line with these overall objectives. At present all beneficiaries of the UIF receive a benefit of 45% of their earning rate, with the effect that higher income earners receive greater benefits than low income earners."
During discussions on this matter, certain arguments were put forward by, amongst others, the Department of Finance opposing such progressivity of benefits on the basis that this may lead to "inequities" for high income earners. Such arguments were rejected as they display a marked misunderstanding of the broader constitutional commitment to substantive equality (which may entail unequal treatment for people facing unequal conditions), rather than superficial notions of equality. It was also contended that such arguments display an insensitivity to the desperate position of poverty in which recently unemployed low income earners find themselves, as compared to higher income earners.
In order to bolster the financial viability of the UIF, and ensure more comprehensive coverage, COSATU supported proposals that high income earners and government employees also be included under the UIF’s ambit. Furthermore, it was stressed that government should contribute to the UIF not only as an ordinary employer, but should also underwrite or act as a guarantor to the fund. The additional income from contributions of high income earners and public servants and their employers would have a dramatic effect in improving the financial position of the fund.
A further challenge for the UIF is to find an effective way in which local government can be utilised to extend UIF access to vulnerable groups of workers. A range of workers, including contract workers, seasonal workers, and domestic workers continue to fall through the cracks. This has particularly important implications in the context of the struggle for gender equality: in terms of the Basic Conditions of Employment Act, paid maternity leave will only be available to those contributing to the UIF.
3.2 Submission on Unemployment Insurance 2000
60 % should be the minimum floor, with at least 50% for those earning R2000 a month or less.
the Board should set the schedule after consultation with the Minister and NEDLAC.
The inclusion of high-income earners will contribute in bringing stability to the fund as employees in these categories are not as a rule affected by unemployment. In the event of being unemployed, they are able to find jobs due to their skills. The added benefit of including high-income earners is that they can cross-subside low income earners. Nevertheless we have concerns with the blanket exclusion of public servants and the manner in which the issue of domestic workers is handled in the Bill.
First we welcomed the Bill’s separation of maternity benefits from unemployment benefits. This will secure women’s unemployment benefits if they go on maternity leave. This is consistent with the Task Team’s recommendation that the administration of maternity benefits through the UIF, should in no way mean a woman’s unemployment benefits are eroded as a result of having received maternity benefits. Likewise, drawing from the unemployment benefit should not affect a woman’s maternity benefit.
Under the current dispensation a woman is entitled to six months maternity leave. To ensure that no woman is worse off due to the new Act as a general rule there should be an option of 2 months linked to service in addition to the BCEA’s four months maternity leave. The 2 months option will also accommodate collective agreements that provide for 6 months maternity leave.
However, we believe that the right to maternity benefit should be automatic and entitlement to benefits should not be linked to a period of service. The motivation for our proposal is to avoid the unintended indirect discrimination of pregnant women. To peg the benefit to maternity leave to period of employment would constitute indirect discrimination against pregnant women. The effect is that pregnant women will conceal their pregnancy status first in order to be employed. Secondly, the proportionate formula of calculating benefits would mean a woman who was pregnant at the time of employment would receive maternity benefits for a reduced period of time.
Under the BCEA [section 25(2)] maternity leave can be taken from four weeks before the expected date of birth unless a medical practitioner certified that it is necessary for the leave to be taken earlier. This provision should be referred to as the starting point for eligibility for maternity benefit under the UIF.
The Bill endorsed the principle of topping up benefits for the following benefits illness; maternity, adoption benefits and dependants benefits. This principle was welcomed and supported as it improves on the current situation where the beneficiary may only receive UIF benefits if he or she receives less than one-third of his/her earnings during for example illness.
Concern was raised about the exclusion of domestic workers from the Act. It was proposed that the Bill should include:
A commitment to including domestic workers no more than 12 months after it is passed; and
Provision for an investigation, if necessary, as well as development of the necessary systems for registration and collection of contributions before that date.
A concern was also raised about the exclusion on public servants and it was proposed that:
the government provide a subsidy to the UIF equal to its employer contribution (around R500 million); or alternatively, guarantee it will meet any annual deficit incurred by the UIF,
public servants begin to contribute to the UIF immediately, and receive benefits; and
the situation with the employer contribution be reviewed in two years.
The fund should be a fully-fledged agency like the South African Revenue Service (SARS). It is, after all, an insurance system, not a social welfare system, and therefore should first and foremost be responsible to contributors.
The current state of finances of the UIF can be described as a ‘crisis’ – the fund has a large deficit but has the obligation to meet large claims. The Fund is teetering on the verge of collapse if its funding is not radically changed. There are five ways to improve the financial state of the fund:
increase levels of contribution;
reduce benefits;
bring more contributors with relatively stable employment into the scope;
reducing fraud and improving efficiency;
increasing the government subsidy.
For this reason, we believe that the costing models should be availed to ascertain the impact of the changes on the financial position of the Fund. Until such time, it will be difficult to determine the viable route of ensuring that the fund is sustainable. As noted above, the bill should rather set a ceiling, then let the Board vary the actual amount after appropriate consultation.
Historically, government contributed substantial amounts of money which stabilised the fund. In our view, the state should underwrite the fund as part of its vision to progressively realise the right to social security. From the standpoint of the State, the UIF is one of the cheapest ways to improve social security, since the vast majority of the funds come from the beneficiaries themselves.
4. BASIC INCOME GRANT
4.1 Central Committee Resolutions
Given the widespread situation of poverty, and that millions of people have no Regular source of income as a result of structural long-term unemployment, urgent attention needs to be given to providing a basic income to those not covered by unemployment insurance, or other forms of social security.
According to research conducted for COSATU 13,8 million South Africans live below the poverty line without qualifying for support under the current social security system. The viability and implementation of a comprehensive income grant to those living in poverty and/or long-term unemployment insurance needs to be investigated as a matter of urgency.
4.2 Proposal in Job Summit Process
All South Africans would receive a basic Income Grant of say R100 per month. In order to ensure that the system targets the poor and unemployed, those earning over a certain amount would pay back the amount they receive, as a tax collected by the South African Revenue Service. People in high-income groups would pay back double what they receive and by doing so pay a "solidarity tax" the system would be directly redistributive. Such a universal system is simple to administer as the benefit comes as an entitlement.
Everybody receives the benefit as an entitlement. However, the money would be reclaimed from higher income earners and by doing so, only low-income groups would in fact benefit. Parts of the cost for the system is also recuperated through a "solidarity tax" from people earning above a certain amount. The advantage of this option is that there is less room for corruption, as the payment of the benefit does not depend on an official. Furthermore, it is simple to administer, cost-effective and does not require a lot of administrative capacity. An important advantage of a universal Basic Income Grant is the absence of any stigma attached to it as everybody receives it as a right of social citizenship. Most importantly, it does not create perverse incentives not to take up work.
The Basic Income Grant could be paid into people’s accounts through the banking system. A reformed and extended Post Office Bank or community banks could be used. This would help to expand much-needed financial infrastructure into rural areas. Such an electronic and automatic transfer is cost effective and requires less administration. Furthermore, recent evidence points to the positive spin-offs of bringing poor people into the formal banking system. Access to and integration into the system is seen as a huge advancement for poor people by giving them opportunities to accelerate development.
It is obvious that the introduction of a Basic Income Grant requires a decisive financial commitment by government. The final estimated costs after an introduction period amount to about 1.5-3 % of GDP depending on the level of benefit and the system selected. Further research is on its way to model the various budget estimates. While this is a significant decision, it does not blow South Africa’s social spending out of proportion. The actual amount spend on the basic Income Grant could be fixed as a rate e.g. percentage of GDP. Thereby the basic Income Grant would grow with the economy, but at the same time it would not grow faster than the economy can afford.
There are serious economic considerations which in fact necessitate a system of transfers which directly benefit South Africa’s poor. Given South Africa’s legacy of structural unemployment, economic growth on its own will take decades to alleviate poverty. Besides the moral obligation, it does not make sense economically to leave behind well over 50 % of South Africa’s people with increasing disparities. Not only does malnutrition of children and adults cause major government spending, but it also reduces the productivity of the workforce, it is the cause for social unrest and crime. A Basic Income Grant does not solve the structural unemployment over night, but it provides a net for destitute people and a basis from which self-employment can be started.
The Basic Income Grant would contribute to making people economically active through giving them access to cash resources. It would contribute to an improved health status and improve the ability of children for learning in schools. Both factors increases productivity. Further, it would stabilise consumption spending and demand- particularly increasing demand for locally produced goods which is especially important for the rural areas. Internationally experience shows that basic social security is important for promoting economic growth. In particular, it contributes to social cohesion for sustainable economic growth. In preparing the final policy proposal detailed attention needs to be given to the modeling of the economic benefit of a Basic Income Grant including the likely employment, investment and distributive impact of such a grant.
4.3 Congress 2000 Resolution
Noting
The demand for a Basic Income Grant for all those who are unemployed and live in poverty forms an important unifying point for the struggle of the working class.
The Basic Income Grant forms a critical element of a comprehensive social security system
The Presidential Job Summit agreed that the government should consider a Basic Income Grant
Workers’ wages are not sufficient to support the unemployed.
Resolves
The state and business must contribute to the elimination of poverty through the establishment of a Basic Income Grant.
COSATU must monitor and interact with the inter-departmental task team on comprehensive social security. There is an obligation on us to develop a framework on comprehensive social security.
Legislation to establish a Basic Income Grant must be introduced in the 2001 Parliamentary session.
Government departments and institutions should provide free services to the aged, the disabled and the unemployed, with the provision of free lifeline services for all households
The cost of the Basic Income Grant must fall on the rich.
(need to clarify q. of funding mechanism- slight inconsistency)
5. CHILD MAINTENANCE
5.1 Central Committee Resolution:
Over 5 million children (90% of total), mostly from poor communities, are without formal care. This strongly disadvantages these children in later schooling, and contributes to the skill disparity between races. Childcare provision is a labour intensive service (about 275 000 potential jobs) and would contribute to the economic emancipation of women. Poor quality backyard crèches which workers pay towards childcare is currently provided by the unemployed.
Childcare is a family responsibility that should be recognised and be paid for by the employer, including childcare leave for workers, including the right for time-off to attend to social activities that involve their children.
Unions should negotiate with employers to contribute to or build childcare facilities at workplaces (taking into account the dangers of hazardous environment), which will enable parents to be close to their children to ensure their healthy upbringing.
Employers should provide resources to ensure childcare facilities are adequatelyresourced, including competent staff. These facilities shall be controlled by workers and the community which is being served by these facilities.
5.2 "Accelerating Transformation"
During Parliamentary hearings on the child maintenance grant in April 1997, COSATU raised concerns that the laudable objective of universal access to the grant was being overshadowed by fiscally-driven considerations:
"A problem with the proposed reforms is that the objective of increased equality has been overshadowed by government’s self-imposed commitment to reduce the budget deficit by cutting-back on expenditure… [A] reduction of child and family support would fly in the face of the constitution’s commitment to "the progressive realisation" of a right to social security and…the commitment in the White Paper on Social Welfare ..."
Concern was also raised by a range of organisations that administrative capacity had not been developed sufficiently in historically excluded communities. This would have the effect of increasing the potential beneficiaries, but actually reducing the amount which government allocated for child support.
Although implementation of the reform was not suspended, as requested, there was a marginal increase in the amount of the maintenance grant from R70 to R100 per month, However, predictions concerning weaknesses in the administrative machinery of the grant were confirmed. As at the beginning of 1999, this was evidenced by a very low take-up rate of new beneficiaries onto the child maintenance grant system, effectively reducing the overall amount actually spent by government for purposes of child maintenance assistance.
6. RETIREMENT FUNDS
6.1 Central Committee resolution:
3. Retirement Funds
The biggest institutions of social ownership are the retirement funds. Worth some R500 billion, a large part of their assets consist of worker's deferred wages in the form of savings for retirement. Retirement funds represent 35% or more of total savings in South Africa and provide about 60% of local finance to companies. The retirement funds are the major source of investment capital in the South African economy and own a substantial stake in hundreds of companies.
5. State Old Age Pension
Social assistance is a non-contributory benefit that accrues to a citizen. The most important current benefit is the government old age pension that supports the large section of the rural populace and is South Africa's largest and most redistributive income transfer. It goes to about 1 million people and their dependants.
The Federation should engage in policy discussion with the state with a view to influencing the level of pension payments to the aged, dependants and the means test which is being used.
Administrative issues pertaining to method of payment, retirement age and eligibility age should form part of the engagement process with the state.
7. Industry Funds and Workers Benefits
Lump-sum versus pension: The lump-sum from provident funds was achieved through the workers’ struggle and it must therefore be the right of workers to choose.
No legislation should interfere with this choice.
Workers must be able to transfer their savings from one fund to another if they so choose.
Tax must be used to encourage industry funds to invest in the RDP.
There must be a top-up system to compensate workers for the recent tax changes regarding retirement funds.
We need to do research into union funds already existing to assist the implementation of the industry fund.
It is important that COSATU influence the training of the worker trustees on the Boards to ensure that they take forward union issues. This needs urgent attention because private companies are already providing this training without union influence.
Unions should have representation in Mutual Funds such as Old Mutual.
COSATU needs to investigate the viability of moving to one national fund.
6.2 Accelerating Transformation
Retirement funds are the major source of income for working people in South Africa, who are no longer of working age. Most workers are covered by contributory funds (involving joint contributions by employers and workers) as part of the wage package, which can therefore be defined as social insurance. About 7 million people, including 70% of those holding formal sector jobs in the private sector, are estimated to be covered by these funds. About 1 million public sector workers are covered by the Government Employee Pension Fund.
The State Old Age Pension (SOAP) is funded by government from the fiscus, and is a major source of income support for low income households, with about 2 million old people currently benefiting from the grant. Although only about a third of poor households receive this pension, it is particularly important in supporting families which have no other source of income, including from contributory funds. The SOAP is the largest element of the limited social assistance provided by the state.
Although the scale of publicly and privately provided pensions in South Africa is very large, the structure, and depth of coverage of people, is fragmented, inadequate, and in need of substantial restructuring.
While retirement funds have been used as extremely lucrative tax havens by the wealthy, low income workers find that their payments, often a lump sum, are exhausted rapidly, and therefore don’t serve as a sustainable basis for income security.
The need for restructuring has been recognised, albeit from radically different perspectives, by different stakeholders, and there has been extensive debate, with numerous commissions, forums and investigations, on various options. The sheer scale of investments and the financial interests involved, the complexity of institutional and legal arrangements, has resulted both in a resistance to transformation, as well as an obscuring of the issues for ordinary people.
The policy debate has revolved around a number of issues, in particular:
regulations governing investment of public and private sector funds;
corporate governance, and democratisation of the funds;
the funding arrangement and structure of these funds;
taxation of pension funds, and the effect on low income earners;
demutualisation of mutuals handling insurance and retirement funds;
the disposal of pension ‘surpluses’;
the need for a compulsory national retirement fund; and
the level of benefits, and scale of the state pension fund.
There is the need to rationalise and consolidate the existing funds. Currently there are over 15 000 funds, which results in huge wastage, unnecessary administrative costs, and none of the benefits of economies of scale. It also creates problems of non-portability between jobs. COSATU affiliates have successfully mobilised to set up industrial funds in a number of sectors. However, excessive fragmentation still exists. This led COSATU’s Central Committee to resolve to investigate the viability of moving to one compulsory national fund. Another structural question is the issue of the preferred form of funds- defined benefit vs defined contribution funds or pension vs provident funds. COSATU has argued that these macro questions relating to the shape of the retirement industry need to be resolved in a national forum. Such a forum was set up, but failed to conclude its work. This task therefore remains.
The restructuring of the Government Employees Pension Fund (GEPF) is another highly controversial matter, in terms of the level of its funding, which was discussed extensively at the Jobs Summit, and led to the formation of a task team at NEDLAC. This issue is dealt with in more detail in the section on Fiscal Policy.
While there have been attempts in some quarters to cut back the state old age pension, it remains South Africa's largest and most redistributive income transfer, critical to the survival of the rural poor. COSATU’ s concern has been to increase the level of payment, given that the SOAP has progressively declined in real terms over the last number of years, and to address concerns such as the method of payment, retirement age, eligibility age, and means testing. Some, particularly from business and the finance department have attempted to argue that a shift to social insurance (retirement funds), allows for the reduction or phasing out of social assistance (SOAP), given that the latter is ‘unaffordable’. This ignores the fact that only employed workers benefit from social insurance, and the continuing chronic levels of poverty in our society which require greater levels of social assistance not less.
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