Finance Minister Nhlanhla Nene’s budget speech for the 2015/6 tax year did not reveal any details about proposed National Health Insurance and few on the postponed retirement reforms, meaning that South African employers and employees will be kept in suspense for a while longer about how these changes will affect them.
That’s according to Rob Cooper, tax expert and Director of Legislation and Proposed Legislation at Sage VIP. He says that the lack of more information on these long outstanding issues was disappointing and concerning, especially when coupled with the fact that Minister Nene made few new personal income tax proposals. “These are complex matters that need a lot of careful consideration and I don’t think that government is dragging its heels,” says Cooper. “But I found the lack of guidance and direction on some matters to be somewhat disappointing.”
Cooper says that Minister Nene was in the unenviable position of delivering one of the most difficult budgets a Finance Minister has had to balance since the end of apartheid. The budget does a good job of balancing spending on social services and infrastructure, addressing the budget deficit, and protecting vulnerable citizens.
Cooper notes that National Health Insurance (NHI) isn’t mentioned at all in the main sections of the budget and gets only a cursory mention in the four page Peoples Guide, which states that, “The Department of Health is in the fourth year of the phased 15-year rollout of National Health Insurance, and pilot activities are already underway in 11 districts.”
Where to for the NHI?
“It appears government has experienced difficulties in contracting general practitioners, slowing down the momentum of this initiative,” says Cooper. “That means employees and payroll system suppliers are all still waiting to hear how National Health Insurance will be funded.”
If it will be partially funded by a mandatory contribution by all employees to the NHI, that will mean that organisations will need to make changes to their payroll systems and payroll administration procedures. National Treasury promised to release a discussion document on the funding options almost two years ago, but it has still not seen the light of day.
On the subject of retirement reforms, confusion prevails with the budget appearing to hint that the reforms are on track, and due to be implemented unchanged from March 2016. These reforms are intended to harmonise the tax treatment of pension and provident funds, in turn encouraging South Africans to save for retirement.
“The process to reform the contribution and pay-out side of retirement funding seemed like a wonderful example of a well-researched, transparent and inclusive project carried out by the policymakers over a number of years. It culminated in certainty for those who must administer the reforms with the promulgation of the final provisions in December 2013,” says Cooper
Cooper goes on to say that. “It was promulgated in 2013 with effect from March 2015 and then postponed in a shock announcement in October 2014 to March 2016 or even to March 2017. The apparent reason for this was that labour wanted to discuss broader social security reforms. So what has changed since then?”
Cooper says it could be that there might be some movement on the creation of a National Retirement Fund. In his budget speech, Minister Nene said the first draft of Retirement Reform regulations will be published for public comment “shortly.” He added that an agreement has been reached with the labour and social development Ministers to “jointly publish the long-standing discussion paper on social security reform.”
The Minister also took pains in his budget speech to reassure government employees who are members of the Government Employees Pension Fund (GEPF) that they will have access to their money once the reforms take effect. In other words, you might be looking at joining a mandatory National Retirement Fund at some point in the future if you’re an employee. As an employer, you may need to manage this in your payroll calculations in the not-too-distant future.
Says Cooper, “Given the financial constraints government and the private sector face in the current economy, it might take some time before the issues of retirement reform and health insurance are finalised. But settling them will give some certainty to businesses and help pave the way for a more equal and just South Africa. I hope we’ll see some movement in the next year.”