More jobs and better pay are vital to create a more equal SA
bdlive.co.za - Nov 7th 2014, 11:03
SA’s tax and government spending policies do the most to redistribute wealth from the rich to the poor compared to other middle-income countries, says a new World Bank study. Yet SA remains the most unequal society among them.
The South African leg of the study, titled Fiscal Policy, Inequality, and the Poor in the Developing World, which was presented at a World Bank/ Treasury workshop in Pretoria on Wednesday, shows the enormous deficit left by apartheid that SA must still overcome.
It also suggests that while fiscal policies have done a lot for the poor, these have come close to their limits in reducing inequality. For SA to become equal, more jobs and better incomes are needed.
The study sets out to answer two questions: how well do taxes and spending redistribute income from the rich to the poor, and what is the effect of these on poverty and inequality? In SA, the results are startling. Out of a set of 16 middle-income countries to which the same methodology was applied, SA’s fiscal policy leads to the largest reductions in poverty and inequality.
Direct taxes are broadly redistributive with the top 10% of the population paying 84% of the taxes, the World Bank found.
SA’s Gini co-efficient — the measure between 1 and 0, in which 1 reflects total inequality and 0 complete equality — is at 0.771 before the effects of taxation are taken into account. After direct taxes, the Gini drops to 0.75.
When direct cash transfers, such as welfare grants and free basic services, are added to income the Gini drops to 0.694. "Transfers in kind" — such as education and health, further reduce inequality to a Gini measure of 0.596.
Poverty also declines substantially. Before taxation and cash transfers, 46.5% of the population are in poverty or live on less than $2.50 a day, or R443 a month in 2010 prices. Direct taxes change this only marginally, but when cash transfers are included, poverty levels drop to 34.2%. Indirect taxes — such as VAT and excise taxes — raise this to a net effect of a poverty level of 39.6%.
A methodology called the "Commitment to Equality" developed by US economics professor Nora Lustig at Tulane University, allows a comparison across countries. While this is usually difficult, the methodology provides a standard set of definitions, which ensures apples are compared with apples.
Prof Lustig says that the result for SA in reducing inequality is way ahead of the next best performer. SA’s Gini co-efficient drops 0.08 points compared to Chile, with about a 0.04 improvements and then Brazil, where after taxation and social welfare transfers the Gini improves 0.35 points.
Yet, SA’s Gini coefficient after fiscal transfers is still much higher than other middle-income countries before fiscal transfers. In Mexico, for instance, the Gini co-efficient prior to fiscal transfers is 0.439, a similar level to Brazil’s.
The poverty headcount also drops more in SA — 12% points — compared to Brazil, where it drops four percentage points and in Uruguay, where the decline is 3.8 percentage points.
The authors of the South African leg of the study — Gabriela Inchauste and Ingrid Woolard — suggest that SA’s success in reducing inequality stems from cash transfers being large relative to the incomes of the poor and being well-targeted at the most vulnerable.
However, says Prof Lustig, the limits of redistribution through the fiscal system are nearing their ceiling. Job creation and raising wages through increased productivity are imperative if inequality is to be further reduced. "While SA is doing a lot it starts from such a dire situation that doing a lot has still not got it to where it wants to be."From DFM Publishers (Pty) Ltd
No pain, no gain for SA economy
02/09/2019 - 16:22
Despite SA’s fiscal crisis — and the fact that the country has very little to show for the loose fiscal policy run over the past decade — there is a lobby (mainly on the Left) that thinks the best way to resolve SA’s growth and fiscal challenges is to inject further fiscal stimulus into the economy.
Exports to Brazil take off over South American trade deal
10/04/2019 - 11:03
The ratification of trade agreements between the Southern African Customs Union (Sacu) and the Southern Common Market (Mercosur), a South American trade bloc, has been a key driver of the increase in exports to Brazil.
Global unemployment at lowest level in almost 40 years
10/12/2018 - 09:32
While global unemployment has fallen to its lowest level in almost 40 years, SA is among four countries with an unemployment rate higher than that immediately preceding the 2007/08 global financial crisis.
New Checkers in Plettenberg Bay creates 160 new jobs in local community
27/03/2018 - 15:02
Checkers Plettenberg Bay Mall is one of 20 new look Checkers supermarkets in South Africa at the moment.
Mondelēz set to close two production facilities in Brazil
27/03/2018 - 11:46
Mondelēz has announced that it will close two of its Brazilian production facilities by the end of 2018.