South Africa, Africa’s most developed economy, has seen about 3.6 million inhabitants lifted out of poverty and the rate of extreme poverty cut in half. This is the direct result of revamped fiscal policies.
Such policies have seen tax, income and social benefits redistributed more effectively between the South Africa’s social strata. The news was contained in the latest South Africa Economic Update, released by the World Bank.
With an unusual focus on fiscal policy and redistribution in a largely unequal society, the South Africa Economic Update (sixth edition) highlights the distributional impact of taxation and spending. It depicted how these tools ameliorate poverty and inequality.
“This report provides evidence that activist fiscal policies have helped South Africa reduce poverty and inequality even though these remain pressing developmental challenges. We hope that this analysis will help inform and deepen the ongoing debate on the broader policies needed to attack poverty and inequality,” said Asad Alam, World Bank Country Director for South Africa.
Such reports are a breath of fresh air in a world where, according to Forbes, the richest 85 people control as much wealth as the bottom 3.5 billion people.
The report indicated that the proportion of the South African populace living on $1.25 a day or less has been halved from 34.4 percent to 16.5 percent, following the implementation of the new policies. This also shows the significant impact of cash transfers such as the child support, disability grants and the old age pensions that has lifted the income of the poorest decile almost tenfold.
By virtue of leveraging fiscal policy to drive redistribution, the Gini coefficient on income, a commonly used measure of inequality, has fallen from 0.77 to 0.59. This confirms a significant reduction in inequality. Also, the larger burden of taxes now fall on the country’s richer segment.
Gabriela Inchasute, a Senior Economist at the World Bank, placed these findings in context. “South Africa achieves the largest reductions in poverty and inequality compared to other middle income countries sampled in the report. The reductions are higher than what countries such as Brazil, Indonesia, Ethiopia, Mexico and Argentina achieve through fiscal redistribution,” Gabriela said.
Despite this progress, it remains an uphill task to completely overhaul this challenge. Unemployment figures still border around 25 percent and inequality, though reduced, remains higher than what is observed in many other regions. Addressing infrastructure challenges and broadening structural reforms must remain top developmental priorities for the government of the day.
By Emmanuel Iruobe
