Inequality and income distribution

REDI3x3 conference: Policies for inclusive growth

Murray Leibbrandt, University of Cape Town on 15 February 2017
Reads 851

The REDI3x3 research project has completed most of its research at a time when unemployment, poverty and inequality is intense. With growth at just 0.5%, government needs to become more innovative in fixing the social policies that hamper progress. It should draw on all the research evidence to find ways to transform the structure of the economy without inhibiting growth. Addressing education, low labour intensity, the informal sector and the spatial legacies of apartheid can make a real difference.

Wealth inequality – striking new insights from tax data

Anna Orthofer, Department of Economics, Stellenbosch University on 24 July 2016
Reads 8,692

Although South Africa is known for its extreme income inequality, the degree of wealth inequality is even greater. New tax and survey data suggest that 10% of the population own at least 90–95% of all assets, in contrast to their earning ‘only’ about 55–60% percent of all income. The finding supports the ongoing proposed reforms to close loopholes in estate taxation (Davis Tax Committee) and expand the coverage of pension systems (National Treasury).

Do government spending and taxation really reduce inequality, or do we need more thorough measurements? A response to the World Bank researchers

Patrick Bond, University of the Witwatersrand on 10 February 2016
Reads 3,489

World Bank staff and consultants claim that South Africa’s progressive taxation and pro-poor social spending reduce the Gini inequality coefficient from 0.77 to 0.59. But their data and methodology are deficient: their research ignores large areas of government spending and taxation that may significantly increase inequality. Thus their conclusion that fiscal policy is redistributive is overhasty and unfounded – whilst it is prone to be used, or misused, to promote a budget-cutting political agenda.

How much is inequality reduced by progressive taxation and government spending?

Ingrid Woolard, University of Cape Town on 28 October 2015
Reads 8,889

Through progressive taxation and pro-poor social spending, the SA fiscal system reduces income inequality significantly. The extent of this reduction is larger than in twelve comparable middle-income countries measured similarly. Nevertheless, ‘final’ income (i.e. income after major taxes, government transfers and spending) remains more unequal than in comparator countries. While the fiscal system has an important role to play in reducing inequality, interventions to improve the distribution of wages, salaries and capital income are needed.

Labour and unemployment in South Africa: towards a ‘grand bargain’

Ravi Kanbur, Cornell University on 7 October 2015
Reads 2,776

The problematics of the situation in South Africa are clear: high unemployment, high inequality and low growth, combined with a lack of consensus on what to do. It might be more fruitful to think in ‘grand bargain’ terms: a package of policies that are intended to balance opposing perspectives whose differences cannot be resolved through technical debate – and to set short-term political-economic imperatives against the longer time horizon needed for policy interventions to address deep structural legacies

How effective is VAT zero rating as a pro-poor policy?

Ada Jansen, Stellenbosch University on 20 July 2015
Reads 3,834

In most countries with VAT, certain goods and services are zero rated to alleviate the tax burden on the poor. However, this may not be the most cost-effective way of helping the poor. We investigate the appropriateness of the products currently zero rated and the impact of this on the poor, the implications for tax revenue were it to be removed, and the contribution to poverty relief of zero rating compared to targeted social transfers.

Technology, labour power and labour’s declining income share in post-apartheid South Africa

Philippe Burger, University of the Free State on 17 February 2015
Reads 4,189

The share of labour in aggregate income in South Africa has declined significantly since 1993, while that of capital has increased. Concurrently, real wages have increased slower than productivity. This article argues that financialisation and the more aggressive returns-oriented investment strategies applied by large, global investment institutions have translated into investors requiring higher rates of return on capital. This, in turn, has led to the increased adoption of capital-augmenting, labour-saving technology that has reduced labour’s share of total income – with important consequences for income distribution.

Unpacking labour’s declining income share: manufacturing, mining and growing inequality

Philippe Burger, University of the Free State on 3 February 2015
Reads 3,254

While the share of capital increased, labour’s share of total income earned in South Africa fell significantly during the first two decades after 1994. These trends could contribute to a deterioration of income inequality, given that the ownership of capital – and thus the income from capital – is concentrated in fewer individuals than is the case with salaries and wages. This article explores labour’s falling share, with particular reference to the manufacturing and mining sectors.

Enabling growth: redistribution priorities for South Africa

Andrew Donaldson, National Treasury on 12 November 2014
Reads 4,508

If the National Development Plan is to be effectively implemented, we need clarity about the mechanisms through which growth and redistribution can be jointly advanced. Priorities include social security reform and quality improvements in social services, urban development, housing and public-transport investment. Expanding employment opportunities is the most pressing challenge, requiring policies that might include: support for labour-intensive industry and agriculture, small enterprise and informal sector development, well-targeted skills programmes, and wage or employment subsidies. Recognising the complementarity between redistributive and growth-enhancing measures is essential.

Redistribution is part of the toolkit to promote growth

Andrew Donaldson, National Treasury on 7 October 2014
Reads 4,909

A recent IMF study of several countries provides robust evidence that a high level of income inequality weakens the prospects of sustained economic growth and reduces the duration of growth spells. Redistributive steps, by contrast, do not have a noticeable negative effect on growth. Therefore, a reduction in inequality that is achieved through redistributive steps could have a net pro-growth effect. The policy challenge for South Africa is to find the best policy mix to achieve that.