SA policies reduced poverty – World Bank

2014-11-04 15:06

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South Africa’s fiscal policies lifted 3.6 million people out of poverty in 2010-2011, a World Bank report has found.

The South African Economic Update, released today, found that South Africa’s fiscal policies are cutting the rates of poverty and inequality, and that tax and social benefits are effectively redistributing income from rich to poor.

“We find that fiscal policy is very progressive in South Africa – it benefits the poor more than the rich,” World Bank economist Catriona Purfield said.

“We find that because of fiscal policy, large reductions are made in poverty and inequality – in fact they are the largest reductions due to fiscal policies in our sample of 12 countries.”

The other 11 middle-income sample countries were Armenia, Bolivia, Brazil, Costa Rica, El Salvador, Ethiopia, Guatemala, Indonesia, Mexico, Peru and Uruguay.

Purfield said the report showed that South Africa’s tax system was slightly progressive, in that the rich paid a higher share than the poor in income tax and value-added tax.

She said social spending, like child support and disability grants, old age pensions and free basic services lifted the lowest income from a “tiny” R200 a year, to R2 800 in 2010-2011.

“Because of those cash transfers ... and free basic services, the poverty rate after receiving those falls to 39% [from 46.2%],” Purfield said.

“That is a reduction of 3.6 million people – you have lifted them above the poverty line thanks to your effective use of fiscal policy.”

She said the use of policy also lowered the Gini co-efficient on income, which measures inequality.

However, even with a progressive tax system, inequality in South Africa was still higher than the other 11 countries in the sample. This was because it was one of the most unequal countries in the world.

“Even though South Africa has a very effective use of its fiscal tools, the original problems in income inequality are so high that South Africa is going to need other things to help it address the problem of inequality,” Purfield said.

“To make further progress going forward, you need to complement fiscal policy with higher more inclusive growth that essentially generates jobs, especially at the lower end of the distribution.”

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