On 5 November 2014 national Treasury and the World Bank presented findings as to how the poor are progressing in RSA. The presentations can now be downloaded on the following link. And they are worth a read. (http://www.treasury.gov.za/comm_media/presentations/default.aspx)
The good news appears to be that South Africa is making progress on the poverty front. Indeed the percentage reduction in RSA’s Gini coefficient is most impressive. Dependent on how the Gini is measured RSA is ahead of many other countries.
There is some debate as to how one measures the Gini coefficient. If the Gini is measured only on market income RSA still has a Gini coefficient of 0,771. And that’s atrocious by world standards.
But South Africa is trying to help the poor by Government intervention programs. These take the form of zero ratings on basic food and fuel, state grants etc. Surely all this must be taken into account if one is going to get a fair measurement of the Gini. If so, RSA’s Gini drops to 0,596. This certainly demonstrates progress.
Further research demonstrates the effectiveness of redistributing fiscal resources towards the poor. South Africa’s fiscal policy indeed demonstrates an impressive performance when measured against other countries.
The system seems to be getting though to right places. And the allegations that state grants are being squandered on smokes and booze appear totally unfounded.
The World Bank study shows that the poorest decile of RSA only spends 1 percent of their limited income on booze and smokes. And another 2% on communication.
More than 50% of the spend goes on food, roof, energy and water. And a further 8% goes on the cost of getting to work or school. You can’t fault that.
Just look at where RSA starts in the exercise. Way above other countries in the comparative study. And that is the crisp issue. There is still a hell of a long way to go before all South Africans sleep safely at night.
South Africa’s fiscal policy has lifted 3,6 million people out of poverty. That sounds impressive. But that’s if you measure poverty at U$2,5 (about R27 per day). R27 buys not much more than a liter of milk and a loaf of bread!
All this reminds me of those famous Mandela words from so many years ago
‘South Africa is regaining itself. This is not a process that takes 5 or 10 years. But we are on the right track.’
There are many critics of government fiscal policy for the poor. But perhaps it is fair to approach the problem another way and ask the question ‘where would RSA be today of it were not for the fiscal interventions of the last 20 years?’ And the answer must be ‘social chaos.’
The debate then turns to the issue ‘ are the fiscal interventions of government sustainable?’ This is where it gets quite frightening.
The medium term budget policy statement of 22 October 2014 reflects that RSA’s national debt is rising faster than was predicted. Thus instead of being able to channel further resources towards the poor, RSA will have to cut state expenditure by R15 billion per annum. Apparently this will not impact poverty relief. But there are certainly not additional financial resources available to tackle the problem.
The taxpayer is going to have to come up with another R15 billion. We will have to wait for the national budget speech on 25 February 2015 to see the full game plan.
The conclusion from all this must be ‘South Africa’s poor are only slightly less f$cked than they were.’ And given the state of the economy it is going to be very difficult to accelerate delivery by relying on tax collections and state borrowings.
The true problem is that RSA’s predicted growth rates just have not mmaterialised In January 2009 the USA economists Carmen Reinhart and Kenneth Rogoff produced a paper entitled ‘The aftermath of financial crisis.’ They reckoned that there would be a relatively quick recovery. The world was in awe of their work. There was hope.
The famous paper has been followed by the book This Time its Different.’ It must be wonderful to be an economist.
RSA needs accelerated growth rates. We hoped the world would do it for us and we would continue to dig out resources. And that has not worked. It’s all very worrying.
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