Article written

  • on 28.11.2014
  • at 03:09 PM
  • by evelina

How the SACP and World Bank Agree on Policies that Restrain Redistribution in South Africa 0

Have we reached the end of the road for redistribution in South Africa? Recent publications by the World Bank and the South African Communist Party (SACP) suggest that the time for redistribution may well be over.

The oddness of the pairing – usually with different ideological stances – is remarkable in itself, but the underlying logic for reaching the conclusion is even more remarkable.

The policy recommendation is similar. After a strong focus on expanding services, South Africa must now focus on the economy. The detailed proposals from the SACP differ from the standard set of recommendations from the World Bank, but the argument that we have reached the limits of redistribution in South Africa is a common thread. The solutions for the SACP is to be found in policies aimed at industrialisation and infrastructure development. For the World Bank’s part, there are no detailed proposals in its report, but a general call for inclusive economic growth and a warning that the fiscal limits have been reached.

There are, of course, important differences as well, but they share a remarkable circumvention: the failure to unpack how the poor, especially the young and unemployed, will be able to participate in the envisaged economic reforms.

The publication of the World Bank report, “South Africa Economic Update: Fiscal Policy and Redistribution in an Unequal Society”, provides an important analysis of the impact of government expenditure on the poor and for the first time, provides incidence reports on taxation, which shows that personal income tax is progressive. The study uses methodologies used in other countries, which allows for comparisons.

South Africa is an outlier. The impact of government spending on the poor in South Africa has the biggest impact on inequality when compared to other countries. But, we still remain the most unequal country compared to others in the sample.

The paradox of having a redistributive fiscal outcome with social grants having the biggest impact alongside very high levels of inequality is an important one. The World Bank uses this finding to argue that redistributive efforts via government spending are unlikely to lead to major changes in inequality. In other words, the bank is arguing that social grants reduce inequality, but play a limited role in economic growth. The evidence however shows that social grants play a role in supporting poorer people’s involvement in the economy.

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By Ebrahim-Khalil Hassen

Image Credit: SACSIS

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