Being a patriot is not easy. When the Springbok rugby team wins the World Cup we rejoice, but when we look at statistics such as the Gini index, we can only drop our heads and accept we are failing as a nation where it matters most.
1. The Gini index is often represented graphically through the Lorenz curve, which shows income (or wealth) distribution by plotting the population percentile by income on the horizontal axis and cumulative income on the vertical axis. In the graph below we note three intervals of income relative to the share of the total population. At the first intersection, it indicates that 25% of the population received only 5% of the national income, at the next interval it indicates that 50% of the population received 20% of the income and the third intersection indicates that 75% of the population received 40 % of the income. It therefore follows that 25% of the population received 60% of the income.
2. Formal economic activity tends to represent a larger portion of true economic production in developing countries and at the lower end of the income distribution within countries. The South African informal sector is massive, and some estimates calculate that this sector. An informal economy (informal sector or shadow economy) is the part of any economy that is neither taxed nor monitored by any form of government. The size of South Africa's informal economy is estimated to be 29% which represents approximately $371 billion at GDP levels.
Should this number be included in the Gini calculations we would probably not rank as bad as we do.
3. A country can reduce its Gini score (a measure of income inequality, where 0 represents perfect equality and 1 represents maximum inequality) through a combination of economic, social, and policy measures aimed at redistributing income and wealth more equitably. However, many of these measures are not measured by the Gini index such as it does not capture social benefits or other interventions aimed at bridging inequality between rich and poor. Subsidised housing, healthcare, education, and social grants for the vulnerable are measures that subsidise household incomes, reducing income inequality to some extent. South Africa has a host of these measures as is evident by the almost 28 million recipients of some grant or another.
Here are several ways that can improve inequality despite the Gini index not reflecting all these measures when implemented.
3.1. Progressive Taxation
Increase tax rates on higher-income groups while reducing taxes on lower-income groups.
- Implement “wealth taxes” or inheritance taxes to redistribute wealth more fairly.
- Use the tax revenue for social welfare programs and public services that benefit the broader population.
In this regard, the South African government cannot be criticized.
3.2. Social Welfare Programs.
Expand social safety nets: Increase access to welfare benefits, unemployment insurance, and food subsidies to support low-income individuals. Universal basic income (UBI): A guaranteed minimum income can help ensure a basic standard of living for everyone, reducing extreme poverty and inequality. Housing subsidies: Providing affordable housing can reduce inequality in access to basic living standards. Once again, we have as many such initiatives as the fiscus can support.
3.3. Improved Education and Skills Training.
Investing in education: Ensuring equal access to quality education helps people from disadvantaged backgrounds gain skills and opportunities to secure better-paying jobs. The country needs more efficiency and better management of existing resources. Reducing teacher numbers is not an option.
- Focus on vocational training and upskilling to ensure that low-income individuals can access higher-paying industries.
3.4. Inclusive Economic Growth.
- Promote inclusive economic policies that ensure growth benefits all sectors of society, not just the wealthy. Too many resources are used to overpay government employees.
- Encourage job creation in sectors that employ a larger proportion of low-income workers, such as agriculture, manufacturing, and services.
- Support small and medium enterprises (SMEs) to create jobs and reduce dependence on large corporations. Instead of supporting the Companies And Intellectual Property Commission (CIPC) deregistering small companies if they do not submit their annual returns (which contain information that the CIPC does not have any practical use for and is merely placed in a database. It is of no value to the state, Sars, or any institution. Completing an annual return form for CIPC is unnecessary red tape. (Which President Ramaphosa vowed to remove and Minister Patel alluded to that need to be removed but never implemented what he stated.)
3.5. Labour Market Reforms.
- Raise minimum wages: Setting a higher minimum wage can directly reduce income inequality by ensuring that workers earn a living wage.
- Strengthen labour rights: Ensure fair working conditions, improve job security, and promote collective bargaining rights to help workers negotiate better wages.
3.6. Healthcare and Social Services Access.
- Ensure universal healthcare, access to reduce the financial burden of medical expenses, especially for low-income groups.
- Improve access to childcare services, to enable low-income parents, particularly women, to participate in the workforce more effectively. The National Health Insurance Bill is not properly considered and will not work in its present form. Some form of the bill is needed.
3.7. Land and Wealth Redistribution.
- Implement land reform policies, to redistribute land ownership more fairly, especially in countries where large segments of the population rely on agriculture. The many portions of land purchased by the government for the benefit of black farmers have not been successfully transformed into efficient and productive units and almost no activity and work is created from these unproductive farms. The implementation lacks a detailed business plan.
- Encourage wealth redistribution policies like housing grants, subsidies, or policies that help individuals accumulate assets.
3.8. Gender Equality and Empowerment.
- Promote gender equality policies such as equal pay for equal work and maternity/paternity leave to ensure that women are not disproportionately disadvantaged in the labour market.
- Implement empowerment programs for marginalized groups to increase their participation in the economy.
3.9. Trade and Global Policies.
- Ensure fair trade agreements that protect workers and small businesses from exploitation by larger international corporations.
- Implement capital controls to prevent excessive wealth accumulation by elites through offshore investments.
4. The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2024 has gone to three laureates, Daron Acemoglu, Simon Johnson, and James A. Robinson. They have made a huge contribution “to studies of how institutions are formed and affect prosperity” They have helped us understand differences in prosperity between nations.
The trio demonstrated how societies with a poor rule of law and institutions that capitalise on their population with an exploitative intent neither generate growth nor change for the better. The trio demonstrated how societies with a poor rule of law and institutions that capitalise on their population with an exploitative intent neither generate growth nor change for the better.
The richest 20% of the world’s countries are now around 30 times richer than the poorest 20%. Moreover, the income gap between the richest and poorest countries is persistent; although the poorest countries have become richer, they are not catching up with the most prosperous.
5. The GNU is accepting the pivotal role of the private sector and entrepreneurs who are taking risks to resolve South Africa's economic and political crisis. We must focus on the growth of the economy. We need to accept the failure of the current BBEEE rules. Higher levels of growth of two percent given our capacity constraints will assist in the reduction of poverty.
The Gini Index should perhaps be recalculated to consider the many other factors such as the informal sector contribution and in addition various other government initiatives. Social grants reduced poverty by 45% for the lower poverty line from 1993 to 2013. As per the food poverty measure, poverty levels declined from 33% in 1993 to 25% in 2013. In terms of cost to the budget, social assistance in South Africa currently amounts to R120 billion, representing 3.4% of GDP. Social insurance schemes have also been reformed, establishing an unemployment insurance fund (UIF). The UIF now covers previously excluded groups such as domestic workers, seasonal farm workers, and other categories that were not included in social assistance schemes.
Perhaps one of our universities could tackle the project to build a better and more comprehensive which is more inclusive and that will reflect a fairer index that includes the realities described above.
* Kruger is an independent analyst.
** The views expressed in this column do not necessarily reflect the views of Independent Newspapers.
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