Why poverty hurts SA more than Brazil

We would like to dispute several claims attributed to Neil Coleman in the article on minimum wages (“SA unpicks Piketty’s Brazil knot”, October 9). Coleman is a fan of Brazil’s minimum wage (788 reis a month). In our paper, cited in the article, we point out that the real value (in terms of local purchasing power) of the Brazilian minimum wage is less than R2 400 a month.

Coleman replies that we have not taken into account the recent depreciation of the Brazilian currency. This is misleading because our calculations are based on real purchasing power, not nominal exchange rates. Inflation in Brazil has in fact eroded the real value of its minimum wage. The real value in South Africa of the Brazilian minimum wage remains below R2 400 a month.

Secondly, Coleman points to the higher levels of taxation and social spending in Brazil compared with South Africa. This is largely because the Brazilian tax and expenditure data include social insurance contributions and expenditures, whereas equivalent spending on pension funds and health care in South Africa is excluded from the data.

More importantly, much public expenditure in Brazil comprises taxfunded subsidies to the pensions of retired civil servants who have a powerful trade union but rank among the rich, not the poor.

High levels of apparent public expenditure do not necessarily indicate pro-poor spending.

Social assistance and the minimum wage both contributed to a decline in poverty in Brazil — along with strong employment growth. The key difference between Brazil and South Africa is not welfare provision or the minimum wage, but the employment rate.

Poverty is much higher in South Africa because so many people are unemployed. Coleman seems unable to acknowledge this. —