High rate of inequality
South Africa needs new strategy to get back on sustainable growth path
The Organisation for Economic Co-operation and Development (OECD) has warned that South Africa’s high level of inequality undermines social stability and inclusive growth.
The intergovernmental organisation that comprises 38 member countries including South Africa, in a research report said the country’s inequality is unsustainable.
“The top 10% earners capture almost 50% of revenues and the wealthiest 10% hold 85.6% of net wealth. The tax system could do more to reduce inequality. The progressivity of the personal income tax is undermined by tax deductions benefiting mostly highincome earners. Tax allowances and deductions are substantial and regressive. Deductions for medical expenses and the tax relief for pensioners are regressive,” the organisation said.
The observation of the OECD follows a study conducted by the World Bank that was released in March.
In that study, the World Bank found race and land fuel inequality in South Africa.
The World Bank also identified the legacy of apartheid as one of the main drivers of inequality in the country.
The study also found that the rural economy can benefit from resolving land inequality and strengthening land rights both in law and in practice.
There was slight reprieve on the unemployment numbers this week as data from Statistics South Africa showed that unemployment rate fell to 33.9% in the second quarter of 2022, down from 34.5% in the previous three-month period.
The number of unemployed persons went up by 132000 to eight million, employment rose by 648000 to 15.56 million and the labour force increased by 780000 to 23.55 million.
Despite these positive decreases, at the end of the day, South Africa’s official unemployment rate remains the highest on a list of 82 countries monitored by Bloomberg.
Chief investment officer at PSG Wealth Adriaan Pask said the decrease in unemployment is a positive development, given the current tough economic backdrop.
“However, to ensure an upward trend in employment, both the private and public sectors must accelerate the implementation of structural and pro-business reforms to unlock investment, reduce costs and increase competitiveness and growth, all of which will go a long way in creating sustainable employment,” Pask said.
The OECD made the following recommendations for South Africa to be on a more sustainable growth path:
• Maintain a progressive consolidation strategy to bring back debt on a sustainable path, notably by reinstating and strengthening the spending rule, for example by developing fiscal anchors.
• Privatise state-owned enterprises (SOES) operating in competitive markets when the economic situation improves.
• Proceed with the separation of Eskom into three entities and facilitate access to the grid for private providers.
•Separate clearly the responsibilities of the board and the management of SOES by giving the board the mandate to strategically supervise, monitor and audit the management of SOES.
• Improve prosecution processes and the enforcement of national and foreign corruption sanctions for offences.
The Paris-based entity also said South Africa’s labour market needs to become more flexible.
“Wage bargaining remains confrontational and labour-employer relations have been ranked among the weakest by the World Economic Forum. The wage bargaining system suffers from a relatively high level of bargaining at industry level, declining representativeness of bargaining councils and inadequate extension of their agreements to non-members,” it said.