26 - 30 september 2016, brussels session 8 fiscal ... · 26 - 30 september 2016, brussels session 8...
TRANSCRIPT
DG DEVCO Staff Seminar on Social Protection - from strategies to concrete approaches -
26 - 30 September 2016, Brussels
SESSION 8 Fiscal Incidence in South
Africa
Jon JELLEMA
Associate Director for Africa, Asia & Europe, CEQ Institute [email protected] www.commitmentoequity.org
Two Main Questions
• How do taxes and spending in South Africa redistribute income between the rich and poor?
• What is the impact of taxes and spending on poverty and inequality in South Africa?
Basedon: Inchauste et al., (2015) “TheDistribu>onal Impact of Fiscal Policy in SouthAfrica.”CEQWorking PaperNo. 29. TulaneUniversity and the Center for Inter-American Policy andResearch.
Taxes
What taxes were assessed? 2010/11 Incidence
analysis (% of GDP)
Total General Government Revenue 30.9 17.5 Tax Revenue 27.1 17.5
Direct taxes 14.3 8.5 Personal income tax 8.5 8.5 Corporate income tax 5.6 … Other direct taxes 0.1 …
Indirect taxes 10.4 9 VAT 6.9 6.9 General fuel levy 1.3 1.3 Specific excise duties 0.9 0.8 International trade taxes 1 … Other indirect taxes 0.3 …
Other taxes 2.5 … Non-tax revenue 3.8 …
Sources: Stats SA - Financial statistics of consolidated general government, 22 November 2012 for totals. Line items under direct and indirect taxes from 2013 Budget Review, National Treasury
Direct taxes are absolutely progressive. 87% of direct taxes are collected from the top 10% of the distribution…
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0
Cum
ulat
ive
Prop
ortio
n of
mar
ket i
ncom
e/ta
x
Cumulative Proportion of the Population
South Africa Concentration Curves of Direct Taxes (share paid by market income deciles)
Direct taxes
Market Inc
45 Degree Line
Source: Own estimates for South Africa based on IES 2010/11.
…but less so than in other countries...
Sources: Armenia (Younger et al, 2014), Bolivia (Paz et al, 2014), Brazil (Higgins and Pereira, 2014), Ethiopia (Hill et al, 2014), Indonesia (Jellema et al 2014), Mexico (Scott, 2014), Peru (Jaramillo, 2014), Uruguay (Bucheli et al, 2014), and own estimates for South Africa based on IES 2010/11.
0.13
0.23
0.25
0.27
0.28
0.30
0.43
0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 0.45 0.50
South Africa (2010)
Armenia (2011)
Uruguay (2009)
Brazil (2009)
Ethiopia (2011)
Mexico (2010)
Peru (2009)
Progressivity of South Africa’s Direct Tax System: The Kakwani Coefficient
In contrast, indirect taxes are slightly regressive on account of excise taxes
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
100%
Cum
ulat
ive
prop
ortio
n of
di
spos
able
inco
me/
tax
Cumulative proportion of the population
South Africa Concentration Curves of Indirect Taxes (share paid by disposable income deciles)
Disposable Income VAT Excise Tax
Fuel Levy 45 Degree Line
Source: Own estimates for South Africa based on IES 2010/11.
Overall, the tax system is globally progressive.
Sources: Own estimates for South Africa based on IES 2010/11.
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0
Cum
ulat
ive
Prop
ortio
n of
Tax
Cumulative Proportion of the Population
South Africa. Concentration Curves of All Taxes, 2010 (share of market income)
Market Inc
45 Degree Line
All taxes
How progressive is social spending in South Africa?
Government Spending: 2010
2010/11 Incidence analysis
(% of GDP) Total General Government Expenditure 34.8 14.9
Primary government spending 32.2 14.9 Social Spending 17.6 14.9
Total Cash Transfers 3.8 3.8 State old age pension 1.3 1.3 Child Support Grant 1.1 1.1 Disability grant 0.6 0.6 Other grants 0.6 0.6 Foster care grant 0.2 0.2
Other Transfers: Free Basic Services 0.5 0.5 In-kind transfers 12.6 11.1
Education 7 7 Health 4.1 4.1 Housing and urban 1.5 …
Other social spending 1.1 … Non-Social Spending (incl. public sector pensions) 14.6 …
Sources: Stats SA - Financial statistics of consolidated general government, 22 November 2012 for total. Line items under direct and indirect taxes from 2013 Budget Review, National Treasury. For Free Basic Services, data represents the amount transferred under the equitable share formula for 2010/11 to municipalities to compensate them for providing basic services to poor households, and was provided by the Financial and Fiscal Commission of South Africa.
Primary spending is large relative to other MICs
16% 18% 18% 24% 24% 26% 28% 28%
32% 33%
41% 41%
0% 5%
10% 15% 20% 25% 30% 35% 40% 45%
Primary Government Spending (Share of GDP)
Total cash transfers Education Health
Other social spending Non-social spending Total primary spending
Direct Transfers and Pensions
South Africa spends generously on direct transfers.
0.4% 0.4% 0.7% 1.0%
1.3% 2.0% 2.0% 2.3% 2.5%
3.3% 3.7%
4.2%
0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5%
Shar
e of
GD
P
Public Social Assistance in the form of Cash Transfers (share of GDP)
Source: For Latin America see: Lustig and Pessino, 2014; Paz et al, 2014, Higgins and Pereira, 2014; Scott, 2014; Jaramillo, 2014, Bucheli et al, 2014; Lustig et al, 2014. Preliminary results for Armenia (Younger et al, 2014) Ethiopia (Hill et al, 2014), Jordan (Serajuddin et al, 2014), Sri Lanka (Arunatilake et al, 2014), and own estimates for South Africa based on IES 2010/11.
Direct cash transfers as a whole are strongly progressive…
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0 1 2 3 4 5 6 7 8 9 10
Cum
ulat
ive
Prop
ortio
n of
Inco
me/
Spen
ding
Cumulative proportion of the population by market income deciles
Direct Cash Transfers by Category Concentration Curves for Transfers and Lorenz Curve for
Market Income
Lorenz for Market Income Direct Transfers Old -age pension Child support grant Disability grant Population Shares
Sources: Own estimates for South Africa based on IES 2010/11.
Cash transfers are huge relative to the market incomes of the poor…
Source: Own estimates based on IES 2010/2011.
0%
200%
400%
600%
800%
1000%
1200%
Poorest decile
2 3 4 5 6 7 8 9 Richest decile
Shar
e of
mar
ket i
ncom
e
South Africa. Incidence of Direct Cash Transfers (share of market income by decile)
Old -age pension Child support grant Disability grant
Child care dependency grant Child foster care Grant-in-aid
Other grants
…much more so than other MICs.
Sources: Argentina (Lustig and Pessino, 2014), Armenia (Younger et al, 2014); Brazil (Higgins and Pereira, 2014), Mexico (Scott, 2014), Uruguay (Bucheli et al, 2014), and own estimates for South Africa based on IES 2010/11.
0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5%
0%
200%
400%
600%
800%
1000%
1200%
Argentina (2009)
Armenia (2011)
Brazil (2009)
Mexico (2010)
South Africa (2010)
Uruguay (2009)
Incidence of Direct Cash Transfers (share of market income deciles)
Poorest decile Richest decile Share of GDP (right axis)
Free Basic Services
The incidence of FBS depends on its delivery method,…
• Municipalities use different criteria for deciding on indigent households. Given that we can not directly identify the value of free basic services, we model two extremes:
• Benchmark scenario: – assumes all household connected to the national electricity grid equally
benefitted from the inverted block tariffs and received an equal share of government subsidies for free basic services.
– FBS are treated as an indirect subsidy.
• Sensitivity scenario: – assumes that the subsidy for free basic services is allocated equally among
indigent households who are connected to the electricity grid. – household is indigent if market income< R18,000 per year – FBS are treated as direct transfers since municipalities that target FBS typically
deliver these through rebates.
If FBS were targeted nationwide, there would be clear advantages for the poor, as they would be more
progressive
Source: Own estimates based on IES (2010/11).
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0 1 2 3 4 5 6 7 8 9 10
Cum
ulat
ive
Prop
ortio
n of
Inco
me/
Spen
ding
Cumulative proportion of the population by market income deciles
Concentration Curves for Free Basic Services
Lorenz for Market Income
FBS as a transfer
FBS as a subsidy
Population Shares
In-kind transfers on health and education
Public education and health spending are large compared to the market incomes of the poor,…
Source: Own estimates using IES, 2010/11 and NIDS 2008w1.
0%
100%
200%
300%
400%
500%
600%
700%
800%
Poorest decile
2 3 4 5 6 7 8 9 Richest decile
Shar
e of
mar
ket i
ncom
e
South Africa. Incidence of Education and Health Spending (share of market income deciles)
Education Health
…more so than in other MICs. This is true for education….
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
0%
100%
200%
300%
400%
500%
600%
700%
800%
Shar
e of
GD
P
Inci
denc
e as
a sh
are
of M
arke
t Inc
ome
Incidence of Education Spending relative to its size (share of benefits by market income deciles; spending as a share of GDP)
Poorest decile Richest decile Share of GDP (right axis)
Source: For Latin America see: Lustig and Pessino, 2014; Paz et al, 2014, Higgins and Pereira, 2014; Scott, 2014; Jaramillo, 2014, Bucheli et al, 2014; Lustig et al, 2014. Preliminary results for Armenia (Younger et al, 2014) Ethiopia (Hill et al, 2014), Jordan (Serajuddin et al, 2014), Sri Lanka (Arunatilake et al, 2014), and own estimates for South Africa based on IES 2010/11.
…and health.
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
0% 50%
100% 150% 200% 250% 300% 350% 400% 450% 500%
Shar
e of
GD
P
Inci
denc
e as
a sh
are
of M
arke
t Inc
ome
Incidence of Health Spending relative to its size (share of benefits by market income deciles; spending as a share of GDP)
Poorest decile Richest decile Share of GDP (right axis)
Source: For Latin America see: Lustig and Pessino, 2014; Paz et al, 2014, Higgins and Pereira, 2014; Scott, 2014; Jaramillo, 2014, Bucheli et al, 2014; Lustig et al, 2014. Preliminary results for Armenia (Younger et al, 2014) Ethiopia (Hill et al, 2014), Jordan (Serajuddin et al, 2014), Sri Lanka (Arunatilake et al, 2014), and own estimates for South Africa based on IES 2010/11.
Primary and secondary education spending disproportionally benefits those at the bottom of
the distribution…
Source: Own estimates using IES, 2010/11.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0 1 2 3 4 5 6 7 8 9 10
Cum
ulat
ive
Prop
ortio
n of
Inco
me/
Spen
ding
Cumulative proportion of the population by market income deciles
Lorenz for Market Income
Pre-school
Primary School
Secondary School
College education
Adult education
University education
In-kind Education
Population Shares
…but no so for post-secondary education
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
100%
Preschool Primary Secondary Post secondary training
Adult training centres
University
South Africa (% of target population through secondary school)
y < 1.25 1.25 < y < 2.5 2.5 < y < 4 4 < y < 10 10 < y < 50 y > 50
Source: Own estimates using IES, 2010/11.
In contrast, health spending is more progressively distributed than education…
Source: Own estimates using IES (2010/11) and NIDS (2008w1).
0%
2%
4%
6%
8%
10%
12%
Poorest decile
2 3 4 5 6 7 8 9 Richest decile
South Africa. Concentration Shares of Health Spending (share of benefits concentrated in each Market Income Decile)
Health spending is also progressive in absolute terms..
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0 1 2 3 4 5 6 7 8 9 10
Cum
ulat
ive
Prop
ortio
n of
Inco
me/
Spen
ding
Cumulative proportion of the population by market income deciles
Concentration of Health Spending and Lorenz Curve for Market Income
Lorenz for Market Income In-kind Education In-kind Health Population Shares
Source: Own estimates using IES, 2010/11 and NIDS 2008w1.
With health utilization more evenly distributed across socioeconomic groups than in other MICs
Source:Armenia(Youngeretal,2014),Bolivia(Pazetal,2014),Brazil(HigginsandPereira,2014),Ethiopia(Woldehannaetal,2014);andIndonesia(Jellemaetal,2014).ForSouthAfrica,ownes>matesbasedonIES2010/2011.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Armenia Bolivia Brazil Ethiopia Indonesia South Africa
Shar
e of
Tar
get P
opul
atio
n
Health Share of Individuals in Beneficiary Households by Income Group
y<1.25 1.25<y<2.5 2.5<y<4 4<y<10 10<y<50 y > 50
Social spending as a whole is strongly progressive
0.77
0.50
0.16
0.01
0.00
(0.11)
(0.12)
(0.15)
(0.17)
(0.19)
(0.19)
(0.25)
(0.32)
(0.34)
(0.37)
(0.39)
(0.60) (0.40) (0.20) - 0.20 0.40 0.60 0.80 1.00
Market income Gini
Tertiary Education Spending
Free basic services (as indirect subsidies)
Other grants
Health Spending
Pre-school education
Secondary School Education
Grant-in-aid
Old age pension
Pre and Primary education
Primary education
Disability grant
Foster Care grant
Child support grant
Care dependency
Free basic services (as transfers)
South Africa. Concentration coefficients for Spending
Source: Own estimates using IES, 2010/11.
What is the net impact of taxes and government transfers on inequality
and poverty?
30
Inequality falls substantially with Government interventions,…
0.771 0.75 0.694 0.695
0.596
0.25
0.35
0.45
0.55
0.65
0.75
0.85
Market Income Net Market Income
Disposable Income
Post-Fiscal Income
Final Income
The Gini Coefficient before and after Taxes, Transfers and Free Services, Education and Health Falls by over one-fifth
- direct taxes
+ transfers & FBS
- VAT, Fuel, excise
+ Educ, +Health
…more so than in other middle-income countries…
Source: Armenia(Youngeretal,2014);Bolivia(Pazetal,2014);Brazil(HigginsandPereira,2014);Ethiopia(Woldehannaetal,2014);Indonesia(Jellemaetal2014);Mexico(Sco^,2014);Peru(Jaramillo,2014);Uruguay(Buchelietal,2014);Lus>g(2014)basedonCostaRica(Saumaetal,2014),ElSalvador(BenekedeSanfeliuetal,2014),andGuatemala(Cabreraetal,2014);andownes>matesforSouthAfricabasedonIES2010/11.
-0.20
-0.18
-0.16
-0.14
-0.12
-0.10
-0.08
-0.06
-0.04
-0.02
0.00
Change in Gini: Disposable vs Market Income (in Gini points)
…but inequality is still higher after fiscal policy than inequality prior to fiscal policy in other countries
0.579
0.771
0.694
0.596
0.25
0.35
0.45
0.55
0.65
0.75
Market Income Net Market Income Disposable Income Post-Fiscal Income Final Income
Gini Coefficient for Each Income Concept
Armenia (2011) Brazil (2009)
Indonesia (2012) Jordan (2010)
Mexico (2010)
Peru (2009)
South Africa (2010) Sri Lanka (2009) Uruguay (2009)
0.439
- direct taxes + transfers
& FBS
- VAT, - Fuel
- Excise
+ Educ, +Health
Poverty also declines substantially…
34
+ direct transfers
- Indirect taxes
+ indirect subsidies
- direct taxes
40.8% 41.0%
23.4%
29.0%
20.2%
46.5% 46.7%
34.2%
39.6%
32.2%
52.3% 52.5%
45.1% 50.1%
0%
10%
20%
30%
40%
50%
60%
Market Income Net Market Income Disposable Income Post-fiscal Income
National food poverty line1
Official consumption based (food poverty line)
National lower bound poverty line 2
Official consumption based (lower bound)
National upper bound poverty line3
With the effect on poverty larger than other middle income countries.
35 + direct transfers
- Indirect taxes
+ indirect subsidies
- direct taxes
46.2 46.4
33.4
39
0
10
20
30
40
50
60
70
MarketIncome NetMarketIncome
DisposableIncome
Post-FiscalIncome
Percen
t
PovertyHeadcountat$2.50perday(PPP)
Armenia
Bolivia
Brazil
Indonesia
Jordan
Mexico
Peru
SouthAfrica
SriLanka
Uruguay
Direct cash transfers are highly effective at redistributing fiscal resources towards the poor...
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0 -13%
-11%
-9%
-7%
-5%
-3%
-1%
Argentina (2009)
Brazil (2009) Indonesia (2012)
Mexico (2010)
Peru (2009) South Africa (2010)
Uruguay (2009)
Effe
ctiv
enes
s Ind
icat
or
Cha
nge
in U
S$2.
50-a
-day
Pov
erty
Hea
dcou
nt Poverty Reducing Effectiveness
Change in Poverty Rate Effectiveness Indicator
Source:Argen>na(Lus>gandPessino,2014);Brazil(HigginsandPereira,2014);Indonesia(Jellemaetal),Mexico(Sco^,2014);Peru(Jaramillo,2014),Uruguay(Buchelietal,2014);andInchauste,Lus>g,Maboshe,PurfieldandWoolard(2014)forSouthAfricabasedonIES2010/11.
…and in reducing inequality.
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6 -0.06
-0.05
-0.04
-0.03
-0.02
-0.01
0.00
Effe
ctiv
enes
s Ind
icat
or
Cha
nge
in G
ini
Inequality-reducing Effectiveness
Change in Gini from Direct Transfers Effectiveness Indicator
Source:Argen>na(Lus>gandPessino,2014);Brazil(HigginsandPereira,2014);Indonesia(Jellemaetal),Mexico(Sco^,2014);Peru(Jaramillo,2014),Uruguay(Buchelietal,2014);andInchauste,Lus>g,Maboshe,PurfieldandWoolard(2014)forSouthAfricabasedonIES2010/11.
Conclusions • South Africa uses its fiscal instruments to effectively reduce market income poverty
and inequality through a slightly progressive tax system and highly progressive social spending
• On the tax side, fiscal policy relies on a mix of progressive direct taxes such personal income taxes, slightly regressive indirect/consumption taxes that when combined generate a slightly progressive tax system.
• On the spending side of fiscal policy, social spending is not only progressive, but it also contributes to large reductions in poverty and inequality.
• In fact, South Africa performs very well when compared with other middle income countries: it achieves the most “redistribution” compared to the other middle income countries in the CEQ analysis.
Conclusions (2) • However, there are concerns about the quality of such spending which begs the
question could more be done to improve the quality of such services so to allow education and health spending to maximize their potential in reducing poverty and inequality.
• Although fiscal policy is going a long way towards achieving redistribution, the level of inequality and poverty in South Africa after taxes and spending remains unacceptably high.
• Addressing the twin challenges of poverty and inequality going forward in a way that is consistent with fiscal sustainability requires higher and more inclusive economic growth. This would be particularly important in addressing the need for jobs and higher incomes, especially at the lower end of the income distribution, helping narrow the gap in incomes between the rich and the poor and reinforce the effectiveness of fiscal policy.
Questions for additional analysis…
• Potential further targeting of free basic services • Distributional impacts of proposed health
insurance, given sources of funding considered • Fiscal space for further redistributive policies • Potential labor disincentive effects of transfers • Equity – efficiency tradeoffs • Inter-generational mobility and implications for
transfers in future - Quality of education