The issue of inequality in South Africa appears almost insurmountable. Not because policy efforts have been redundant – they have, in fact, played a very significant role in reducing the extreme disparities in economic welfare that existed under the apartheid regime. South Africa is internationally recognised for its expansive social spending programmes in which millions of cash grants make their way to the poorest and most vulnerable individuals, uplifting many from poverty. However, the equalising effect of social spending has plateaued in the wake of a decade of declining growth, increasing joblessness and inadequate service delivery. The result is that, although livelihoods have undoubtedly improved since the transition to democracy, inequalities across race, gender and geographical location, amongst other important dimensions, are still rife in our country. In many ways, the legacy of apartheid lives on, in plain view, under the reign of inequality in South Africa.
To economists, who seek practical ways to measure inequality, income is often used as an indicator to identify trends in the disparities in incomes across a population. Wages, in particular, make up a significant proportion of aggregate income and can thus provide an indication of the extent of inequality in the labour market. Since 1995, wage growth has been slow across most of the income distribution, with the exception of the richest earners at the very top: the richest 1% of the population have seen substantial income gains, even in periods of economic downturn. The static redistribution of income through social policies, although still critically important, has fallen short in mitigating the dynamic rise in incomes at the very top of the distribution.
Earnings stagnation and growth across income percentiles, 1995-2017
Source: Post-apartheid Labour Market Series (PALMS) and own calculations.
In 2017, the richest decile (i.e. the top 10% of earners in the income distribution) received approximately half of all income earned from the labour market in real terms. The richest 1% of earner's share was about 17% – substantially more than the poorest half of the population's share, which sat at only about 10% (based on PALMS earnings data). What is even more worrisome is that more than two decades after our advent to democracy, the overwhelming majority of the poorest half of the South African population are still Africans, women and those living in rural areas, illustrating the perpetuating nature of intersecting inequalities. These trends in unequal wage growth – with top incomes diverging from the rest of the distribution – reinforce historical structures of inequality in South Africa that tend to favour the interests of a small elite.
Understanding who comprises this elite portion of society has become increasingly important to better our understanding of what drives trends in income inequality and fiscal policy decisions, particularly those of a redistributive nature. A topical example is the potential roll-out of a Basic Income Grant (BIG) in South Africa. The viability of this policy will hinge on a comprehensive investigation into top incomes in order to determine the extent of available funds at the top end of the income distribution, especially if the state plans to finance the BIG primarily through direct taxes, such as Personal Income Tax (PIT).
Bassier and Woolard (2018) find that between 2003 and 2015, almost 60% of the population earned zero taxable income. The small (and shrinking) tax base should not be surprising – given the unemployment crisis that has plagued our labour market for decades – but shrinking fiscal revenues should still be a cause for concern for our fiscal system's future credibility and sustainability.