South Africa Lifts 3.6 Million out of Poverty Thanks To its Fiscal Policies
November 4, 2014
PRETORIA, November 4, 2014-South Africa lifts 3.6 million people out of poverty and cuts the rate of extreme poverty by half, as a result of its use of fiscal policy. Tax and social benefits effectively redistribute income from the rich to the poor, according to the South Africa Economic Update released by the World Bank today (see here - PDF).
"This report provides evidence that activist fiscal policies have helped South Africa reduce poverty and inequality even though these remain pressing developmental challenges," saysAsad Alam, World Bank Country Director for South Africa. "We hope that this analysis will help inform and deepen the ongoing debate on the broader policies needed to attack poverty and inequality".
The South Africa Economic Update 6 which has a special focus section on Fiscal Policy and Redistribution in an Unequal Society assesses the distributional impact of government taxation and spending and how these tools address poverty and inequality. Tackling these twin challenges in a society that is one of the most unequal in the world is at the heart of South Africa's National Development Plan which sets ambitious targets of eliminating poverty and cutting the Gini coefficient to 0.6 by 2030.
This Update shows that the proportion of the South African population that are living on $1.25 per day or less, an international measure of extreme poverty, is cut in half through the use of fiscal policies. This rate of extreme poverty falls from 34.4 percent before the use of fiscal policy to 16.5 percent after its use reflecting mainly the impact of cash transfers such as the child support and disability grants and the old age pensions. These cash transfers lift the income of the poorest decile tenfold.