According to Trotman-Dickenson, “a government needs funds to provide goods and services, the method of financing public expenditure has changed over time but there is no escape from the fact that in the end, somebody had to foot the bill”.1 The theory of taxation on national government offers scope for practical application as described by Trotman-Dickenson.1 The theory described by the author is that taxation is based on the assumption that society's contribution enhances economic activity and social policy. Moreover, the principle of the benefit theory can be attributed to its measurable and immeasurable qualities which benefit the state through the contribution of taxes. “It can be argued that, in the long run, the majority of people in a democratic society will not be prepared to tolerate a fiscal system from which they do not benefit”.1 The application of the benefit theory can be illustrated through earmarked taxes such as the Gasoline taxes in the United States, which oversees tax drivers and consumers of goods that use highways that are built and maintained by the government. Trotman-Dickenson explains that although earmarking taxes for specific purposes can be positive they also have negative attributes which reduce the flexibility of the fiscal system.1 While taxes and expenditure could coincide creating a deficit. Lastly, resources are not always likely to be allocated most effectively.
Tax policy in South Africa
Khumbuzile and Khobai suggest that the impact of taxation on economic growth in South Africa from 1981 to 2016 formed the Auto-Regressive Distribution Lag (ARDL) approach.2 It was noted that the results found by both authors confirmed that there was a negative relationship between taxes and economic growth, largely due to the importance of a fiscal policy for sustainability. While National Treasury reported that the COVID-19 pandemic severely impacted tax revenue collection. During the 2021 Medium Term Budget Policy Statement (MTBSP) it was argued that over a three to four-year period, approximately R40 billion would be required to stabilise public debt and return public finances to a sustainable position.
The distributional impact of fiscal policy: a case study
According to a case study conducted by Inchauste, Lustig, Maboshe, Purfiled, and Woolard on the uses of the 2010/2011 Income and Expenditure Survey for South Africa, the progress of the main tax and social spending programs were quantified with emphasis on its impact on poverty and inequality.3 It was noted that post-apartheid, South Africa progressively made strides toward establishing a more “equitable society”.3 “In large part, progress towards greater income inequality has proven elusive because of the enduring legacy of the apartheid system,” as argued by Inchauste.3 Additionally, attention was paid to the National Development Plan: vision for 2030, which would see the government set goals for the eradication of poverty and the reduction of inequality. While it would target the Gini coefficient to 0,60 by 2030, it would also increase employment and the share of income.
The second trajectory objective is to address poverty and inequality through taxation
The ideology and the end of apartheid allowed the government to progressively expand its fiscal programmes in its plans of eradicating poverty and eliminating inequality, while it adhered to fiscal indicators. Inchauste et al stated that although the government broadened its tax base to expand a safety net for the poor, fiscally the space became more limited due to the global financial crisis and the slow economic growth in South Africa.3 An objective that could be counterintuitive to South Africa’s economy would be taxing higher-income earners more. However, this in turn would create a mindset of being “unappreciated” by the rich, who might feel that they contribute enough to the economy.
Macroeconomic approach to tax policy
“Economic growth, in the world or a particular region or country, depends to a large extent on the nature and quality of economic policy”.4 Studies by Khamfula (2004) indicate that post-apartheid policies on a macroeconomic level in South Africa were promoted through a strategy that promotes Growth, Employment, and Redistribution (GEAR).4 Khamfula (2004) indicated that the main objective of GEAR was to achieve a macroeconomic balance in South Africa’s economy while increasing employment and lessening poverty. While this was initially attainable by the government, Trotman-Dickenson argues that “for practical purposes, governments define their objective of achieving equality as one of reducing inequality, without specifying by how much”.1 Therefore, the objective of a fiscal policy as highlighted by Trotman-Dickenson (1996) is dependent on the redistribution of income and wealth in increasing the standard of living of the poor, as well as holding wealth.1
Universal Basic Income Grant (UBIG)
The third objective the government could suitably implement to reduce poverty and increase the levels of wealth distribution could be a UBIG. Sibeko stated that civil society in South Africa advocated for increased social security as part of its comprehensive social protection measures.4 While the value of grants has shifted, a share of different poverty lines declined since 2011/2012.4 Given the ongoing crisis in South Africa, it was noted that there had been discussions for a UBIG. Moreover, the Department of Social Development echoed the call for civil society groups to use the COVID-19 SRD as a step towards a UBIG.4 However, the National Treasury dismissed this idea by explaining that the UBG would be unaffordable, while such grants create dependency. “Although the UBIG has gained traction within various constituencies since, my concern remains that a UBIG, delivery in the context of austerity, could lead to disinvestment in other poverty alleviation programs (such as basic services)".4
Therefore, fiscal policy is vital in achieving a balance between the rich and the poor while redistributing income and wealth with its intended purpose of achieving equality within a society. For social protection to be recognised within South Africa, the ideology of neoliberalism needs to be abandoned. The need for a socioeconomic framework needs to interact with public investment, rights, equity, and productivity in society. And the economic framework needs to be centred around historical challenges, categorised by gender and race within the economy.
1 Trotman-Dickenson, D. I. (1996). Economics of the Public Sector. Macmillan.
2 Khumbuzile, D., & Khobai, H. (2018). The impact of Taxation on Economic Growth in South Africa. Munich Personal REPEC Archive.
3 Inchauste, G., Lustig, N., Maboshe, M., Purfield, C., & Woolard, I. (2015). The Distributional Impact of Fiscal Policy in South Africa. Policy Research Working Paper 7194.
4 Sibeko, B. (2022). South Africa. Social Protection through Fiscal Policy during the COVID-19 pandemic. DAWN Discussion Papers No.45. DAWN.
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