Sunday, November 30, 2014

Fact And Fiction About South Africa's Social Spending

A World Bank report makes the incredible claim that the South African Treasury has been exceedingly generous in social spending. With that, neoliberals can now justify social spending caps or even cuts. In reality, though, South Africa has the fourth lowest public social spending amongst the world’s largest 40 countries.

“South Africa is achieving a sizable reduction in poverty and inequality through its fiscal tools.” This was the main claim by the World Bank’s Pretoria-based country director Asad Alam recently, in the foreword to the November 2014 report, “Fiscal Policy and Redistribution in an Unequal Society.”

The timing is vital: just two weeks earlier, in his first budget speech, South African Finance Minister Nhlanhla Nene warned of coming austerity, ‘tough times’ and ‘a new age of pain.’ The Bank’s statistical findings were immediately spun into life, as commentators and politicians drew what they thought were the obvious implications, including back-slapping from within the ruling African National Congress (ANC):

• Jonathan Katzenellenbogen at PoliticsWeb: “a World Bank report warned last week that government no longer has the cash to expand the grant system... the ‘fiscal space for more redistribution is limited due to the high fiscal deficit and debt.’ According to the Bank report, transfers have caused the poverty rate to fall from 46.2 percent to 39 percent... This reduction in inequality through tax and spending is larger than in any other country.

• Hilary Joffe of Business Day: “Add in the social spending side of the fiscal equation, which the World Bank study finds is very well targeted to the poor, and SA comes out spectacularly well against its peers.

• From inside the Bank, Mahmound Moheildin and Maria Beatriz Orlandon in Project Syndicate’s ‘Visionary Voices’ series: “South Africa has made considerable progress from institutionalized segregation toward an ideal of a ‘rainbow nation’ in just two decades.”

• Rothschilds banker (and former finance and planning minister) Trevor Manuel: “The World Bank study released last week confirms that fiscal policy is significantly redistributive, on both the tax and spending sides...

• ANC Treasurer Zweli Mkhize: “in the midst of the gloom and pessimism that abounds, we must never lose sight of our strength as a people and our achievements as a country. Last week World Bank economist Catriona Purfield told reporters in Pretoria that in South Africa, large reductions have been made in poverty and inequality.”

The subtext soon comes into focus: neoliberals can justify social spending caps or even cuts, in one of the world’s most unequal countries, if the South African Treasury is now seen to have been exceedingly generous. But to reach their conclusion, Alam, Purfield and their followers simply ignored data they cannot process: numbers inconsistent with Bank dogma. (A ‘fiscal tool’ is, in straight talk, what Treasury uses when collecting taxes and making payments.)

In reality, South Africa has the fourth lowest public social spending (as a share of national income) amongst the world’s largest 40 countries, just half Brazil’s. The ratio of social grant spending was already projected to decline from a tokenistic 3.0 to just 2.3 percent of GDP by 2040, even before Nene’s recent speech. Yet the SA corporate profit rate is the world’s third highest, according to the International Monetary Fund.



Sources: Organization for Economic Cooperation and Development (2011), SA Treasury (2014) and IMF (2013).

In this context, the Bank’s optimism about redistributiom is not unusual, for it suffers a seriously bad statistical habit: poverty denialism. As Jason Hickel of the London School of Economics pointed out recently, in 2000 rising numbers of poor people represented “a PR nightmare for the World Bank”, so after massaging the International Poverty Line, “their story changed dramatically and they announced the exact opposite news: the introduction of free-market policies had actually reduced the number of impoverished people by 400 million between 1981 and 2001.” This has been largely based on picking an extremely low and arbitrary number for poverty ($1.25/day) and employed many other numerical tricks and creative accounting techniques.

by Patrick Bond - full article here

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