Introduction
Since the end of Apartheid system in the early 1990s, South Africa has continued to prosper economically. The policies set by the South African government to ensure the redistribution of wealth have been second to none. Nonetheless, the issue of inequality, particularly financial disparity, remains rampant in South Africa. The government has also introduced effective policies that take money from the very rich in society and give it to the poor. This policy has been achieved through grants given to the old and the poor in the country. The redistribution of wealth is also achieved through increased taxes for the rich and having the poor people pay lower. These policies have made South Africa stand out on the wealth redistribution scale, but the country has struggled to set a sustainable fiscal policy under the country’s harsh economic constraints. The government and other key stakeholders need to navigate the following economic conditions to end the legacy of structural poverty and inequality in South Africa.
Unemployment
One of the most critical aspects that need to be addressed urgently to ensure fiscal sustainability in South Africa is unemployment. Unemployment benefits are always known to bring long term benefits to the economy while hurting the short-term financial stability of a nation. South African economy is characterized by persistently high unemployment, a high level of unfilled job vacancies and low labor force participation rates (Gumata & Ndou, 2019). Statistics show that over half of South Africans live in poverty while unemployment rates climb toward 30% (Francis and Webster, 2019, p. 788). Paver et al. (2019) show that as of 2018, there were 496 unemployment programs implemented by the South African government, with 6% of these programs initiated to deal with psychological factors of not having a job. Unemployment alongside other factors such as genetics and environmental factors is known to be a big contributor of poverty in the country (Trotman-Dickenson, 1996a). Both physical and psychological factors contribute to the employment opportunities given, and focusing on them can indirectly contribute to the redistribution of wealth.
Diversification of Economic Activities
All policies are almost useless, and the government is virtually assured to grapple with debt and a low budget if it has a narrow tax base, thus inefficient and unable to support redistribution programs. The government can address the unemployment problem by increasing the number of industries. Most governments are known to diversify into sectors related to those in a particular country; however, studies show that diversifying into unrelated sectors can significantly impact a country’s economy (Cortinovis et al., 2017). Diversifying old industries into new ones causes an ethical dilemma of analyzing which strategy will result in better results. South Africa’s administrators should form policies that will spur the diversification of industries away from the usual mining sectors to other untapped industrial outputs.
Control Population Growth
To reduce the financial constraint of low taxation brought by high unemployment in South Africa, the government should take measures to slow the population growth. Studies show that lowing population growth can result in low unemployment rates, high food security, and overall economic prosperity (Hall et al., 2017). Empowering women, offering family planning tools, increasing education levels, and government incentives against this growth can help lower it. Developing countries like South Africa have higher population growth and low economic sustainability, while the developed countries are the opposite. A lower birth rate now means lower unemployment in the future and thus better monetary and fiscal power for the government to address structural poverty. However, this presents a strategic dilemma of having a large labor force or reducing the population growth, ensuring better resource distribution.
Cash Transfer Challenges
Since the end of the apartheid system, cash transfer programs have been a primary fiscal strategy employed by the country’s treasury to reduce poverty and ensure equality. This policy assumes that citizens know what they want and what is best for them; therefore, the government gives them the cash to enhance the purchase. This policy is widespread and is employed by many governments and even non-governmental organizations across the globe, but it is widespread in South Africa. One under-appreciated consequence of cash transfer is that the regularity and security of payments generate a form of surety used as collateral for credit (Torkelson, 2020). However, this can worsen the indebtedness of many citizens who lack financial knowledge and borrow heavily. Thus, the benefits flow to cunning financial institutions with high-interest levels. The government should ensure poor citizens are not taken advantage of by the creditors through various legislations and limitations.
Debt Limits
Like most administrations of developing countries, the South African government persistently relies on debt to cushion poverty and spur economic development and growth. High debt is a fiscal constraint as countries that highly depend on debt face credit risk posed by currency weaknesses and credit downgrades, thus giving investors negative perceptions of them (Ncanywa et al., 2018). There is a need to limit the debt which a country can take. The two most common methods in serving this purpose are procedural and substantial. The latter can be achieved through amount limit, general prohibition and cap using reference wealth and revenues. The former requires approval from the South African legislature to get passed.
Tax and Expenditure Limits
The programs initiated by the South African policymakers require a vast amount of expenditure while at the same time ensuring that the poor, who are the majority, are taxed less. The two complementary measures offer a strategic dilemma as increasing one will lower the other. While social policies adopted by the government helped reduce the poverty levels in South Africa steadily for over two decades, studies show that poverty levels in the country have begun to increase again (Plagerson et al., 2019). The Inter-departmental task team on social security and retirement reform reports that there has also been a notable gap in social security systems due to the absence of public funds to provide for pension and life insurance programs (van den Heever, 2021). The government is also facing slow economic growth, a high fiscal deficit, and a debt burden that has grown to 40% of GDP, leaving little room for expanded social spending (Mhlaba & Phiri, 2019). The dilemma of increasing tax to maintain the free health and education programs or cutting the expenditure on these two has been subject to much discussion.
Policymakers need to refer to the constitution and other legislation concerning financial planning while also considering short- and long-term economic goals while deciding on the financing route to adopt. Fiscal policy’s goal in South Africa is to redistribute income and wealth to increase the standard of living of the poor by taking from those with plenty (Trotman-Dickenson, 1996b). The redistribution may be achieved using various fiscal policies such as Keynesian recommendations, aggregate demand management using expansion policy, checking inflation using contradictory policy, and Freidman’s monetarist’s prescriptions to increase liquidity and money supply. Taylor (2002) suggests that before any financing option is considered, it should always be analyzed on case-by-case bases but always in compliance with the government policies and priorities. These tools, when used prudently, may help increase taxes and enable the social programs to operate within budgetary limits.
The level and the composition of the expenditure are crucial to ensure inequality in South Africa. A large body of literature has emerged investigating the effects of government spending on income inequality, much of it using cross-country econometrics (Anderson et al., 2017). Government spending should be set as a percentage of government income with debt included to maintain stability. Performance budgets extenders and offshoots provide an outlet for administrators to improve public finance management and the well-being of citizens (Schick, 2014; Shaw, 2016). The budget should adhere to rules established to ensure fair wealth distribution and fiscal sustainability.
Conclusion
For governments to end the legacy of structural poverty and inequality in South Africa, unemployment needs to be addressed. Without it, the rest of the measures will only offer short-term solutions. Diversifying the economic growth, and reducing population growth, among other factors, could help mitigate this growth constraint. Cash transfers are a proper and successful way to achieve wealth redistribution; however, wily creditors need to be controlled not to take advantage of desperate poor beneficiaries. Debt is good, but up to a certain level; thus, alternative financing methods other than unhealthy debt need to be formulated. Finally, a balance needs to be found between the taxes levied and the government expenditure.
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