SA DEMOCRACY
The economic distinction between poverty reduction and poverty
alleviation is that poverty reduction is about shifting resources to
investment as opposed to allocating resources to consumption in
the case of poverty alleviation.
Economic growth at levels high enough to absorb the
unemployed into the labour force can only come about through
investment. And investment is ultimately funded through
savings. The current investment rate of 19% needs to be boosted
to 30%. But even the current investment rate has generated a
macro-economic mismatch, with a savings rate hovering
around the 14% mark. Essentially, the savings rate needs to be
doubled in order to sustainably support a higher investment rate
and consequent higher growth. Essentially, at the core of the
unemployment problem lies a capital deficiency that has arisen
from a low savings rate.
This is where reform is needed. The triple challenge of
poverty, inequality and unemployment has been perpetuated
through the triple mistakes of regulation, labour unrest and
taxes on saving and saving viability. The regulatory construction
requires economies of scale for compliance, which is particularly
detrimental to SMMEs – the job-creating engine of any economy.
Labour unrest has the consequence of investor avoidance of
exposure to South African labour. Taxes on capital formation and
investment viability have inhibited savings. These taxes include taxes
on interest earned, dividend taxes, capital gains tax, property transfer
duty, death duties and taxes on pension lump-sum payments at
retirement. These are inappropriate taxes when the country is capitaldeficient and facing a massive unemployment problem.
The inflection point for South Africa is key to establishing a virtuous
cycle or entrenching a vicious cycle. Continued success for South
Africa’s democracy may well depend on whether job creation can be
achieved on the scale needed. Poverty alleviation and grants are no
longer sufficient. By Chris Hart, commentator on economic issues
and Chief Strategist at Investment Solutions.
Edition 9
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BANKER SA
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2014/04/07 9:04 AM