Bridging Economic Resource Gap
Evaluation of Post-Apartheid Tax Reforms in South Africa
Bridging Economic Resource Gap
Critical analysis of South Africa's post-apartheid various tax reforms adopted by the country since 1990 looks at the effectiveness of those policies in bridging the resource gap plaguing the economy. In general, the racial disparities economically remain considerably little changed in review of the centuries of white domination of the South African region and the post-apartheid era through present. The significance of this for the following academic investigation of how tax reforms have or have not proven effective for bridging South Africa's economic resource gap must consider the underpinnings of socioeconomic realities continuing plaguing the predominantly non-white population. Within this group, there exists both immigration and emigration statistics of others considered non-white added to the overt native black African population.
The underlying reasons for the failure of tax reform collectively, according to Nxumalo of the South African Broadcasting Company, looks at the ongoing fact none of the tax reforms in post-apartheid South Africa exist for any progressive redistribution of power and wealth. There continues profits at the corporate level with little gains in wages. Even more apparent is a pattern of less taxation of corporate profits (2013). This academic investigation and resulting discourse looking through a lens of taxation as a gauge defining what purpose related reforms mean to the overall socioeconomic conditions in South Africa. This begins with the investigation of the legacy of apartheid enmeshment of the nation's socioeconomic realities that have changed little in the post-apartheid era. Further, this examination reviews the types of tax reforms revealing their intended goals and the resulting outcomes in the 21st century.
Legacy of Apartheid
At the time Nelson Mandela became president, according to Lieberman (2005), "The South African state emerged as one of the most effective of collectors of income tax in the world, and was able to collect approximately 15 percent of its gross domestic product (GDP) in the form of progressive, direct income taxes (p. 1)." This income tax predominantly paid by white South Africans reflects their position as the minority population holding the wealth and the basis of the South African economy. In addition, Lieberman (2005) explains by 1997 South Africa "reported better-than-expected collection of taxes" consequently, not requiring any international economic interventions. The onset of post-apartheid economics looked to changing government expenditures for redirection to bringing the burdening poverty-stricken non-white population on a new socioeconomic development course for the good of the entire nation. Understanding what Mandela's coalition faced provides the necessary backdrop for the current economic situation experienced by the majority of South African people, the realities of tax reforms, and why the resource gap continues growing.
While the major focus of ending apartheid brought freedom to the people it repressed, the economic traditions of the white-ruled South Africa intentionally marginalized the millions of Black African people from owning land or having equitable economic status with the minority white populations. With few among the Black Africans educated, owning their own businesses, and partaking of significant labor practices that genuinely create economic opportunities – no matter the tax reforms 0the marginalization continues by default.
The fact remains South Africa's Collective Bargaining Conference of the Federation of Unions of South Africa (Fedusa) intended for rolling back the economic inequalities designed and maintained by white run apartheid actually continues supporting the discrepancies. While the annulation of apartheid politically and socially provided leadership a genuine opportunity for uprooting a self-sustaining economic white-held regime, this never happened. The result of the failure of tax reforms intended for redistribution of wealth and power in the new South Africa 20 years ago there would not exist, the increased inequalities in the 21st century. It is the consistent erosion of South Africa's working class sharing the nation's Gross Domestic Product (GDP) or even the national income from the tax reforms that frames the social, economic, and pursuit of happiness of the majority of South Africa's people, today (Nxumalo, 2013).
Further, according to Nxumalo, fair wage support of each year's GDP is 50 percent less than its 1998 share of 55 percent. A large portion of the GDP not going to the wage earners winds up as part of the overpaid salaries of senior management. The rationale for this remains a poor excuse calling it wages earnings for the purpose of statistical data. The capitalist system the new political force in South Africa inherited from colonial imperialism worked for the apartheid regimes. However, this system in the 21st century remains permeated with both racism and gender discrimination against women. This corrupt system also continues dominated by commodity and raw energy production as well as mining (2013).
Resource Gap in 1990
Other than, among the minority white populace of South Africa, there existed, as still does a disproportionate non-white middle class with the bulk of Africans consisting of millions of impoverished people. Despite the end of apartheid by 1991, splits in the anti-apartheid factions held onto certain types of resistance as shown during a general strike that year according to the Christian Science Monitor (1991). With nearly a dozen people dying during violence "at a gold mine near Welkom in South Africa's Orange Free State(during) a two-day general strike called by unions and anti-apartheid groups over the new value-added tax."
The strike against the tax according to the article:
(Took) "on wider significance than a display of opposition to the implementation of a value-added tax (VAT) on goods and services, which unions say victimizes poor blacks. Unions and most black movements want the strike to show the muscle of the anti-apartheid lobby, while the government is determined to demonstrate its grip on power until a nonracial Constitution is adopted." ("Violence Marks General Strike," 1991, p. 3)
Consequently, this show of opposition a decade and a half past seems a clear indication of how the widening gap between South Africa's minority white capitalists and the majority non-white continues growing as suspected back at the time of the strike on the VAT. Thus, the trade policy tax reforms relationship to labor market policies continue today (Cornia, 2004; Beinart, 2001). Other considerations at this level of the economic realities according to Weeks and Moseley (1998) looks at the labor market effects as not only depending on growth but in addition "on the incentives which the economic system provides for hiring different categories of labour (p. 61)." (Sic) Further, ''It is sometimes argued that a uniform economic policy should be imposed by the central government on the whole country, because if one area deregulates and imposes low taxes it gains an unfair advantage over others (Kendall & Louw, 1987, p. 138).''
According to Organization for Economic Co-operation (OECD) research conducted by Bourguignon et al (1991), it is "in indirect taxes, and to a lesser extent import duties, are more poverty-increasing" as exemplified by the fact only with devaluation does the poor (who produce South Africa's export crops) receive any gains, while "indirect taxes fall heavily on the consumption of the poor." Commodity consumption by the poor includes kerosene, sugar, and tobacco (as cited by Weeks & Mosely, 1991, p 195).
Weeks and Mosely (1991) explain how high level of wage rates fail to convert "into increases in formal sector employment because, "The labour market simply did not have, nor did it in the course of adjustment acquire, the flexibility required to make adjustment equitable." Weeks and Mosely (1991) analysis of this type of indirect taxation reforms failing the labor of South Africa provides a revelation. They offer, "first, the importance of initial conditions and 'Catalysts’ in determining the success of adjustment; and second, the crucial role of the labour market in determining both the ability of the economy to adjust and spread the putative rewards from adjustment (p. 195-196)."
According to Nattrass and Seekings (1999), at the time of the first ruling coalition in post-apartheid South Africa an undesirable outcome of government actions including tax reforms ensued. They explain how reinforcement of "existing trends towards a real increase in wages for those (employed) African people" as well as the dismantling of racial barriers show professional blacks that include nurses and teachers, as well as both the urban blue and white collar worker underpinning the trade union movement fared disproportionately from expenditures by the government with tax reforms. At the same time, industrial activities proved somewhat successful but nonetheless proved influential to labor legislation but not so in macroeconomic policies directly affecting the working middle class (as cited by Beinart, 2001, p. 318).
Beinart (2001) further explains how labor legislation as the Employment Equity Act of 1999 proved advantageous strengthening and improving conditions for South African employees with collective bargaining. The Act "aimed to impose racially based quotas on the private sector, could be an important further support to black employees." Regardless, the income tax burden continued hitting the heaviest on middle class salaried working classes. At the same time, continued slow economic growth with the added realities of stagnation existing in formal sector employment shows the limitation for relieving the economic resource gap. Conversely, according to Beinart (2001) tax reforms impact on middle-income whites proved beneficial to lower salaried black urban wage earners. One outcome of Botha's reform era proved effective ''showing the extension of the state pension gradually equalized for all racial groups in all areas by 1993 (p. 318).''
IRIN News describes despite the past decade proving significant in annual economic growth, all tax reforms intended for greater economic equality among the majority population of South Africa reveals the opposite. The news agency cites the UN Habitat's World Cities report naming South African cities with the inequality levels as the highest globally. South Africa remains the continent's richest nation but the paradox of the continuation of rampant poverty looks at the on-going lack any sincere and overt effort bridging the rich poor gap making little difference (2008).
The condition of inequalities plaguing South Africa directly results from system or structural flaws leading to both increased and entrenched urban center economic failings. The political and economic legacy of colonial apartheid rules South Africa in the concentration of its resources. The non-white populace consisting of Indian and the majority black African people continue enriching the country's wealthy as in the days of apartheid despite majority rule beginning in 1994 (IRIN News, 2008).
Consequently, the UN report shows in the 2007 third quarter survey of 1,409 South African households, one in five had no income, and 51 percent monthly earnings show a US$230. In contrast, northern wealthy suburban homes sport swimming pools, German luxury cars in double garaged driveways, and private schools. The image of two South African existences clearly emerges as a legacy of apartheid urban inequalities. Through the collapse of the apartheid inflicted laws prohibiting the majority of South Africans from acquiring land in its urban centers as well as the inability for moving freely, the outcome proved massive migration by urban people to the urban centers resulting in heightened economic inequalities as never before in these areas. Moving from the rural areas of South Africa proved a measurable decline in peoples' abilities for living off subsistence agriculture, further contributing to the quality of life aligned economic inequalities (IRN News, 2008).
The figures for South African urban population extends to 58 percent with 33 percent living with little or no basic services in both squatter camps and slums where the residents fear repercussions of forced eviction. Experts on the issue look at the ineffective current measures by city managers promoting the lengthy, limited, and slow process of formal subsidized housing. With a focused provision of secure tenure for those living in the cities then intensive development support from existing programs, make more sense (IRIN News, 2008).
Jenkins (2001) seems to concur with the South African tax and other reforms embarked over 25 years ago, the effort failed. Failure establishing required conditions for achieving growth potential parallel, the aggressive pursuit of a ''largely orthodox macroeconomic policy strategy and avoiding the extreme distortions found in other resource-abundant developing countries.'' The labor market escaped the applied liberalization of across the board economic aspects when introduced in 1994 with majority rule. ''The reforms that have taken place have not been part of a general and formal structural adjustment programme, but have occurred in response to perceived economic problems.'' (Sic) Consequently, due to the piecemeal application of new policies including ineffective tax reforms for inclusion instead of exclusion, shows both overlapping and even contradictory reform policies since 1994 (p. 254).
The real issue of the post-apartheid South African government's liberalization measures lays in its failure rapidly addressing problems and not its credible domestic aim at addressing business community and trade unions as explained by Jenkins (2001). In other words, ''The existence of large natural resource rents made delays in reform possible in the past, and they are likely to do so again, especially with respect to labour-market liberalization.'' With the new post-apartheid government, South Africa experienced a drop in its physical investment activity. ''In addition, racial segregation of both education and the labour market, together with increasing political polarization, meant that skills were acquired slowly while social capital ran down (p. 254).''
Review of the tax reforms connected with correcting the resource gap in South Africa has other underpinnings. With a majority of unskilled and uneducated people in the population along with the remnants of racial and gender discrimination, Jenkins (2001) explains, ''new labour legislation may undermine some of the objectives of current industrial policy, if it makes it more difficult to improve competitiveness.'' Jenkins (2001) contends whether through effective tax reforms or other policies, its primary objective remains creating employment growth with equal focus on redistribution of income and wealth (p. 254).
As proved by the fundamental failure of tax reforms earmarked for increasing labor opportunities, raising the quality of life of millions of displaced, marginalized, and poverty-laden citizens of Africa, Jenkins (2001) view of necessary change lay in ''a fundamental restructuring which shifts resources away from the elite creates a strong impetus to emigrate, particularly among the better-educated (p. 255). According to Alesina and Rodrik (1994), ''This creates a delicate problem for the new government.'' In light of the existing radical pressure for redistribution, an immediate measure remains for establishing a concrete understanding of '' the need to keep skills and savings within the domestic economy, and to allow sufficient wealth accumulation to attract foreign investors.'' While logic dictates this inevitably slows redistribution the long-range outcome ''may be better for the country's economic growth rate, as redistribution of wealth can retard economic growth (as cited by Jenkins, 2001, p. 255).
Finally, according to Jenkins (2001) there must exist, a sustainable development of both produced and human capital congruent to the rate of depletion of the nation's natural capital. '''The government can work on improving human capital; indeed, this is a priority not only for growth but also for redistribution.'' Consequently, since physical capital investment achieves better results through the private sector, tax reforms with the correct policy environment produces the desired outcomes (p. 255). Taking proactive measures with effective tax reforms constituting incentives for the private sector breaking down racial and gender barriers in employment practices with fair wages provides justifiable guidelines for changing the obvious crisis in South Africa.
Clearly, this academic investigation and critical analysis of South Africa's post-apartheid various tax reforms adopted by the country since 1990 looking at the effectiveness of those policies in bridging the resource gap plaguing the economy today reveals some hard truths. The logic of the Mandela and ensuing administrations since the end of apartheid keeping the centuries old national economic system policies of the colonial machine shows 25 years later a convoluted and increasingly critical situation in South Africa. Tax reforms hurt the laborer, do nothing to fill the resource gap, add to the inequalities experienced by the majority of South African people. The continued system supported racial and gender discrimination may very well find the answer to not only enacting transparent legislation countering such practices but also initiating new tax reforms with significant incentives for the private sector making sure equalities in pay exist for all people in South Africa. The struggles of democracy never end as exhibited in all Western democratic run nations. The democratic struggles of South Africa when looked at from the tax reform stance show where these measures fail and why as reported in this academic investigation. With exposure of the reasons for the tax reform failure in South Africa narrowing the resource gap there exists opportunity correcting the failure.
Beinart, W. (2001). Twentieth-Century South Africa. New York: Oxford University Press.
Cornia, G. A. (Ed.). (2004). Inequality, Growth, and Poverty in an Era of Liberalization and Globalization. Oxford: Oxford University Press.
IRIN News.org. (2008). South Africa: Wealth Gap Becoming Chasm. Retrieved from
Jenkins, C. (2001). 15: Growth, Capital Accumulation, and Economic Reform in South Africa. In R. M. Auty (Ed.), Resource Abundance and Economic Development (pp. 239-256). Oxford: Oxford University Press.
Kendall, F., & Louw, L. (1987). After Apartheid: The Solution for South Africa. San Francisco: ICS Press.
Lieberman, E. S. (2003). Race and Regionalism in the Politics of Taxation in Brazil and South Africa. Cambridge University Press.
Nxumalo, F. (2013). Tax Reforms Have Failed to Roll Back Inequality – AIDC. South African Broadcasting Company. Retrieved from
Violence Marks General Strike over New Tax in South Africa. (1991, November 5). The Christian Science Monitor, p. 3.
Weeks, J., & Mosley, P. (1998). 9: Structural Adjustment and Tradables: A Comparative Study of Zambia and Zimbabwe. In L. Petersson (Ed.), Post-Apartheid Southern Africa: Economic Challenges and Policies for the Future: Proceedings of the 16th Arne Ryde Symposium, 23-24 August 1996, Lund, Sweden (pp. 171-200). New York: Routledge.