implemented through South Africa’s fiscal system is sufficient to bring those with a per capita market income of just R200 per annum (US$18.9) in the bottom decile, to per capita disposable income R2,363 (US$ 223), which is close to the average market income in the fourth decile (table 9). Netting off the impact of indirect taxes would take post-fiscal income to R 2,131.

Table 9. Average per capita income in each market income decile <u>(in Rand)</u>

|(i<br>Market<br>income<br>(1)|n Rand)<br>Net market<br>income<br>(2)|Disposable<br>income<br>(3)|Post-fiscal<br>income<br>(4)|
|---|---|---|---|
||_(2) =(1) --_<br>_Direct taxes_|_(3)=(2)+Cash_<br>_transfers_|_(4)=(3)--_<br>_Indirect_<br>_taxes_|
|Poorest decile<br>200|200|<br>2,363|2,131|
|2<br>736|735|<br>2,997|2,669|
|3<br>1,497|1,493|3,691|3,264|
|4<br>2,761|2,748|4,679|4,106|
|5<br>4,925|4,887|6,609|5,755|
|6<br>8,653|8,535|9,970|8,627|
|7<br>14,793|14,397|15,662|13,481|
|8<br>27,119|25,762|26,658|22,828|
|9<br>57,711|51,994|52,661|44,822|
|Richest decile<br>207,639|166,52|166,803|141,075|
|Source: Own estimates based on IES 2010<br>column 3 excludes free basic services|/2011. Note|||

**2. How does South Africa compare in fiscal redistribution relative to other middle-income countries?**

South Africa performs quite well column 3 excludes free basic services when compared with other middleincome countries (see Lustig, 2014). As shown in figure 19, the reduction in the disposable income Gini (vis-à-vis market income Gini) is higher Figure 19. Change in Gini: disposable vs market income in South Africa than in the <u>(in Gini points)</u> other countries included in our sample, even though the level still remains very high. Nonetheless at 0.596, the Gini on final income (or 0.695 if the monetized value of education 0.00 and health services are -0.02 excluded) in South Africa -0.04 which reflects the full impact -0.06 of redistribution via the fiscal -0.08 instruments that we examined -0.10 is still higher than what the 2<sup>nd</sup> -0.12 most unequal country in our -0.14 sample, Brazil, starts with in -0.16 terms of its market income Gini before it even begins to -0.18 implement redistribution via its -0.20 fiscal system (Table 10). Source : Armenia (Younger and Khachatryan, forthcoming); Bolivia (Paz et al, 2014); Brazil ); Bolivia (Paz et al, 2014); Brazil Source : Armenia (Younger and Khachatryan, forthcoming); Bolivia (Paz et al, 2014); Brazil ); Bolivia (Paz et al, 2014); Brazil (Higgins and Pereira, 2014); Ethiopia (Woldehanna et al, forthcoming); Indonesia (Jellema et al forthcoming); Mexico (Scott, 2014); Peru (Jaramillo, 2014); Uruguay (Bucheli et al, 2014); Lustig (forthcoming) based on Costa Rica (Sauma et al, 2014), El Salvador (Beneke et al, 2015), and Guatemala (Cabrera et al, 2014); and own estimates for South Africa based on IES 2010/11.

As can be observed in Table 9, direct taxes reduce inequality: i.e., the net market income Gini coefficient is (statistically significantly) lower than the market income Gini. PIT in South Africa makes up a higher share of GDP relative to other middle-income countries and is progressive due to its rate structure and exemption threshold that helps exclude poorer households. When the impact of indirect taxes is added to the impact of direct

> <mark>between the Gini coefficient for post-fiscal and disposable income is not equal to the contribution of indirect subsidies and indirect taxes to the decline of inequality from market to post-fiscal income. This is simply because the contribution of each intervention is path</mark>

> <mark>dependent and what we are showing is just one of the paths.  We</mark> _<mark>can</mark>_ <mark>compare, however, the impact of interventions on any indicator with respect to market income which is what we do in this section.</mark>

30