Fiscal instruments and the elderly population in South Africa : a distributional analysis

Huffer, Calvin (2022-04)

Thesis (MCom)--Stellenbosch University, 2022.

Thesis

ENGLISH SUMMARY: Saving an adequate amount of money to finance retirement spending is a growing issue that affects the elderly. In response to the incomplete retirement savings markets that the elderly face, national governments employ fiscal instruments in an attempt to provide social security to the economically vulnerable elderly population. In South Africa, the government utilizes four primary fiscal instruments to address the lack of retirement savings among the elderly: the old age grant, a higher tax rebate for the elderly, an additional medical expenses tax credit for out-of-pocket expenses and medical aid fees of those 65 years and older, and preferential tax treatment of pension contributions. Combined, these four fiscal instruments form the social security net for the elderly in South Africa, although concerns of some individuals still slipping through the net remain. Therefore, an analysis into the effectiveness of these fiscal instruments in addressing incomplete markets and issues related to intended beneficiaries is undertaken to evaluate social security provision for all segments of the South African elderly population. The fiscal instruments are assessed both individually and in combination by means of economic theory and microsimulation using the South African tax-benefit Microsimulation Model (SAMOD). Microsimulation using the SAMOD allowed for a comparison of current fiscal instruments against alternative scenarios to assess the relative costs and benefits of policy reforms in terms of government revenue, poverty, and inequality. The underpinning household survey data of the SAMOD allows for the static economic implications of potential reforms to be evaluated and inform the effectiveness of the current social security system. The South African context and existing empirical evidence are used to determine whether policy reforms would be socially beneficial to the elderly. This investigation finds that while the fiscal instruments employed by the South African government are reasonably established for those in low- and higher-income groups among the elderly population, those in the middle-income groups may fall through the gaps of the social security system. Reform of the existing fiscal instruments to include these individuals would create more comprehensive social security for the elderly in South Africa and it can be accomplished with a relatively small impact on government expenditure. More extensive reform could be accomplished with greater fiscal expenditure on the elderly, but even within the confines of the budgetary constraints, modest reform of the fiscal instruments affecting the elderly can have positive societal benefits.

AFRIKAANSE OPSOMMING: Besparing van ‘n voldoende bedrag ten einde aftreebesteding te befonds is ʼn groeiende kwessie vir bejaardes. In reaksie op die onvolledige aftreespaargeld-markte waat bejaardes in die gesig staar, gebruik nasionale owerhede fiskale instrumente om sosiale sekuriteit aan die ekonomies kwesbare bejaarde bevolking te voorsien. In Suid-Afrika gebruik die regering vier primêre fiskale instrumente om die tekort aan aftreespaargeld onder bejaardes aan te spreek: te wete die ouderdomstoelaag, ʼn hoër belastingkorting vir bejaardes, ʼn addisionele belastingkrediet vir uit-die-sak mediese uitgawes en mediese skema fooie vir diegene 65 jaar en ouer, en voorkeur belasting behandeling vir pensioen-bydraes. Hierdie vier fiskale instrumente vorm gesamentlik die sosiale sekuriteitsnet vir bejaardes in Suid-Afrika, desnieteenstaande heers daar kommer dat sommige individue steeds deur die net glip. Gevolglik word ʼn analise van die effektiwiteit van hierdie fiskale instrumente om onvolledige markte en kwessies verwant aan beoogde begunstigdes onderneem om die sosiale sekuriteitsvoorsiening vir alle segmente van die Suid-Afrikaanse bejaarde bevolking te evalueer. Die fiskale instrumente word afsonderlik en gesamentlik geassesseer deur middel van ekonomiese teorie en mikro-simulasie van die “South African tax-benefit Microsimulation Model” (SAMOD). Mikro-simulasie van SAMOD het dit moontlik gemaak om ʼn vergelyking te tref tussen huidige fiskale instrumente en alternatiewe moontlikhede, ten einde die relatiewe kostes en voordele van beleidshervorming in terme van belastinginkomste, armoede, en ongelykheid te assesseer. Die onderliggende huishoudelike opname data van die SAMOD maak dit moontlik om die statiese ekonomiese implikasies van potensiële hervorming te evalueer en die doeltreffendheid van die huidige sosiale sekuriteitstelsel toe te lig. Die Suid-Afrikaanse konteks en bestaande empiriese bewyse word gebruik om te bepaal of beleidshervorming sosiaal voordelig sal wees vir bejaardes. Hierdie ondersoek bevind dat alhoewel die fiskale instrumente wat deur die Suid-Afrikaanse regering gebruik word redelik gevestig is vir diegene in laer- en hoër-inkomste groepe van die bejaarde bevolking, diegene in die middel-inkomste groepe deur die gapings in die sosiale sekuriteitstelsel mag val. Hervorming van die bestaande fiskale instrumente, ten einde hierdie individue in te sluit, sal meer omvattende sosiale sekuriteit vir bejaardes in Suid-Afrika te bewerkstelling en kan met ʼn relatief klein impak op owerheidsbesteding bereik word. Meer uitgebreide hervorming kan bereik word met groter fiskale besteding op bejaardes verwesenlik word, maar selfs binne die begroting beperkings kan matige hervorming van die fiskale instrumente wat bejaardes raak positiewe sosiale voordele inhou.

Please refer to this item in SUNScholar by using the following persistent URL: http://hdl.handle.net/10019.1/124780
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