We are better off now than 20 years ago

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We are better off now than 20 years ago

Category : 2015 , January

A large portion of SA does not believe this, but in this blog I prove that on balance most of us South Africans are much better off now than 20 years ago. The situation that the poor find themselves in has dramatically improved on numerous fronts, while the middle class has become much wealthier over this period. I present my proof by looking at statistics and not anecdotes. In order to prove my hypothesis, I have considered the total SA population and the employed SA population, where applicable. I then measured the situation they found themselves in 20 years ago and compared this with the situation today. Where appropriate, I have looked are real changes in situation (i.e. normalising for the impact of inflation).

The metrics used for measuring how well a group was and is off were the following:
• Level of education
• Housing
• Access to utilities
• Health related
• Employment
• Exposure to crime
• Asset value
• Income and tax
In some cases, I have used a shorter period than 20 years for the comparison (e.g. education, housing and access to utilities), because my comparison draws on the 1996 and 2011 censuses. However, this does not detract from my findings.

Education

Education New

Source: 1996 and 2011 Census

In 1996, based on the census completed in that year, only 22.6% of South Africans aged 20 had a matric qualification or higher. By 2011, this proportion had almost doubled to 40.9%. This is a substantial improvement over the period, even if we take into account that standards have been lowered and there are large concerns over thequality of our education system that I have voiced in a previous blog. However, what cannot be dispute is the doubling in the proportion of 20-year olds with a tertiary (post matric) education from 6.2% in 1996 to 12.5%.

Housing

Electricity Access 2Piped Water 3Source: 1996 and 2011 Census

In 1995, only 58% of South African lived in formal housing and by 2011, this had increased greatly to 78%. In addition, the quality of housing also increased with the proportion of South Africans living in houses with 5 or more rooms increasing from 33% in 1996 to 39% in 2011.

Access to utilities

Housing Type 2Rooms 3Source: 1996 and 2011 Census

For this comparison, I have only chosen a few examples, but all others point in the same direction – i.e. meaningful improvement.
In 1996, only 47% of South African housholds had access to electricity for cooking, 46% for heating and 58% for lighting. These proportions increased meaningfully by 2011 to 74% for cooking, 59% for heating and 85% for lighting. Yes, I know we are facing load-shedding and therefore all of us have less access to electricity at some times of the day than the stats imply and this is something I addressed in a previous blog. However, this situation should improve during the course of 2015 as Eskom deals with the issues causing the nload shedding and once some of Medupi’s capacity starts to come online.
In 1996, 81% of South African households already had access to piped water. This improved further to 91% by 2011. Once again, I am aware of the supply issues experienced during 2014 and hopefully these have now been dealt with.
In 1996, less than 30% of South Africans had access to a telephone and less than 2% were mobile phone subscribers. By 2011, more than 35% of South Africans had access to the internet and today there are more mobile phone subscriptions in than people.

Health related
I have looked at health-related comparisons on a number of metrics, namely life expectancy, infant mortality rate, birth rate and health expenditure. In 1995, the average life expectancy in SA was 61.8 years according to the ASSA AIDS and Demographic Model. Over subsequent years, due to the impact of HIV/AIDS, life expectancy dropped to a low of 54 years (by 2003). However, with the help an aggressive roll-out of anti-retroviral treatment (ART), it rose again since then to an estimated 61.5 years today. In academic research that I published with co-authors in October 2014, we predict that average life expectancy in SA will rise to 65 years by 2025 due to the successful actions by the Government to roll out ARTs.

Birth StatsSource: World Bank

According to data from the World Bank, the infant mortality rate in SA declined from 4.6% in 1995 to 3.3% in 2013. In addition, the birth rate in SA also declined from 2.6% in 1995 to 2.1% in 2012.

Health SpendSource: World Bank

The amount of money spent per person on healthcare in SA has more than doubled over the past 20 years after adjusting for inflation. According to the World Bank, the SA health expenditure per capita in 1995 in constant 2005 US dollar terms was $427 and this more than doubled to $982 in 2012. In rand terms, the increase is even more meaningful.
An area where we have deteriorated on the healthcare front is the incidence of tuberculosis which increased from 302 per 100 000 people in 1995 to 860 per 100 000 people in 2013 (down from a peak of 977 per 100 000 in 2008). More work needs to be done here.

Employment
Out of all of the areas that I have considered, the one where SA has deteriorated across the board over the past 20 years is unemployment. According to the 1996 and 2001 censuses, the expanded unemployment rate in SA increased from 33.9% in 1996to 39.5% in 2011.

Unemployment2Source: 1996 and 2011 Census

Why has it been possible for the other metrics in our analysis to improve while unemployment deteriorated? The reason is that we have seen strong economic growth in SA over the past 20 years, which has improved the position that the employed find themselves in, has helped to increase the tax revenues of the SA government and have allowed them to roll out improved services and increase social grants.
Over the decade from 2003 to 2014, the number of people receiving social grants in SA increased from 7.9 million to 15.8 million, making up more than 30% of the population. The social grant budget is projected to rise to R145bn by 2016, amounting to 3% of GDP.
There is no debate that SA has an unemployment problem and that more needs to be done to alleviate the situation. I have addressed ways of addressing this situation in previous blogs, including reducing red tape and regulations surrounding hiring and firing, youth subsidies or apprenticeships, vocational training. I have also discussedthe potential benefit of liberalising immigration policies and aggressively supporting certain industries. We can only hope that government is successful in attacking this issue going forward.

Crime
There is little debate that the crime rate in SA remains high, especially when it comes to contact crimes and murder in particular. However, based on the available statistics we cannot claim that the situation is worse than 20 years ago. In fact, I would posit that the situation has greatly improved almost across the board.

Crime StatsCrime Stat ChangeSource: Institute of Criminology, UCT; Crime Stats SA.com; 2011 Census

Over the past 20 years in SA, the murder rate has halved to less than 33 per 100 000, assault is down almost 40%, burglary down more than 20% and total crimes down almost 20%. The one area that has deteriorated is robbery, while sexual crimes have not seen a meaningful decline. Much more needs to be done in this regard, including increasing the effectiveness of ground level policing and getting the police and justice system to better turn arrests into convictions.

Asset values
Many of the improvements discussed in previous sections can be argued to have occurred because of improved delivery to the poor in our country. These people’s lives have been meaningfully improved over the past 20 years because they came from such a low base. Can the same be said of the middle class and the wealthy, the previously advantaged? Have their lives improved over the past 20 years or are they carrying the burden of delivery to the poor?
There is no doubt in my mind that the improvements experienced by the previously disadvantaged have to some extent been funded by the middle class and the wealthy. However, I would argue that because of strong economic growth and aggressive increases in asset values, the middle class and wealthy in SA are on balance still much better off financially than they were 20 years ago, despite cross subsidies.
At the start of 1995, the JSE All Share Index (ALSI) was trading at the 5000 level and the average house price (for the ABSA house price middle segment) was R160 000. Over the next 20 years, the ALSI increased 10-fold to over 50 000 while the average house price increased almost 7-fold to R1.25m. Over the same period, the inflation rate in SA averaged 9.5% per annum, which eroded these gains to some extent. However, even after allowing for this, the real increase in the ALSI over the period was 64%, while in real terms house prices rose by 28%. As a result, people that were home owners in 1995 and had investments (whether directly in the stock market or through unit trusts, life assurance policies or pension funds) are much better off 20 years later.

Asset ValuesAsset Value ChangeSource: JSE; House Price SA; ABSA House Price Index; www.inflation.eu

Another way to consider the meaningful increase in wealth in SA over the past 20 years is to look at the total investments of South Africans and how this changed. For this analysis, I considered the sum of unit trust assets, life assurance liabilities (what they owe policyholders), public pension funds (predominantly the Public Investment Corporation) and private pension funds. I excluded direct deposits in bank accounts as well as debt owed to banks for the purpose of this exercise. The sum of the investments above at the start of 1995 was R516bn, which increased more than 11 times to R5 856bn by 2014. Even if we allow for the eroding impact of inflation, the sum of investments in SA over the past 20 years has increased by an impressive 86%.

Income and tax
Over the past 20 years, the GDP per capita as well as wage levels increased strongly. The former increased from R11 200 per annum in 1995 to an estimated R70 000 in 2014, while the latter increased from R28 350 per annum to R176 600 (based on the Reserve Bank Quarterly Bulletins and the Censuses of 1996 and 2011). In real terms, if we allow for the effect of inflation over this period, the real GDP per capital increased by 2.6%, while the real compensation by employee increased by 9.3%.

Comp and GDPComp and GDP ChangeSource: SA Reserve Bank Quarterly Bulletin; 1996 and 2011 Census

Although this is a healthy increase, especially on the wage front (and highlights that wage earners are better off now than 20 years ago), more needs to be done to lift these numbers going forward. This can only be achieved by lifting employment levels and economic activity.
Another factor to consider is what the tax burden in SA has done over the past 20 years and whether this has added or subtracted from the increased compensation that employees have received. Based on the above analysis, the average increase in real compensation per employee in 2014 was R15 000 compared with 1995 (if we ignore inflation, the increase was almost R150 000).
In 1995, the maximum income tax rate in SA was 43%, while the minimum tax rate was 17%, payable by all those earning R10 714 and above (R83 000 in today’s money). In 2014, 20 years later, the maximum tax rate is lower at 40% and the minimum tax threshold grew by less than inflation to R70 700. However, the threshold for the maximum tax rate has not kept track with inflation and in real terms more than doubled to R673 100. As a result of this increase and more effective tax collection, the real individual tax per employed person increased over the past 20 years by 13% to R31 755 per annum.

TaxTax ChangeSource: SA Reserve Bank Quarterly Bulletin; 1996 and 2011 Census

In addition to somewhat higher direct taxes in real terms, the average employed South African also pays more indirect taxes in the form of private medical aid, security and school fees. I tried to analyse changes in these numbers by looking at the Reserve Bank Quarterly Bulletin expenditure by Households on medical services and miscellaneous services (which should capture school fees and security costs). In real terms, these expenditures almost doubled to R34 549 per employed person in SA. Assuming that half of miscellaneous expenditure relates to security and school fees, the real increase in the average indirect tax per employed person was R8 500 in 2015 compared with 1995.
As a result, the R15 000 increase in real compensation for employees over the past 20 years has been eroded to the tune of R12 000 through increases in real direct and indirect taxation. Despite this, the after tax and indirect tax income for the average employed person in SA is still 2.5% higher than it was 20 years ago.

Conclusion
Almost every person in SA is better off than they were 20 years ago, whether we look at education level, housing, access to utilities, health, crime, income and asset values. The main exception is employment levels that went in the wrong direction. The question is whether the same trend can continue in SA over the next 20 years without meaningful changes. I would suggest that the answer is no. Much of the improvement over the past 20 years has been driven by strong economic growth and growth in asset values (helped by strong commodity prices and falling interest rates). In the absence of these factors, it will not be possible for a relatively small employed population to fund improvements for themselves and for the unemployed.
It is vital that SA reduces it unemployment rate drastically over the coming years and lifts its economic growth to higher trend levels. To achieve this, we need aggressive steps to be taken by government. I am afraid that the free ride may well be over with falling commodity prices and rising interest rates. We now have to roll up our sleeves to avoid a reversal of the gains achieved to date and a rise of populism in this country.

Do you agree with my findings? Are you surprised with what the numbers say? Do you think we have what it takes to do what is needed to keep improvements going over the next 20 years? Please let me know what you think.
In the mean time, keep your talk straight!


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