Nexus between Tax, Public Debt and Inequality in the Southern African Development Community in SADC

Inequality in SADC countries has remained high, with countries such as South Africa having extreme inequality compared to regional and global averages. Precisely, the SADC region is considered most unequal with countries such as Namibia, Comoros, South Africa, Angola, Botswana, Lesotho and Swaziland rated in the top ten of the most unequal countries in Africa (AfDB, 2012). The high levels of inequality have persisted despite successive growth rates and accompanying rise in domestic revenue mobilisation over the years. The low tax revenue amid high gross financing needs have also seen SADC countries accelerating borrowing from both domestic and external sources to finance development expenditure. Consequently, public debt has been rising in SADC economies, posing the risk of accumulating debt to unsustainable levels, with costly debt service obligations that could crowd out social expenditure. The rapid pace of debt accumulation has seen an increasing number of SADC countries’ debt distress ratings deteriorating from low and moderate to high risk and in-debt distress rating. These countries include, Zambia, DRC, and Mozambique. The situation has been compounded by the Covid-19 pandemic which reduced growth rates, hence tax capacity and debt carrying capacity of SADC countries. This study sought to understand the nexus between tax, debt and inequality in the SADC region. The study traces the evolution and trends in tax, debt and inequality with a view to understand the underlying factors. The study also draws conclusions and insights from surveys and papers written by the IMF, World Bank, ILO, Oxfam, United Nations and views of Civil Society Organisations (CSOs) on fiscal policy, debt and inequality in developing countries, including the SADC region. The study noted that SADC countries have, generally maintained their tax capacities as evidenced by relatively stable tax to GDP ratios, thus potentially guaranteeing financing of the social sectors. The coverage of social protection though remaining fairly sustained, has not significantly translated into inequality reduction as evidenced by a slightly reduction in the GINI index from averages of 55 in 2010 to 54 in 2019. The study also noted that the fiscal space created by new borrowing opportunities and moderate increase in tax revenues have enabled SADC countries to increase expenditure from averages of 23 percent of GDP in 2006 to averages of 27 percent in 2019. The study also noted that countries with better institutions as measured by the World Bank’s Open Budget Index (OBI) have higher tax capacity compared with countries that have a lower OBI. The study also noted that about 55 percent of total income in SADC countries is held by the top 20 percent and 35 percent by the highest 10 percent, while the bottom 20 percent hold 6 percent of income on average.