Government’s inequality solutions not doing enough - World Bank report
Despite the combination of wealth tax and redistribution policies over the past years, the levels of poverty are still high, continuously extending the inequality gap.
Government fiscal interventions such as wealth taxation, social assistance and subsidy policies in Kenya as well as other developing nations in Africa, are not doing enough to bridge the gap between the rich and the poor.
An inequality study report by the World Bank reveals that despite the combination of wealth tax and redistribution policies over the past years, the levels of poverty are still high, continuously extending the inequality gap.
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“Although fiscal redistribution reduces inequality in Africa, poverty rates in the region increase after tax and transfer interventions,” the World Bank said.
“Most African households pay far more in taxes than they receive in transfers and subsidies, effectively leaving many households poorer than they would be in the absence of any fiscal intervention.”
In Kenya, the latest data by the Kenya National Bureau of Statistics (KNBS) shows more Kenyans are sinking into poverty despite the government’s efforts to reduce poverty in all forms.
Poverty headcount rate
The 2022 poverty report estimates at the individual level, the national food poverty headcount rate at 31.7 per cent, translating to over 16 million people being unable to meet the food poverty line threshold.
On the other hand, the overall poverty headcount rate stood at 39.8 per cent, implying that over 20 million individuals are unable to meet the overall poverty line threshold.
Notably, the trends in the overall poverty headcount rate show a decrease from 36.1 per cent in 2015/16 to 33.6 per cent in 2019.
However, the trend then changes to an increase to 42.9 per cent in 2020 then decreases to 38.6 per cent in 2021, followed by the most recent increase to 39.8 per cent in 2022.
The seven counties with the highest overall poverty rates according to the report are Turkana (82.7%), Mandera (72.9%), Samburu (71.9%), Garissa (67.8%), Tana River (66.7%), Marsabit (66.1%), and Wajir (64.7%).
Conversely, the lowest overall poverty rates are in Nairobi City (16.5%), Kiambu (19.9%), Kirinyaga (23.1%), Embu (24.3%), Nyeri (26.0%), and Narok (26.2%) counties.
The World Bank explains that the rising levels of poverty occur because social assistance spending in the country and the region at large, is too small to make up for the impact that indirect taxes have in increasing the prices of goods and services that households consume.
This even after accounting for the fact that low-income households largely purchase goods in informal markets.
According to the lender’s report, Africa has a prefiscal Gini index score of 46, compared with a score of 41, on average, for non-African countries.
The Gini index is a measure used to show income, wealth, or consumption inequality within a country or social group, and the prefiscal measure refers to inequality before taxes, transfers and subsidies are considered.
“Although higher-income countries redistribute more than lower-income countries worldwide, the average reduction in inequality due to taxes, transfers and subsidies is larger in Africa than that in countries with comparable income levels outside of the continent,” WB said.
For instance, the combination of tax, social assistance and subsidy policies in Kenya and Tanzania leads to reductions in inequality of (5–7) Gini points compared with a reduction of only two points, on average, for lower-middle-income countries outside of Africa.
“But this redistributive effort is not enough to level the playing field, as prefiscal inequality is much higher in Africa than in other regions.”
In fact, postfiscal inequality in Africa (inequality after taxes, transfers, and subsidies are considered) is higher than prefiscal inequality in comparable countries elsewhere in the world, the lender adds in part.
Notably, the lender says the negative impact of fiscal policies on poverty in African countries points to the need to ensure that efforts to improve domestic revenue mobilisation do not increase poverty further.
It suggests four policy shifts that could make a real difference and help level the playing field through fair fiscal policy.
These include: shifting from subsidies, enhancing social safety nets, adopting more progressive taxation, and improving the efficiency and effectiveness of taxes and government spending.
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