Demerits of Land Expropriation Without Compensation on Fiscal Policy Goal

Categories: Economics

Economic Growth

According to an independent economic impact assessment of the proposal policy, Land expropriation without compensation in South Africa will lead to an imminent socio economic disaster if pursued, with an anticipated decline in the Gross Domestic Product which could possibly lead to a loss of a greater degree of jobs close to 2.28 million. If expropriation without compensation was adopted this would’ve resulted in extreme economic hardships for South Africa, a deterioration of the country’s sovereign bonds to junk status, increased interest rates, a deep depression and a sharp decline in taxation revenues.

Land expropriation without compensation poses a threat on the economy and also fundamental freedom of private rights. There is a direct relationship between fixed investments and economic growth. Gross fixed capital formation is important for economic growth, without which the likelihood of lowering unemployment and poverty levels is not possible.

Job Creation

Clarity is needed when coming to expropriation without compensation and property rights in general.

Fixed investment as a percentage of GDP is at a lower level now than 5 year back, which is one of SA’s biggest challenge because it will mean less jobs are created(Schussler,2019). Without any economic growth the prospect of lowering unemployment are relatively low. Agriculture was identified by the National Development Plan as one of the critical sectors for economic development which has the potential to produce one million jobs by 2030 but with the uncertainty regarding land, the target might not materialise. Expropriation without compensation is likely to change the trend of capital investment agricultural sector recorded at R427, 790 m, in which land and fixed investment constituted 54.

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1%. This will then lead to sector regression, and productivity will be compromised and job losses will then occur.

Price Stability

Expropriation without compensation has the worst effect on general prices in the economy. The ever changing prices that are affiliated to everything is a result of countless and unknowable interaction between economic agents. To establish Capital investments property rights are inherently required. A change by the government action in one set of prices will lead to other prices having to adjust to allow market to reach a new equilibrium.

Balance of Payment Stability

Farmers are less likely to maintain or expand irrigation, build more storage facilities or purchase new tractors or harvest if they realise that they may lose their land. Banks are less likely to extend loans when they realise that their clients may lose their collateral. With risk of losing their capital investments potential foreign investors are most likely to look elsewhere to invest. The most evident consequence is a deterioration in agricultural productivity and output, which would have a damaging effect on the economy from higher prices on food, and increased rural unemployment to a bigger balance of payment deficit. If expropriation without compensation is not implemented correctly it will lead to a lose in agricultural export which will damage the balance of payment.

A Social Acceptable DiStribution of Income

A shrinking agriculture could be accompanied by increased food prices, which will make the poor even poorer than the middle-income and wealthier people of the country, and as we know that the poor spend a larger portion of their income on food than wealthier people. South African should give up foreign exchange in order to import raw materials that go into the production of the food we eat and process them in South Africa.

Poverty Alleviation

If the economic growth declines due to expropriation without compensation it will lead to economic collapse, higher inflation and poverty will be deepened. Expropriating agricultural land without compensation could severely harm the agricultural sector’s competitive advantage and compromise national food security at the end lead to poverty and unemployment.

5 Recommendations on How SA Can Address Land Expropriation Better

  1. Agrarian reform- the presidential advisory panel agreed on the agrarian reform would produce a diverse type, scale. To address both land and agrarian reform a white paper was in the process of being produced and debated in public consultation.
  2. Land redistribution- to identify who and where the land needs to be redistributed the panel suggested that land reform shifts towards a targeted approach based on equitable compensation. The private sector needs to support this new approach and it must be people driven, with a responsive state.
  3. Land tax inquiry- to impose rates on agriculture the minister needs to appoint a Land Tax inquiry to consider a national policy or regulations to the Municipal Property Rates Act of 2004, in order to restrain the retention of large and unproductive landholdings. On the acknowledgment that land must serve a social function that is to public benefit, a tax system must be premised.
  4. Land ceilings- an in-depth assessment into the conditions for application of land ceilings was recommended by the panel. To limit total area of land that one may own imposition of land ceilings should be considered. With the land ceilings being generally difficult to enforce it is suggested that land ceilings should be addressed alongside the land tax enquiry. This is so landholdings beyond an appointed threshold may be directly adopted by the state or be punitively taxed.
  5. Women rights and gender equity-if the land reform is to accomplish its developmental goals, women need to have access to land. Gender imbalances in land holding need to be redressed by revising existing property rules in land to strengthen women’s access to land as suggested by the panel.

Reference List

  1. Boshoff, T. Sihlobo, W& Ntombela, S. 2018. REDISTRIBUTION OF AGRICULTURAL LAND: EXPROPRIATION WITHOUT COMPENSATION DEBATE. https://agbiz.co.za/uploads/AgbizNews18/EXPROPRIATION_WITHOUT_COMPENSATION_DEBATE.pdf Date of access: 13 April.2020
  2. Cokayne, J. 2018. Expropriation without compensation in SA will lead to economic disaster. https://www.iol.co.za/business-report/economy/expropriation-without-compensation-in-sa-will-lead-to-economic-disaster-18090473 Date of access: 13 April.2020
  3. Fin.24. 2018. Land plan has upside, big risks, says IRR. https://m.fin24.com/Economy/land-plan-has-some-upside-big-risks-says-irr-20180918 Date of access: 15 April 2020
  4. Hlomendlini, H& Makgolane, P. 2017. Land expropriation without compensation: Possible impact on the South African economy. https://m.bizcommunity.com/Article/196/358/165375.html Date of access: 14 april.2020
  5. 2019. Final report of the presidential advisory panel on land reform and agriculture . https://www.gov.za/sites/default/files/gcis_document/201907/panelreportlandreform_0.pdf Date of access: 13 April.2020
  6. Jonker, j. 2019. Expropriation without compensation will kill SA’s investment potential. https://citypress.news24.com/Voices/epropriation-without-compensation-will-kill-sas-investment-potential-20191219 Date of access: 12 April.2020
  7. Old mutual. 2020. When land reform works. https://www.oldmutual.co.za/mindspace/articles/when-land-reform-works Date of access: 14 April.2020

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Demerits of Land Expropriation Without Compensation on Fiscal Policy Goal. (2021, Mar 10). Retrieved from http://studymoose.com/demerits-of-land-expropriation-without-compensation-on-fiscal-policy-goal-essay

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