10.1.1.120.2749 5

1
The Basic Income Grant in Namibia

Resource Book
Windhoek, June 2005
edited by
Dr. Claudia Haarmann
Dr. Dirk Haarmann
Email: cd.haarmann@gmx.net
ISBN: 978-99916-842-0-8
This is a publication of the Desk for Social Development (DfSD) of the Evangelical Lutheran
Church in the Republic of Namibia (ELCRN). The DfSD currently receives financial support for
its programmes from the United Evangelical Mission (UEM), Bread for the World (BftW) and
the Lutheran World Federation (LWF). The support to this publication is hereby gratefully ac-
knowledged.
Table of Contents
TABLE OF CONTENTS .....................................................................................2
FIGURES ..............................................................................................................3
ABBREVIATIONS .............................................................................................4
INTRODUCTION ..............................................................................................1
SECTION 1: THE BASIC INCOME GRANT COALITION ...........................................3
1.1 BISHOP DR. Z. KAMEETA (ELCRN-CCN) ............................................................4

1.2 MR. P. NAHOLO (ACTING GENERAL SECRETARY NUNW)........................................7
1.3 MR. S. TJARONDA (CHAIRPERSON NANGOF) ......................................................9
SECTION 2: WHAT IS IT ALL ABOUT? – THE CONCEPT .................................... 13
2.1 WHAT IS THE BASIC INCOME GRANT (BIG)? .......................................................13
2.2 WHERE DOES THE IDEA COME FROM? ...............................................................13
2.3 HOW WOULD A BIG WORK?.............................................................................13
2.4 WHY DO WE NEED A BIG?...............................................................................13
2.5 WHY DO THE RICH QUALIFY FOR A BIG? SHOULDN'T ONE RATHER TARGET PEOPLE
WHO ARE MOST AFFECTED BY POVERTY? .................................................................14
2.6 WHAT ARE THE BENEFITS OF A BIG? ................................................................14
2.7 HOW MUCH WOULD A BIG COST AND HOW WOULD IT BE FUNDED? ........................15
2.8 HOW WOULD PEOPLE GET THE BIG?.................................................................15
2.9 WHAT ARE THE DISADVANTAGES OF THE BIG? ...................................................15
2.10 HOW CAN YOU PREVENT PEOPLE FROM WASTING THE GRANT ON ALCOHOL, LOTTERY
TICKETS, ETC.? ...................................................................................................16
2.11 ARE THERE BETTER ALTERNATIVES TO A UNIVERSAL GRANT?...............................16
2.12 WILL PEOPLE BECOME DEPENDENT ON THE BIG? .............................................16
2.13 WHAT IS THE BIG COALITION?.......................................................................17
SECTION 3: HOW IT ALL STARTED – GOVERNMENT’S NAMTAX COMMISSION 19
3.1 INTRODUCTION ..............................................................................................19
3.2 THE PROBLEM...............................................................................................20
3.3 THE PROPOSAL ..............................................................................................20
3.4 THE ASSUMPTIONS.........................................................................................22
3.5 THE NETT IMPACT OF A GRANT COMBINED WITH AN INCREASE IN INDIRECT TAXES...23
3.6 THE ACTUAL FISCAL BURDEN IMPOSED BY A UNIVERSAL GRANT ...........................24
3.7 TARGETING THE GRANT, WHILE AVOIDING POVERTY TRAPS AND DEPENDENCY ........25
3.8 THE DYNAMIC ECONOMIC CONSEQUENCES OF A GRANT ......................................27
SECTION 4: THE DEVELOPMENTAL IMPACT OF A BASIC INCOME GRANT....... 31
4.1 INTRODUCTION ..............................................................................................31
4.2 THE CURRENT SITUATION IN A NUTSHELL ...........................................................31
Current levels of poverty in Namibia ....................................................................31
Methodological considerations in defining poverty .......................................31
Poverty rates in Namibia .............................................................................34
4.3 THE IMMEDIATE EFFECT OF A BASIC INCOME GRANT ...........................................36
Current income distribution and inequality ..........................................................36
Namibia with a Basic Income Grant .....................................................................37
4.4 THE DEVELOPMENTAL IMPACT OF A BASIC INCOME GRANT ...................................38
Resources to meet basic needs (nutrition, access to health facilities, housing etc.)
..............................................................................................................................39
Capability (“real opportunity”) ..............................................................................39
Freedom of choice, security and power to take ownership...................................41
SECTION 5: FINANCING A BASIC INCOME GRANT IN NAMIBIA ........................ 43
5.1 INTRODUCTION ..............................................................................................43
5.2 THE COST OF A BASIC INCOME GRANT ..............................................................44
5.3 THE COST OF A BASIC INCOME GRANT ..............................................................45
5.4 THE ECONOMIC IMPACT OF A BASIC INCOME GRANT FOR NAMIBIA .........................46
5.5 CONCLUSIONS ...............................................................................................48
Figures
FIGURE 1: NETT ANTI-POVERTY GRANT RECEIVED OR PROGRESSIVE EXPENDITURE TAX PAID WITH
GRANT OF N$70 FINANCED BY INCREASING INDIRECT TAXES BY 6.7% (INCLUDING AN INCREASE
IN VAT OF 4.8%)............................................................................................................................23
FIGURE 2: NET GRANT (-) AND NET TAX (+) BURDEN AS PERCENTAGE OF EXPENDITURE, WITH A N$70
GRANT AND 6.3% INCREASE IN VAT ..............................................................................................25
FIGURE 3: PROPORTIONAL INCREASE OF ALL INDIRECT TAXES TARGET MS CLEANLIVING GREEN FOR
HIGHEST NET GRANT AND LOWEST TAX INCREASES. .....................................................................27
FIGURE 4: NAMIBIA’S INCOME DISTRIBUTION IN A NUTSHELL - SOURCE: DFSD MICROSIMULATION
MODEL ...........................................................................................................................................36
FIGURE 5: THE IMPACT OF A BIG ON NAMIBIA’S INCOME DISTRIBUTION COMPARED TO THE CURRENT
INCOME DISTRIBUTION (DOTTED LINE) - SOURCE: DFSD MICROSIMULATION MODEL ................38
FIGURE 6: PERCENTAGE OF PEOPLE PAYING REMITTANCES TO OTHER HOUSEHOLDS FROM THEIR
INCOME...........................................................................................................................................39
FIGURE 7: PERCENTAGE OF INCOME PAID AS REMITTANCES TO OTHER HOUSEHOLDS ..........................40
FIGURE 8: THE LAYERS OF POVERTY .....................................................................................................43
FIGURE 9: NAMIBIAN POPULATION 2004...............................................................................................44
FIGURE 10: NAMIBIA’S TAX CAPACITY ..................................................................................................45
Abbreviations
ARV Antiretroviral (ARV) Treatment
BIG Basic Income Grant
CCN Council of Churches in Namibia
DfSD Desk for Social Development (ELCRN)
ELCRN Evangelical Lutheran Church in the Republic of Namibia
EPRI Economic Policy Research Institute, South Africa
HANIS Home Affairs National Identity System, South Africa
MDG Millennium Development Goals
NAMTAX The Namibian Tax Consortium
NANASO Namibia Network of AIDS Service Organisations
NANGOF Namibian NGO Forum
NDP2 Second National Development Plan
NGO Non Governmental Organisation
NUNW National Union of Namibian Workers
SACU Southern African Customs Union
STD Sexually Transmitted Disease
TB Tuberculosis
VAT Value Added Tax
Introduction
In recent months, the Basic Income Grant proposal has generated an
overwhelming response in Namibia, and the launch of the Basic In- This resource
book is com-
come Grant Coalition has added further public debate. This resource piled in order
book is compiled in order to inform policy makers and civil society role to inform
players about the background and the details of the proposal for a Ba- policy mak-
ers and civil
sic Income Grant in Namibia. In addition, it provides the results of re-
society role
search of the social, economic and financial implications of a BIG in players about
Namibia. the back-
ground and
The first section of the book documents the launch of the Basic In- the details of
come Grant Coalition. The Council of Churches, the National Union of the proposal
Namibian Workers, the National NGO Forum, the Namibian Network of for a Basic
Income Grant
AIDS Service Organisations, the Legal Assistance Centre, and the La- in Namibia.
bour, Resource and Research Institute committed themselves to the
common platform on April 27th 2005. The platform of the coalition as
well as the speeches at the launch of Bishop Dr. Z. Kameeta (Evangeli-
cal Lutheran Church in the Republic of Namibia (ELCRN) and Vice
President of the Council of Churches in Namibia (CCN)), Mr. P. Naholo,
Acting General Secretary of the National Union of Namibian Workers
(NUNW), and Mr. S. Tjaronda, Chairperson of the Namibian NGO Fo-
rum (NANGOF), are published in this first section.
The second section explains the underlying concept of the Basic In-
come Grant. Crucial questions of understanding and clarification are
addressed in order to form the basis for an informed debate about the
concept.
The third section introduces the key passages of the findings and rec-
ommendations made by the Government appointed Namibia Tax Con-
sortium (NAMTAX). In 2002 the tax consortium “found that by far the
best method of addressing poverty and inequality would be a universal
income grant [= Basic Income Grant]” (NAMTAX, 2002:60). This re-
search is crucial as it lays the foundation on the basis of which the
churches, unions, NGOs and AIDS Service organisations have now
formed the coalition to join hands with Government to see that this
proposal can be implemented effectively.
The fourth and fifth sections provide relevant results stemming from
social and economic analysis. The fourth section by Dr. C. and Dr. D.
Haarmann is based on a Microsimulation Model modelling the devel-
opmental impact of a Basic Income Grant on poverty and inequality.
The fifth and final section by Prof. M. Samson and Ms. I. van Niekerk
1
Introduction
calculates the costs of the Basic Income Grant and its various financ-
ing options. Based on a comparative international Tax Effort Analysis,
the affordability given Namibia’s current economic capacity is as-
sessed. This section concludes by looking at likely second round ef-
fects on Namibia’s economy if a Basic Income Grant is to be intro-
duced.
2
Section 1: The Basic Income Grant Coalition
3
The Basic Income Grant Coalition
1.1 Bishop Dr. Z. Kameeta (ELCRN-CCN)1

Honourable Guests, and distinguished Speakers,
dear Comrades, dear Sisters and Brothers,
I would like to greet you with the words from our
Lord Jesus Christ taken out of Mt 7,16:
You will know them by their fruits. Are
grapes gathered from thorns, or figs
from thistles?
This, for me, is a challenge we are facing in Na-
mibia today. Can we as churches and government,
in fact as Namibians deliver real fruits? The hun-
gry farm worker, the orphaned child on the street
indeed know that grapes are not gathered from
thorns, and figs not from thistles.
To me this serves as a challenge and an encour-
agement as a leader of a member church of the
Council of Churches, to be part of the Basic Income Coalition which
The introduc-
tion of a Ba-
will be launched today. The introduction of a Basic Income Grant, a
sic Income benefit of at least N$100 to every Namibian citizen will be an impor-
Grant, a tant and concrete step towards bearing fruits for our people.
benefit of at
least N$100 I am convinced that a Basic Income Grant will bear fruits in more than
to every Na- one way, and not only in the form of urgently needed food on the table
mibian citi-
of the hungry. In Namibia we have come a long way to fight colonial-
zen will be
an important ism and apartheid, one of the worst forms of dehumanisation of a
and concrete whole people; where you were supposed to say, “Yes Baas” or “Yes
step towards Missis” and then “they” decided whether you and your children got
bearing
fruits for our
some pap at the end of the day. We are proud to have been fighting
people. this, to have won the struggle and to have ended this dehumanising
nonsense once and for all. We are proud to say, that this will never be
accepted in Namibia again and that reconciliation is becoming a real-
ity, especially within the context of the CCN.
We have come a long way, but we still have a long road ahead of us:
We need to overcome the deadly circle of poverty, which still forces
people into dependency, which forces them to bow their heads in order
to get some crumbs from the table.
I know that there are lobby groups in Europe and America who rally
against social security systems based on cash grants. They are claim-
ing that actual money to the poor would create dependency. But
firstly, they speak of systems, where you lose your benefit the moment
you start to work - and this is not the case with the BIG. The BIG is an
unconditional grant for every Namibian whether you are working or
not, you will receive this Basic Grant. Only if you earn above a certain
amount, you will be required to pay back the grant through the tax
system and to contribute towards the cost. This approach ensures that
4
there is no dependency on the grant, but instead it creates incentives

to become economically active. Secondly, and this is most important,
the opponents seem to assume that the poor they speak about are free
to act and to make choices. When people argue like this, they prove
that they don’t know what it means to live in poverty. Poverty is a trap,
it is the ultimate state of being dependent, it is a stage where you do
not have a choice and the freedom to act:
• Mothers are forced to enter into abusive and exploitative rela-
tionships to secure a roof over their heads for their children and
end up contracting HIV,
• people who are sick, cannot afford the travel expenses to the
next clinic, but stay at home to suffer and die,
• people are forced to sell their houses, because they can no
longer pay the bills for the water they need to drink,
• after a hard day’s work, you cannot sleep because you don’t
know how you and your family will make it through the next
day.
These are situations where you are trapped in dependency! This is
where the economy breaks down, where every child on the street
knows that grapes are not gathered from thorns, and figs not from this-
tles.
A Basic Income Grant will not be a panacea. For example, I am con- The Basic
vinced that we will still need to change the system where we charge Income Grant
horrendous amounts for a basic necessity like water! The Basic In- will fight
come Grant will fight dependency that is created by abject poverty. A dependency
that is cre-
BIG will give meaningful financial security to the majority of people, ated by ab-
enabling many - for the first time in their lives - to part take in the ject poverty.
economy.
We know, that poor people have to carry a disproportional, a much
higher burden to assist their extended families than people from the
formerly privileged communities. A Basic Income Grant will not only
be a tool of restoring some social justice, but it will free productive po-
tential towards economic empowerment.
Furthermore, if we want the ARV roll-out to succeed, which we so ur- If we want
gently need, so that the parents of today - the economically productive the ARV roll-
out to suc-
people - are not dying away from AIDS, we need to have a Basic In-
ceed, we need
come Grant: As with the TB treatment, you cannot take HIV treatment to have a
without having had something to eat before. A Basic Income will se- BIG.
cure this minimum.
By doing all this, the Basic Income Grant will - by bearing fruits to the
people - fight and reduce dependency created by the various and
deadly faces of poverty.
5
The BIG What is the role of Government in this? To set up the Basic Income
poses impor- Grant poses important challenges to Government. One of the main
tant chal- challenges will be to set-up the initial delivery system to each and
lenges to
every Namibian citizen. This is not easy. But I am confident that our
Government:
To set-up the Government can manage that. In fact, I was proud to learn at last
initial deliv- years Greiters’ Conference that our payout system of Old Age and Dis-
ery system to ability Grants is technologically far more advanced than that of
each and
every Namib-
neighbouring South Africa. Our Government is able to manage the
ian citizen. payouts at a friction of the cost and has built a system, which reliably
can service even the most remote areas of our country. So, with the
Basic Income Grant, we do not have to start from scratch, but can
build on this system.
The tax sys- The second challenge will be to revise our tax system. It needs to be
tem needs to redesigned in such a way that the money paid to those who do not
be redesigned
need the support pay it back to the state. From the richer members of
to redistrib-
ute to the our country, it needs to be redistributed to the benefit of the majority.
benefit of the Government’s NAMTAX commission has made a proposal how this
majority. could be done, and there are other options. The policies to implement
this, need to be discussed and developed.
On behalf of This is not going to be an easy road, but a bumpy one. In this process
our constitu- we therefore need the Basic Income Grant Coalition to keep the public
encies, we,
support and not to lose focus. On behalf of our constituencies, we, the
the four um-
brella or- four umbrella organisations from the Unions, NGOs, AIDS Service Or-
ganisations ganisations and the Churches are joining hands and extend a joint
from the Un- and concrete proposal for poverty reduction to Government. It is our
ions, NGOs,
AIDS Service commitment to work together with Government, jointly - as we have
Organisa- fought colonialism and apartheid - we will bear fruits, from which we
tions and the will be known.
Churches are
joining hands Redistribution means sharing the fruits of this country more equally.
and extend a This also means to give away, and the beginning of this process is al-
joint and
ways difficult. But as Martin Luther King said: “The Christian victory
concrete pro-
posal for against oppression will be twofold: liberating the oppressed and at the
poverty re- very same time liberating the oppressor.” I believe that the same holds
duction to for closing the gap between the rich and the poor. And therefore I am
Government.
confident that together we can manage this. When you look to the
posters on the side you will see the signatures of the CCN member
churches
• churches from North to South
• churches from different church traditions.
This demonstrates to me that we can get support for the Basic Income
Grant beyond ideological lines. This Coalition today here re-affirms
this. While this has started off as a small initiative from the side of the
church, it has grown into a big and joint conference with civil society
and government, and now into a social movement comprising such a
broad and diverse group of civil society organisations, joint in this ef-
6
fort, to work towards the implementation of the Basic Income Grant

and to be judged by the fruits we deliver. I wish us all success in this
venture! May the Lord Almighty guide us and protect us.
I thank you!
Bishop Dr. Z. Kameeta
(Bishop ELCRN)
1.2 Mr. P. Naholo (Acting General Secretary

NUNW)2
Director of Ceremonies,
Your Worship Bishop Dr Kameeta,
Your Worship Bishop Shivute,
Director of NANGOF, Mr Tjaronda,
Government Officials,
Traditional Leaders,
Members of the Media,
Ladies and Gentlemen!
It is indeed a privilege for me to be with you today
at the Launching of the Basic Income Grant Coali-
tion. I am here before this esteemed gathering on
behalf of the Namibian labour force under the banner of the NUNW,
which is struggling to promote and defend the rights of working men
and women, endeavouring to create social justice, equality as well as
human rights and democracy.
Director of Ceremonies, I would like to declare from the very onset that I would like
the working –class in Namibia is firm and supportive of this noble ini- to declare
from the very
tiative, which is aimed to introduce a policy on Basic Income Grant in onset that
our country. This is exactly in line with Vision 2030, NDP2 and the the working –
Millennium Development goals (MDGs). class in Na-
mibia is firm
As you may be aware, the Millennium Development Goals (MDGs), de- and suppor-
rived from the World Summits and Conferences during the 1990s were tive of this
noble initia-
adopted by 189 nations in the Millennium Declaration in September
tive, which is
2000. The commitments to the goals were strongly reaffirmed by all aimed to in-
the United Nations Member States, Namibia included, at the Johan- troduce a
nesburg World Summit on Sustainable Development in March 2002. policy on BIG
in our coun-
In the Millennium declaration global targets were set to help mobilize try. This is
political commitments and to provide benchmarks for measuring pro- exactly in
gress in promoting human development and poverty reduction. line with Vi-
sion 2030,
NDP2 and the
MDGs.
7
(…) viewed in The point that I am trying to drive home is that when viewed in the
the context of context of the MDGs there is really nothing untoward regarding the
the MDGs introduction and implementation of the Basic Income Grant Scheme.
there is
really noth- For instance, goal number one of the MDGs calls for the eradication of
ing untoward extreme poverty and hunger. Its target was to halve, between 1990-
regarding the
2015, the proportion of people whose income is less than US$1 a day.
introduction
and imple- Furthermore, as a universally agreed agenda, MDGs bring unprece-
mentation of
the BIG
dented clarity to the shared responsibilities and objectives of all devel-
Scheme. opment stakeholders such as governments, international and civil so-
ciety organisations and the private sector.
Under these premises we as a labour movement in Namibia, which is
part and parcel of the civil society, will always remain firm and ready
to embrace and support the struggle for social justice and economic
emancipation. It has always been and remains our sacred belief that
there will be nothing about us without us as workers. Therefore we
have come out in our multitudes today to support this noble initiative
(Basic Income Grant).
In view of the In view of the current onslaught on the job opportunities of our mem-
current on- bers whereby retrenchments and job losses are the order of the day,
slaught on
obviously the Basic Income Grant would ultimately serve as a fall-back
the job op-
portunities position for the retrenched workers. When a worker is retrenched, it
(…) the BIG simply means loss of income. Loss of income means loss of hope.
would ulti- Without hope, life is shattered. Therefore, we need to provide hope for
mately serve
as a fall-back them, we must enable them to appreciate that there is always life after
position for retrenchment.
the re-
trenched However, it is highly disturbing that while we are pushing the agenda
workers. of poverty reduction the private sector is still sharpening the contra-
dictions. They are designing policies, which have negative conse-
quences for workers. This is contrary to the objectives of the MDGs.
Retrenching people means increasing poverty instead of reducing it.
The private sector is really not helpful in these endeavours. Time has
now come that they realise they have a role to play. They should no
longer ignore the plight of the workers and therefore should help cre-
ate decent jobs in response to the Global Call to Action Against Pov-
erty.
With these few words, I thank you!
Peter Naholo
NUNW Secretary General (Acting)
8
1.3 Mr. S. Tjaronda (Chairperson NANGOF)3

Thank you Master of Ceremonies
Distinguished members of civil society
Colleagues and Compatriots,
Spiritual leaders,
Ladies and Gentlemen!
Today marks a very unique day in the calendar of
the Republic of Namibia. Unlike other equally im-
portant days commemorated and celebrated in our
country, today a conscious selfless pronounce-
ment is delivered and a social movement is put in
gear to seek redress on the plight of many Namibi-
ans languishing in abject poverty in rural areas
and towns.
It is needless to mention that Namibia has and sadly so, the most un- Today a con-
equal distribution of income in the whole world. scious self-
less pro-
In fact Namibia can be classified as a dual country in terms of social nouncement
and economic construction. My submission is that there is a dichot- is delivered
omy in terms of livelihood analysis in Namibia. and a social
movement is
There is a highly impoverished dimension where people live on less put in gear to
than N$6.00 per day on the one hand and a lavish wealthier fraction of seek redress
on the plight
society on the other. The latter is small but powerful and controls the
of many Na-
economy of the country and natural resources. The fraction deter- mibians lan-
mines who exploits our resources, who gets opportunities such as gov- guishing in
ernment tenders and what types of jobs and wages are suitable for the abject pov-
erty.
majority.
This reality is compounded by a deceptive measurement being ad-
vanced to make the world believe all is going well and Namibia does
not need support from the international community. And many of our
leaders hide their shame by nodding their heads and pat each other
for a job well done. I am not, however, surprised at these conclusions
because many of them hear only from people about shack dwelling
and have concluded that people that stay in these shacks desire to.
Through the goggles of per capita income; Namibia is classified as a
middle-income country. As a result, many of the development partners
particularly inter-national partners are leaving the country dumping
the majority of citizens.
This is to me, ladies and gentlemen, a bone of contention. About two
thirds of Namibians live below the poverty line.
9
This makes the reduction of inequality not only a justice issue but also
a fundamental human rights issue. Poverty is the evil of the highest
degree! It destroys people. It is a beast that inhabits in prejudice, as-
sumption and attitudes.
Already as we discuss the Basic Income Grant in Namibia, many of
you are holding tight to your purses thinking this is another scheme
that will coerce you to part with your hard-earned cash.
The BIG is
Ladies and Gentlemen; The Basic Income Grant is one of the measures
one of the we can and must use to re-distribute wealth to all Namibians. It must
measures we be shameful to all development agencies in the world to continue to
can and must quote the current statistics on injustice and imbalance in people’s live-
use to re-
distribute lihoods for the sake of “good reports” and fundraising intentions. We
wealth to all must move beyond talk shop to real workshop to be true architects of
Namibians. a world that creates positive reflections of the status of humanity by
embracing not only the needs of citizens but engaging our whole being
to seek solutions to their challenges.
Ladies and Gentlemen; The Basic Income Grant could not have come
at a better time for Namibia. With the new administration of His Excel-
lency President Hifikepunye Pohamba, the emphasis is on good gov-
ernance and accountability of state and any other public funded
agency including civil society. We need to embrace this bold stance of
the President and the current government but go a step further to say,
now that we will be making savings in public spending, it is time we
invest more in sustainable livelihood for the citizens both on a short
and long term basis. On a short term basis people need constant and
reliable supply of food, which we in other words define as food secu-
rity. The shortcomings with these concepts are that they create limit-
ing images in our minds about how for instance food security should
be achieved. You are sitting there and thinking food security must be
connected to crop production and as a result you miss the crucial
component of production-seeds, fertilizers, land, and labour. Where
Where does does one get the money to buy seeds and fertilizers?
one get the
money to buy We are now here back from our short tour through livelihood lane to
seeds and the basics. Let us think again.
fertilizers?
(…) The truth How much more can it assist the people to achieve their dreams with a
of the matter universal income like the Basic Income Grant, which can serve as a
is, the BIG
safety net, but sustainable income that is not attached to a means
will stimu-
late economic test.
growth and
activate Na-
I appeal to you all, peace-loving Namibians, to reach into your heart
mibia’s full and support this noble cause. While the critics want us to believe that
potential to the Basic Income Grant is going to be a burden to the economy, the
produce for truth of the matter is, it will stimulate economic growth and activate
subsistence
and commer- Namibia’s full potential to produce for subsistence and commercial
cial pur- purposes.
poses.
10
We all can contribute to a future we want our children and grandchil-

dren to live in today.
I thank you.
Sandi Tjaronda
Chairperson of NANGOF
1 Speech delivered at the Basic Income Grant Coalition launch at the

CCN Hall Katutura on April 27th 2005.
11
Section 2: What is it all about? – The
concept
2.1 What is the Basic Income Grant (BIG)?

A Basic Income Grant (BIG) is a monthly cash grant (e.g. N$100) that A Basic In-
would be paid by the state to every Namibian citizen regardless of age come Grant
(BIG) is a
or income. The money, which is paid to people not in need, is recuper-
monthly cash
ated through the tax system. The main benefit of the grant is its ability grant (e.g.
to improve everyone's life by eradicating destitution and reducing pov- N$100) that
erty and inequality. would be
paid by the
state to every
Namibian
2.2 Where does the idea come from? citizen re-
gardless of
The Namibian Tax Consortium (NAMTAX) made the proposal for a Ba- age or in-
sic Income Grant for Namibia in the year 2002. The consortium was come. The
asked to review the current tax system in Namibia. The proposal for a money, which
is paid to
Basic Income Grant is part of their recommendations to redistribute people not in
income in Namibia. need, is re-
cuperated
The proposal recommends to pay a cash grant to every Namibian4. The through the
Consortium has drawn on the debate in South Africa, where a wide tax system.
range of groups - including the trade unions, NGOs, churches and a
government's expert panel on comprehensive social security - have
proposed a Basic Income Grant.
2.3 How would a BIG work?

Every Namibian would receive such a grant until s/he becomes eligible If there are 6
for a state pension at 60 years. In the case of children aged 17 or people living
in a house-
younger, the care-giver would receive the grant on behalf of the child.
hold this
In practice this means that if there are 6 people living in a household household in
and the level of the grant is set at N$100, this household in total total would
would receive N$600,- per month from the state. receive
N$600,- per
month.
2.4 Why do we need a BIG?

About two thirds of all Namibians live below the poverty line. Further-
more, Namibia has the most unequal distribution of income in the
13
What is it all about? – The concept
whole world. The reduction of inequality - one of the greatest legacies

of Colonialism and Apartheid - is not only a justice issue, but also has
been identified as a prerequisite for economic growth and investment
in developing countries.
2.5 Why do the rich qualify for a BIG? Shouldn't

one rather target people who are most affected by
poverty?
Classic welfare programmes using a means-test to target beneficiaries
have been proven to be more expensive, wasteful and also ineffective to
target people and to limit social assistances to specific groups and
people. If targeting is applied by means of added administrative re-
quirements – the poorest are actually those who are least likely to get
benefit from the programmes, as they by nature are the most disad-
vantaged in terms of access to information, infrastructure, and admin-
istrative services provided. Instead, by giving a grant to everyone one is
can be sure that all people in need receive support. The BIG is thereby
self-targeting without having to rely on an administratively difficult
means-test with adverse economic incentives.
The rich will With a BIG the rich will at first also receive the grant. However,
be paying through adjustments in the tax system the money is gradually recu-
more in taxa- perated. The adjustments in the tax system are made in such a way,
tion than
what they
that middle-income earners will receive the grant, but at the same
receive time their tax is increased so that they pay back the amount of the
through the grant The rich, however, will be paying more in taxation than what
grant. They they receive through the grant. They become net payers and income is
become net
payers and effectively redistributed. By doing so, social assistance becomes a
income is right, not labelling people as poor, and at the same time an effective
effectively tool in redistribution.
redistributed.
2.6 What are the benefits of a BIG?

The main benefit of the grant is its ability to improve everyone's life by
reducing poverty and inequality. All Namibians would benefit from the
BIG and there would be nobody without a baseline support. Everybody
would at least get some money to support him/herself. In addition, a
BIG would redistribute income from the rich to the poor people in Na-
mibia and by doing so would make Namibia a more just and equal so-
ciety.
Research shows that an increase in income, also increases peoples
capacity to look for work and also increases their chances of finding
work. A BIG would therefore not only be a safety net but it would be
more like a springboard for people to find jobs and earn money.
14
Furthermore, a BIG is a universal grant, that means that everybody Means-tested

receives it. It is not means-tested, people do not have to prove that grants penal-
they are poor or do not have a job. Means-tested grants penalise peo- ise people for
getting a job
ple for getting a job or earning money in other ways because they lose
or earning
the grant if their income increases. Thereby through means-testing, money in
well intended cash grants can become a poverty-trap creating depend- other ways
ency. On the contrary a BIG, as a universal grant, would not discour- because they
lose the
age people from looking for work but instead would enable people to grant if their
get out of the vicious circle of poverty and look for work. income in-
creases.
Thereby
through
2.7 How much would a BIG cost and how would it means-
be funded? testing well
intended
There are three basic options or a combination thereof, out of which a cash grants
BIG can be funded: can become a
poverty-trap
First, adjustments in the income tax structure. Higher income earners creating de-
would bear the cost in form of a solidarity levy to finance the benefit to pendency. On
the contrary
the poor. a BIG, as a
Second, the NAMTAX consortium proposed to fund the BIG through universal
grant, would
an increase of 6.5% in VAT. This would entail that people would pay not discour-
more for their daily goods but at the same time would also benefit from age people
the BIG. The model prepared by the consortium shows that 85% of the from looking
for work but
people would benefit more from the BIG than paying more on daily
instead
goods. The increase in VAT would finance the BIG by making rich peo- would enable
ple pay for it, hence it would distribute income more fairly in society. people to get
In addition, one can think of other funding methods, like increasing out of the
vicious circle
taxes on luxury goods like cars, tobacco, alcohol etc. of poverty
Third, through reprioritization in the budget. and look for
work.
2.8 How would people get the BIG?

The BIG could be paid out just like the other current grants. Ideally,
the consortium proposed to use smart cards and fingerprint identifica-
tion like they are used for some of the Old Age Pensions. In the long
run, this is a cost-effective way and does not leave room for corrup-
tion. In the beginning, the setting-up of the system would need addi-
tional funding.
2.9 What are the disadvantages of the BIG?

The initial costs and the setting up of the delivery system are the main
difficulties of the BIG in the beginning. However, once the delivery sys-
tem is set up, the costs will go down. In addition, the BIG is likely to
stimulate economic growth as people have more money to spend and
to invest within the Namibian economy. This will not only improve the
15
living standard of people but also increase the tax revenue of the gov-
ernment.
2.10 How can you prevent people from wasting the

grant on alcohol, lottery tickets, etc.?
Honestly, you can’t. You can also not prevent people who currently
receive money from government from wasting their money. However,
poor people cannot afford to waste their money and the majority of
people use their money responsibly and wisely - the people themselves
know what they need most. Namibia has the experience that the state
pensions are- by the overwhelming majority - spent to the benefit of
the poorest people in society, including grandchildren.
2.11 Are there better alternatives to a universal

grant?
Following an extensive review of the relevant literature and an analysis
of possible alternative strategies, the NAMTAX consortium found that
by far the best method of addressing poverty and inequality would be a
BIG (NAMTAX, 2002:60) There are alternatives, like only supporting
children up to the age of 17. However, these alternatives are less effec-
tive and many people would still be left without any support. There are
also more expensive alternatives, like ‘workfare’, which requires people
to work in order to get support from government. However, these pro-
grammes are very expensive and are not able to reach all people in
need. Other programmes of government like school feeding schemes
etc. should not be seen as alternatives, but as being complementary.
2.12 Will people become dependent on the BIG?

Poor people are dependent on assistance from other people – relatives
and friends who have some sort of income. A BIG gives people an in-
come source of their own, which they can count on and which enables
them to take their own decisions. It also lessens the burden on the
working poor who currently have to support relatives and friends with
their limited incomes. Therefore, a BIG in fact reduces dependency,
freeing resources for economic investment.
Local and especially rural markets benefit greatly from these transfers
as they have the potential to kick-start the economy in the underde-
veloped rural areas. The Basic Income Grant, by providing a universal,
stable, and continuous income source, has the highest developmental
potential as the people can count on it and better plan their economic
activities.
16
2.13 What is the BIG Coalition?

In September 2003, the Synod of the ELCRN stated that Namibia faces The aim of
the problem of poverty and inequality. In this context, it welcomes the the BIG Coa-
lition is to
proposal of a BIG by the NAMTAX commission. It believes that a BIG
work to-
has the ability to lift people out of poverty, enabling them to become gether with
economically active. Furthermore, it acknowledges that a BIG can fa- Government
cilitate the redistribution of wealth. The synod has made a resolution to make the
BIG a reality
to work with the Namibian government to further investigate and im- in Namibia.
plement this proposal. In November 2004, the ELCRN organised an
international conference on income security where the idea of a BIG
for Namibia was discussed between many different stakeholders, in-
cluding churches, NGOs, and Government representatives. This con-
ference resolved to launch a BIG coalition in Namibia. On April 27th
2005, the coalition was officially launched in Windhoek and the Coun-
cil of Churches, the National Union of Namibian Workers, the National
NGO Forum, the Namibian Network of AIDS Service Organisations, the
Legal Assistance Centre, and the Labour, Resource and Research In-
stitute are part of the coalition. The aim of the coalition is to work to-
gether with Government to make the BIG a reality in Namibia.
4 The NAMTAX commission suggested N$ 70 per person per month in

2002 and if only introduced after three to four years, the commission
suggested a start of level of N$ 100, excluding children under 6 (due to
current registration problems).
17
Section 3: How it all started –
Government’s Namtax commission
Proposal for a Development Grant to the Poor Financed out of a
Progressive Expenditure Tax on the Affluent5
3.1 Introduction
This appendix contains the Consortium’s tax proposal to address the
serious problem of poverty and income inequality in Namibia.
Following an extensive review of the relevant literature and an analysis Following an
of possible alternative strategies, we found that by far the best method extensive
review of the
of addressing poverty and inequality would be a universal income
relevant lit-
grant of at least N$70 per month to all Namibians of six years and erature and
older. This grant is to be financed out of an increase in indirect taxes an analysis
earmarked for a universal income grant. of possible
alternative
Provided that an effective delivery system can be implemented, such a strategies,
grant funded by an increase in indirect taxes will: we found
that by far
• Significantly reduce absolute poverty levels the best
method of
• Significantly reduce the degree of inequality, bringing the Gini addressing
coefficient down from 0.68 to 0.60 poverty and
inequality
• Target those most in need without requiring a complex adminis- would be a
trative system universal
income
• Be sustainable and affordable without retarding economic grant.
growth
• Avoid the negative consequences of alternative strategies to
transfer income from the rich to the poor.
We found that a universal income grant financed out of indirect taxes
will effectively offer a progressive anti-poverty grant to the poor, and
impose a progressive expenditure tax on the affluent.
19
How it all started – Government’s Namtax commission
3.2 The Problem

In terms of In terms of income distribution, Namibia is one of the most unequal
income dis- societies in the world. Nambia’s Gini Coefficient (a measure of inequal-
tribution,
Namibia is ity), is about 0.68. Income inequality is thus worse in Nambia than it
one of the is in Brazil and South Africa - two countries infamous for their high
most unequal Gini coefficients of just above and just below 0.60. Namibia’s Gini coef-
societies in ficient is thus the highest measured Gini coefficient in the world.
the world. (…)
Namibia’s Gini The Gini Coefficient measures a society’s ratio of income inequality on
coefficient is
thus the high- a scale between 0 - 1. If all the country’s income were earned by only
est measured one person, the Gini-coefficient of the country would be 1. If all income
Gini coefficient
in the world. were equally distributed, the Gini co-efficient would be 0. The higher
the coefficient between 0 and 1, the more unequally the society’s in-
come is distributed. With a Gini coefficient of 0.68 and a per person
annual expenditure of N$9,735 it can be shown that the expected dif-
ference between the annual expenditure of any two randomly drawn
individuals would be as much N$13,240.
In addition to the extreme disparities in income distribution, Namibia
has a very serious problem of poverty. It is obviously important for a
government to try to address this problem in a way that is sustainable,
encourages investment and economic growth, and avoids the poor be-
coming dependent on the state (rather than seeking ways to become
self-supporting).
Various countries have tried to reduce income inequalities through the
tax system, but these attempts have often failed. Sometimes this is
because the system enables the more affluent to pass the real burden
of the increased taxes on to the poor. Sometimes the system encour-
ages people to move their income generating assets into investments
(or foreign countries) to avoid the increased taxes. Often the increased
revenue does not result in increased benefits to those most in need
because the additional revenue is spent on creating a new bureauc-
racy to administer the distribution of grants. This usually means that
very little reaches the poor, for whom the money was intended.
We have devised our tax proposal to fund the universal income grant
in a way that will avoid these negative consequences.
3.3 The Proposal

We recommend a grant of N$70 per month to every Namibian of 6
years and older, to be funded by increases in Value Added Tax (VAT)
and preferably also increases in excise tax6 and possibly also the insti-
tution of a bed tax or tourist levy. Every Namibian would receive such
a grant until s/he becomes eligible for a state pension at 60 years.7 In
the case of children aged 17 or younger, the care-giver would receive
the grant on behalf of the child.
20
Financing this grant will require an increase in VAT of about 6 ½% . It It should be

should be possible to also fund the grant through a proportional in- possible to
crease in excise taxes (e.g. on alcohol, tobacco, luxury motor vehicles also fund the
grant
etc.), and if some of it is funded out of a tourism levy, the VAT increase
through a
could be kept down to about 4 ½ %. proportional
in-crease in
If every Namibian gets a state grant of N$70 per month and every Na- excise taxes
mibian pays an additional 6,7% in indirect taxes, it follows that every (e.g. on alco-
Namibian benefits from the grant, and every Namibian contributes to hol, tobacco,
it. However, they do not do so in the same proportion. Those who luxury motor
vehicles etc.),
spend more, contribute more through indirect taxes to the funding of and if some
the grant and benefit less from receiving the grant. Those who spend of it is
less, contribute less to the funding of the grant, but benefit more from funded out of
a tourism
receiving the grant. Our funding model shows that the wealthier will levy, the VAT
subsidise the poor to a very significant extent. Our model also shows increase
that about 85% of Namibians will receive a grant that is worth more could be kept
than the additional amount they pay in indirect taxes to fund it. Those down to
about 4 ½ %.
who benefit the most will be the poorest 40% of the population. Fur-
thermore the grant will target and benefit the poor, effectively transfer- 85% of Na-
ring a larger nett benefit the poorer one is, without requiring the cum- mibians will
bersome bureaucratic application of a means tests. receive a
grant that is
If a person spends exactly N$1,040 per month (in an average expendi- worth more
ture pattern), the 6,7% increase in indirect tax is exactly equal to the than the ad-
ditional
N$70 received in a grant from the state. This person will neither gain
amount they
nor lose from the grant or the tax. This is the break-even point. In a pay in indi-
household of four with an average expenditure pattern, the break-even rect taxes to
point, where the household gains as much from the grant as it con- fund it.
tributes in tax, will be N$4,160.
Individuals who spend less than N$1,040 per month (in an average
expenditure pattern) will gain more from the grant than they contrib-
ute in additional VAT. Those who spend more than N$1,040 per month
will gain less from the grant than they pay in additional taxes to fund
the grant. This form of tax is called a negative expenditure tax because
below the break-even point, the person receives more back than s/he
pays. A negative expenditure tax is, in fact, a grant to the poor. The
lower the person’s expenditure, the higher the grant will be. The higher
a person’s expenditure, the larger the additional tax burden both in
absolute terms and as proportion of expenditure.
If the grant is also funded by increased excise taxes (on alcohol and
tobacco and cars) those who spend a lot on these products will subsi-
dise the grant to a greater extent. (This is difficult in Namibia’s case,
because excise taxes are determined by the SACU arrangement).
For example, a person who drinks, smokes and drives expensive cars,
will have a far lower “break-even” point of approximately N$580. When
he spends more than this amount, he will contribute more to funding
21
the grant through additional taxes than the monthly benefit of N$70
he receives through the grant.
Conversely, a person who neither drinks alcohol nor smokes, will have
a far higher “break-even” point of about N$1,460. Such persons will
benefit more from the grant than they contribute towards funding it, if
they spend less than N$1,460 per month.
3.4 The Assumptions

The funding model rests on the following assumptions:
• The poor, who receive a benefit from the grant, will spend the
additional money they receive. This is very likely to happen as
poor people generally use increases in their disposable income
to fund their daily cost of living.
• Those who receive less from the grant than they contribute in
VAT to the grant will maintain their existing expenditure levels.
(Very similar results to those reported here will, however, be ob-
tained even if the expenditure is cut back by half or by the full
amount of the indirect tax increase)8 The assumption that ex-
penditure levels of the affluent will not be too dramatically re-
duced is only likely to hold if the increases in indirect taxes are
not too high. The higher the grant, the higher the tax required
to fund it, and the more this assumption will be open to ques-
tion. For this reason we have proposed that the grant be limited
to N$70 per month. If increased excise taxes are also used to
fund the grant, it is easier to assume that people will not reduce
their levels of expenditure significantly, because people using
alcohol and tobacco products generally do not reduce their con-
sumption because of increased costs.
• The reduction in savings will not influence the rate of invest-
ment in Namibia. This is also a reasonable assumption to make,
given the nature of existing savings and investments.
The system we propose can only be implemented successfully if three
administrative conditions are met:
• The efficiency of the existing indirect tax system must be main-
tained or improved
• Every Namibian citizen must be capable of unique identifica-
tion, preferably biometrically (by finger print or eye pupil)
• An efficient and cost effective delivery system must be estab-
lished.
22
Despite the challenges posed by the above conditions, we believe it is Despite the
possible for Namibia to develop the institutional capacity to fulfil them. challenges
The biggest challenge that must be met is the establishment of an effi- posed by the
above condi-
cient and cost effective delivery system. Unless this condition is met,
tions, we be-
the universal income grant cannot be implemented. The development lieve it is
of an appropriate delivery system will take at least four years and re- possible for
quire substantial donor assistance. Namibia to
develop the
institutional
capacity to
3.5 The Nett Impact of a Grant Combined with an fulfil them.
Increase in Indirect Taxes
Figure 1 illustrates this very clearly:
200
100 68 67 63 57 50 43 36 33
20
9 3 -22 -31
0
25 50 100 200 300 400 500 550 750 906 1,000 1,375 1,500 2,000 3,000 4,000 5,000 7,500 10,000
-100
expenditure tax (-)per person (N$)
-64
Net Anti-poverty grant (+) or
-131
-200
-198
-300 -265
Anti-poverty grant (+) or expenditure tax (-) (N$)

-400
-433
-500
-600
Monthly per person expenditure (N$) -601
-700
Figure 1: Nett anti-poverty grant received or progressive expenditure tax paid with
grant of N$70 financed by increasing indirect taxes by 6.7% (including an increase
in VAT of 4.8%)
23
3.6 The Actual Fiscal Burden Imposed by a

Universal Grant
This gross Paying a monthly N$70 grant to every Namibian between ages 6 to 60
additional yrs will cost N$1,156-million per year. This gross additional tax bur-
tax burden
den appears extremely high and could lead people to conclude that the
appears ex-
tremely high proposed universal grant is unaffordable for the Namibian economy.
and could However, this is a misleading conclusion. According to the fiscal
lead people model, everyone will pay taxes to fund the grant - but everyone will
to conclude
that the pro- benefit from it in return. About 85% of Namibians will get back more
posed univer- than they pay. The total value of the amount they receive over and
sal grant is above the amount they contribute is N$522mil.9 This amount comes
unaffordable
from the 15% of people with the highest monthly expenditure who will
for the Na-
mibian econ- contribute a total of N$522 mil more than they get back in return. This
omy. How- nett tax burden of N$522 mil per year is the real measure of the tax
ever, this is a burden, and falls on the 15% of the wealthiest Namibians. This nett
misleading
conclusion.
burden in this redistributive model, falls only on those who spend
(…) more than the “break-even” point of R1040 per person each month.
This nett tax This nett tax burden represents the real cost of the universal grant,
burden repre-
sents the real and brings it well within the realm of affordability for Namibia.
cost of the
universal It is easier to understand the argument regarding the difference be-
grant, and tween a nett and gross burden by assuming a hypothetical situation in
brings it well
which all income and expenditure in Namibia were completely equally
within the
realm of af- distributed (i.e. a Gini Coefficient of 0). Under such circumstances eve-
fordability for ryone would pay N$70 through VAT increases to fund the grant, and
Namibia.
everyone would get back N$70 in return (assuming no cost of collec-
tion and delivery). The state would raise N$1,156-million and pay back
N$1,156-million to the same people. Thus the nett tax burden on each
individual would be nil. This is the tax burden that counts. In this
case it obviously makes no sense to argue that this is unaffordable to
the society, based on the gross tax value of N$1,156-m.
It would, however, make no sense to introduce a universal income
In Namibia,
which has grant if everyone had the same income and expenditure. It only makes
one of the sense to offer such a grant because there is such disparity in incomes.
most unequal The greater the inequality in a society, the greater the nett gain of the
distributions income grant will be to the poor, and the greater the nett burden in
of income in
the world, taxes for individuals with a high level of expenditure. In Namibia,
the nett tax which has one of the most unequal distributions of income in the
burden is world, the nett tax burden is close to half the gross amount paid out.
close to half
the gross Although an increase in indirect taxes is usually regressive because
amount paid the poor spend a larger proportion of their income than the rich, the
out.
nett impact of a grant combined with an increase in indirect taxes is
clearly progressive. 85% of the population will be better off if indirect
taxes are raised and an income grant is paid out to everyone above five
years of age. Those who benefit most will be the poorest four or five
deciles of the population, with a low monthly per person expenditure.
24
Those with a N$200 per month expenditure will be able to increase

their expenditure by at least a third. Those with an expenditure of
N$100 per month will be able to increase their expenditure by two
thirds. This makes a significant difference to the poorest of the poor.
The progressive benefit and burden imposed by a combination of a
universal grant and an indirect tax increase is shown in Figure 2. This
diagram shows that although the indirect tax has to be increased by
6.7% to finance a grant of N$70 per person, all those with a per person
expenditure of less than N$1040 a month are better off, and it is only
when the monthly per person expenditure exceeds N$4,000 that the
tax rate creeps up to above 5%.
300%
273%
250%
200%
Negative tax rate
150%
133%
100%
63%
50%
28%
Effective Tax Rate
17% 1.02% 0.3%
11% 7.3% 6.0% 2.6%
0%
25 50 100 200 300 400 500 550 750 906 1,000 1,375 1,500 2,000 3,000 4,000 5,000
-5.3% 7,500
-5.8% 10,000
-6.0%
Monthly Expenditure per person (N$) -1.61% -2.0% -3.2% -4.4% -5.0%
-50%
Figure 2: Net grant (-) and net tax (+) burden as percentage of expenditure, with a
N$70 grant and 6.3% increase in Vat
3.7 Targeting the Grant, while Avoiding Poverty

Traps and Dependency
The approach we suggest avoids all the problems associated with
The ap-
means tests, which are often applied in industrialised countries to tar- proach we
get state assistance to the poor. In some countries, such as the Ger- suggest
man Federal Republic, the state’s assistance to the poor is cut back by avoids all the
problems as-
1 Euro, for every Euro the family earns itself. This amounts to a 100% sociated with
marginal tax and serves as a serious disincentive to a poor family to means tests,
earn additional income. Furthermore in such countries the state can which are
often applied
afford to adopt a high poverty line. In Germany, for example, a family
in industrial-
of four in certain circumstances can receive as much as E1500 ised coun-
(equivalent to N$15,000) per month. This approach inevitably creates tries to tar-
a poverty trap because unskilled people can earn as much by relying get state as-
sistance to
on a state grant as they can by going out to work. There is therefore no the poor.
incentive to work, and under these circumstances the grant creates
dependency.
25
Apart from this very negative aspect, the implementation of a means

test requires a sophisticated and extensive bureaucracy. Some times
this can cost as much as the savings achieved by introducing a means
test to prevent those who do not qualify from getting the grant.
The consortium’s proposal of a universal grant funded by increases in
indirect taxes also targets the poor, but without the negative conse-
quences of a means test.
On the con- If Namibia were to introduce a N$70 monthly grant financed by an in-
trary, it is crease in indirect taxes, a poor person would lose only N$6,70 for
far more every N$100 by which the person’s expenditure increases. This is a
likely to offer
marginal tax rate of 6,7% compared to the 100% rate in the German
opportunity
to the poor to example used above. Because everyone gets a grant, which is funded
improve the by the wealthier who spend more, the grant is perfectly targeted with-
opportunities out requiring an expensive bureaucracy. A small grant of $N70 is very
of earning
additional
unlikely to create dependency. On the contrary, it is far more likely to
income. Chil- offer opportunity to the poor to improve the opportunities of earning
dren can be additional income. Children can be better nourished, youth can pay
better nour- for additional training opportunities or transport costs in looking for
ished, youth
can pay for work. The poorer one is, the more support one gets from the grant.
additional
The grant will be a very effective way of targeting households for sup-
training op-
portunities or port in which the breadwinner has become unemployed because of ill
transport health, e.g. because of AIDS.
costs in look-
ing for work. Another great advantage of paying out the grant to individuals, or in
the case of children, to the caregiver, is that it enables the grant to
reach the needy within households.
This system, For example, if a husband earns N$1,900 a month and keeps N$1,100
in contrast to for himself and gives the rest to his wife and three children, he himself
any other will pay as much in tax as he receives from the grant. However, his
system, has
wife and three children, with a per person expenditure of N$200 per
the great ad-
vantage of month, will benefit by N$56 per person per month (or N$224 together)
being able to from their grant. This system, in contrast to any other system, has the
address ine- great advantage of being able to address inequality in power relation-
quality in
power rela-
ships within households by automatically targeting those who get the
tionships least, to benefit most from the grant. This would be greatly assisted if
within house- the grant could be delivered in the form of electronic money to a smart
holds by card which can only be accessed by the caregiver and if it is possible
automati-
cally target- to store the money on the card if required.
ing those
who get the
least, to
benefit most
from the
grant.
26
100
69 68 67 68 67 64 65 63
58 60 57 56
46 50 51 46
43 43
50 34 36 33 34
22 26 22
20
10 9
4 3 4
0
25 50 100 200 300 400 500 550 750 906 1,000 1,375 -21,500 2,000 3,000
-20 -22
-31 -26
-50
-51
Net benefit or tax
-64
-75
-100
Ms Cleanliving Green: Does not smoke, drink or guzzle -111
gas
-131
-150 Average Consumer: Sins moderately
-171
Mr Tough Guy: Heavy drinker and smoker and guzzles gas
-200
-250
-300 -292
Monthly expenditure per person (N$)
-350
Figure 3: Proportional increase of all indirect taxes target Ms Cleanliving Green for
highest net grant and lowest tax increases.
Another advantage is that the system distinguishes between people on

the basis of how they spend their money. If it should be possible to get
agreement form SACU to fund the grant by proportional increases in
excise levies on tobacco and alcohol, those who purchase these items
will subsidise the grant to a greater extent than people who do not.
(See Figure 3) This supports the case for levying increased excise taxes
to fund the grant. However, it must be borne in mind that excise taxes
are levied within SACU, and cannot be unilaterally altered by individ-
ual countries.
3.8 The Dynamic Economic Consequences of a

Grant
For the purpose of alleviating poverty, a N$100 per month grant would
If a grant is
be preferable to a N$70 amount. However, the macro-economic conse- only imple-
quences of the larger amount are more difficult to predict because of mented in
the higher tax burden on the affluent. If implemented today, it would three to four
be more prudent to start with a lower monthly grant and evaluate the years’ time,
it would be
macro-economic impact over a reasonable period. If there is no reason possible to
for concern, the grant can be increased. If a grant is only implemented start with
in three to four years’ time, it would be possible to start with N$100 N$100 per
month.
per month. The real cost of such a grant then would be much lower
and would be similar to the cost of a N$70 monthly grant in 2002.
There is also a case to be made for extending the grant to Namibians
five years and younger. However, this may be administratively very
difficult to implement. The biometric identification system foreseen for
Namibia, similar to the HANIS system implemented in South Africa,
should be used for every Namibian that receives the grant. This will
27
prevent fraud. However, if one uses fingerprints, such an identification

system cannot be implemented in the case of younger children. The
grant could well, as is the case with the existing targeted poverty grant
in Brazil, only be paid in the cases where children attend school to
ensure school attendance and to monitor via the school who the care-
giver is.
Another reason some may put forward for restricting the grant to chil-
dren six years and older is that a grant for small kids may in some
cases create a perverse incentive to have children.
The effects of the expenditure tax the consortium proposes to fund this
grant will have much less of a distorting influence on the economy
than an increase in income tax would have. We consider the expendi-
ture tax the ideal method of raising taxes and supporting the poor. By
adopting these measures, Namibia can succeed in implementing, by
an indirect method, a direct and progressive expenditure tax.
It would, of course, be essential to earmark the additional amount
thus raised for the grant. If the increased funds were spent elsewhere,
the taxpayers would not get a direct repayment, and this would wipe
out the advantage achieved by the difference between the gross and
the nett tax burden. In fact, if the increased revenues raised in indirect
taxes were not spent on the grant, the nett tax burden would be as
high as the gross tax burden.
The nett impact of the grant will be to create more demand in rural
areas. This should stimulate economic development in parts of the
economy that have been marginalised.
Should a Should a grant of N$70 be paid out today, it would bring down the
grant of Namibian Gini coefficient from 0.68 to about 0.60. Namibia would no
N$70 be paid longer have the dubious distinction of having the highest measured
out today, it
would bring Gini coefficient in the world.10
down the
Namibian
Gini coeffi-
5 Appendix 4: Income Redistribution and Poverty Relief - A Universal In-
cient from come Grant Combined with Indirect Tax Increases (Namtax Report,
0.68 to about 2004,60-72 as published on the IPPR Web Page:
0.60. Na- http://www.ippr.org.na/other_research.htm)
mibia would 6 Increases in excise taxes could, however, only be made with the agree-
no longer ment of the other SACU members.
have the du- 7 We recommend that the existing pension of N$250 be retained, and not,
bious distinc- as has been argued in some quarters, replaced by a “means tested”
tion of hav- pension. A means test is extremely difficult and costly to administer ef-
ing the high- ficiently. If the recommendations of this report are accepted, the pen-
est measured sioners with a high per person expenditure will in any case be worse off,
Gini coeffi- because of the increase in the indirect taxes. The pensioners with a low
cient in the per person expenditure will probably be better off if our recommenda-
world. tions are implemented, because the other members of the household
who at present also live off the pension, will then be receiving a grant.
8 If the expenditure level increases with the full amount of the indirect tax
increase, in other words, if expenditure is not cut back at all because of
the tax increases, the increase in indirect taxes required to finance the
28
grant is 6.7%. If, on the other hand, the affluent cut back on their ex-
penditure levels by the amount that tax increases, so that the overall
expenditure remains the same, then the increase in indirect taxes re-
quired will be about 7.1%. Assuming that the expenditure of the afflu-
ent increases by half the increase in indirect taxes, an increase of 6.9%
in indirect taxes is required.
9 If one assumes that the rich cut their expenditure back by half of the
indirect tax increase (which means that indirect taxes have to be in-
creased by 6.9%), this amount will by N$516 million, and if the rich cut
back their expenditure by the full amount, they will contribute only
N$509. The higher the required tax rate, the lower the net benefit and
the net burden. The more the affluent cut back their expenditure be-
cause of the tax increases, the less the actual additional tax burden is,
even though the indirect tax increase is higher.
10 Countries such as Brazil and Guatemala have Gini coefficients of higher
than 0,6.
29
Section 4: The developmental
1111
impact of a Basic Income Grant
4.1 Introduction
This paper assesses the developmental impact of a Basic Income Grant
given Namibia’s poverty and inequality situation.
Firstly, the paper provides a brief overview of the current levels of pov-
erty in Namibia. A framework, against which the developmental impact
of a poverty reduction policy needs to be assessed, is introduced. Sec-
ondly, the paper visualises the current income distribution and ine-
quality in Namibia and then depicts the measurable impact of a BIG
on income security. The third and final section, by taking into account
the findings before, outlines the developmental impact of the BIG.
4.2 The current situation in a nutshell
Current levels of poverty in Namibia
Methodological considerations in defining poverty

Namibia is in the process of developing an official poverty line and in
this there are several methodological challenges involved:
Firstly, it needs to be decided whether a relative or an absolute poverty
line is chosen. A relative poverty line is often easier to establish. It al-
lows to measure policy impacts by looking at whether people are better
or worse off after a certain policy implementation. However, by nature,
relative poverty lines do not allow to tell, whether a person living above
the line is in fact not poor. A relative poverty line cannot establish
whether the person has the means to live a decent human life. The
World Bank, for example, often defines a relative poverty line. Using
this line, the people living in the poorest 40% of households are re-
garded as the “poor” and the people in the poorest 20% of households
as the “ultra-poor”. One thereby creates a ranking of the “poor” and
“poorer” than “poor”, which raises serious questions: Is this adequate
to describe living conditions of people? In addition, can this line, which
is open for interpretation, be used to identify some of the “poor” as not
31
The developmental impact of a Basic Income Grant
in need of policy interventions? Another concern is that the poorest

40% in Namibia will be much poorer than the poorest 40% in Ger-
many. And again, living among the people above the poorest 40% of
households might imply a reasonable and by international standards
quite acceptable standard of living for Germany, whereas the same
obviously does not hold for Namibia. There seems to be agreement
here in Namibia that an absolute poverty line needs to be identified.
The relevant policy makers need to be commended for this stance.
Secondly, besides the decision about a relative poverty line or an abso-
lute one, it needs consideration on which indicator or composition of
indicators a poverty line should be based. E.g. internationally the pov-
erty line is often defined as referring to people who have less than
US$1 per day. The Household Subsistence Level determined by the
University of Port Elizabeth instead collects a basket of goods (includ-
ing expenses for nutrition, transport, energy for cooking etc.) for major
urban areas in Namibia, and has in fact looked at the actual costs of
covering this basic basket of goods. Further, it can be argued that one
indicator like income or nutrition is not adequate to capture real life
poverty. A person might have above US$1 per day but does not have
the means to access basic health facilities. This person might in fact
die from a preventable disease and should therefore be considered as
poor. Or a Masters student, while temporarily having limited financial
means, should in fact be considered not poor, as his education might
guaranty him to find a job much more easily than a comparable per-
son with the same income, who dropped out of standard 10.
A great deal can be learnt about living standards from a suffi-
ciently comprehensive measure of consumption. But there will be
relevant aspects of well-being (from both welfarist and non wel-
farist perspectives) which are not reflected in that measure. This
points to the need to supplement poverty measures based on
distribution of household consumption with other indicators
which (though possibly quite crude on their own) do have a bet-
ter chance of picking up the omitted variables. (Ravallion,
1994:9-10)12
This is where composite indices with the concept of capabilities come

in. They define several absolute poverty lines, relying on various indi-
cators and compile them into one index.
In order to check the robustness of the monetary poverty lines out-
lined above, this paper calculates a composite index based on Sen’s
notion of capability.13
The composite index applied includes a ranking into four sub-groups,
which are then weighted equally:
• Expenditure
• Housing
• Health
32
• Employment opportunities
A score of 1 and 2 is regarded as below the poverty line.
Score (1 = most deprived up to 5 = well off;

1 and 2 are regarded as below the poverty
line)
Indicator 1 2 3 4 5
Expenditure standardised - R316 R316 - R476 – R952 - R1904 -
monthly HH
R476 R952 R1904
expenditure (HH
with 1 member)
Housing type of house impro- tradi- apart- semi- house

vised tional ment - detached
housing - dwelling, flat, house
shack, single guest
mobile quarter flat, part
home - commer-
tent cial -
industrial
type of energy none, dung - coal, so- gas electricity
used for cook- wood, crop lar
ing charcoal residue,
paraffin
Health type of water river / rain- public piped piped

access stream, water, stand- water on water
dam, protected pipe, premise inside
standing spring, water house
water, well, tanker /
canal borehole carrier
type of sanita- bush bucket / Pit / long imp. la- own flush
tion facilities pan drop la- trine, toilet
trine shared
flush
toilet
accessed health none family / clinic, phar- private
facilities friend, public macy, doctor
trad. hospital visit by
healer, PHC
shop nurse
Employment share of em- 0-19% 20-39% 40-59% 60-79% 80-100%

opportunities ployment
among the adult
HH members
average years of <2 3-5 6-9 10-11 12+
education
among HH
members 16+
years
33
In conclusion, it is important to be clear that any poverty line is an

analytical tool in order to picture the extent of a complex social reality.
It still cannot express the feelings of people, who are inflicted by this
deadly situation. The definition and the discussion about this issue as
such do not result in a change of the situation on the ground! How-
ever, different poverty lines focus the attention of policy makers on
certain aspects of poverty and thereby are an important tool for policy
development and policy evaluation.
Having looked at the methodological limitations, this paper therefore
has a look at a variety of measures, in order to begin to sketch the ex-
tent of the poverty problem in Namibia. The paper therefore calculates
the following poverty lines:
• People living in the poorest 40% of households (bottom two
quintiles)
• Household subsistence level
• Crude international poverty line (US$ 1 per person per day)
• Composite index
Poverty rates in Namibia
Measure Percentage of
people below
poverty line
Bottom two quintiles people living in the 48.1%
poorest 40% of HH
Household N$ 409.37 per adult 82.2%
Subsistence Level equivalent
Crude international US$ 1 day 62.3%

poverty line
Method used in this Composite index 74.8%
paper
One can con-

clude that The relative poverty line defines 48% of Namibian people as living be-
according to
low the poverty line. This mainly points to the fact that the poorer the
their finan-
cial situation people are, the more likely they are to live in bigger households. As
at least explained earlier, this poverty line does not allow one to tell whether
about two the living conditions of the people above the poverty line are above the
thirds of all
Namibians minimum necessary to live.
live in pov- The two absolute measures, based on a monetary indicator, define be-
erty.
tween 62% (crude international poverty line) and 82% (Household
34
Subsistence Level) of Namibia’s people as below the poverty line. One

can conclude that according to their financial situation at least about
two thirds of all Namibians live in poverty.
This picture is confirmed when looking at the composite index. The Poverty in
composite index, which also defines an absolute poverty line and com- Namibia has
many differ-
bines monetary and non-monetary measures, identifies 75% of Na-
ent faces and
mibians as living in poverty. This shows further that poverty in Na- is deeply
mibia has many different faces and is deeply rooted in all spheres of rooted in all
Namibian society. spheres of
Namibian
A policy intervention, which tries to address such an extent of poverty, society.
has to be geared to face several developmental challenges:
• It needs to be simple and efficient to reach the majority of peo-
ple within the near future. A policy in-
tervention
• Despite being simple, it needs to be able to address the various needs to be
simple and
faces of poverty e.g. rural / urban poverty, different health chal-
at the same
lenges (access to clinics, safe drinking water), different employ- needs to be
ment situations (subsistence farming, informal sector employable to ad-
ment, domestic- farm workers, mineworkers) etc. dress the
various faces
The United Nations High Commission for Human Rights (UNHCHR) pf poverty.
defines poverty as:
A human condition characterized by the sustained or chronic
deprivation of the resources, capabilities, choices, security and
power necessary for the enjoyment of an adequate standard of
living and other civil, cultural, economic, political and social
rights. (UNHCHR, 2004:1)
Accordingly, three characteristics of poverty need to be taken into ac-

count:
• The lack of resources to meet basic needs (nutrition, access to
health facilities, housing etc.)
• the lack of capability (“real opportunity”)
• the lack of freedom of choice, security and power to take owner-
ship and to use resources to become a full functioning agent in
society.
All these aspects of poverty prevail in the Namibian society. Poverty is
a multi-faced phenomenon and each and every aspect is influencing
and influenced by others to the point, where it becomes a trap in the
form of a poverty circle. The third part of this paper is going to build
on this framework to evaluate, on which of these different levels a BIG
will assist the people concerned to escape this vicious circle of poverty.
35
4.3 The immediate effect of a Basic Income Grant

The immediate effect of the BIG is at the income level as it provides
income security. The following microsimulation model shows the dra-
matic effect at that level. In order to evaluate the change it firstly looks
at the current situation of income distribution in Namibia. The mi-
crosimulation model, by using a weighted national household data set
and representing the total Namibian population, is able to look at the
individual income and how this is changed if social assistance policies,
like the BIG, are changed or introduced.
Current income distribution and inequality
180,000
US$ 1
160,000 per day
Poverty line
Number of people in Namibia
140,000
120,000
100,000
80,000
poor
60,000
40,000
20,000
0
per adult eq.
N$ 11
N$ 14
N$ 19
N$ 25
N$ 33
N$ 44
N$ 58
N$ 78
N$ 103
N$ 138
N$ 183
N$ 244
N$ 325
N$ 432
N$ 575
N$ 765
N$ 1,019
N$ 1,356
N$ 1,805
N$ 2,402
N$ 3,197
N$ 4,255
N$ 5,664
N$ 7,538
N$ 10,034
N$ 0 Income distribution N$ 10,000

(per month per adult equivalent)
Figure 4: Namibia’s income distribution in a nutshell - Source: DfSD Microsimulation

Model
Figure 4 represents the total current income distribution in Namibia

updated to 2004 standards. On the x-axis the income standardized to
an adult equivalent (weighting children below the age of 16 years as
half an adult, and taking account of economies of scale (powered by
0.9)) is represented. The y-axis depicts the total number of people for
each income.
36
As the graph is extremely broad, it becomes clear that Namibia has a As the graph
highly unequal distribution of income. The Gini-coeffiecient of 0.68 in is extremely
fact documents the highest inequality in the world. While Figure 4 broad, it be-
comes clear
shows many people with nearly no cash income available in their
that Namibia
households (up to 180,000), this goes along with wealth pockets where has a highly
there are people in households with an adult equivalent income of N$ unequal dis-
10,000 and above. tribution of
income.
The red line in the middle visualises the crude international poverty
line of US$1 per day. Even according to this crude standard, 62% have
to struggle for survival on less than US$1. It becomes clear that desti-
Destitution is
tution is ripe in many communities in Namibia. ripe in many
communities
in Namibia.
Namibia with a Basic Income Grant
The next graph models the effect, which would be achieved, if every
Namibian citizen from birth up to the age of 60, the qualifying age for
a social pension, would receive N$100 per month. The model is based
on the assumption that the money from people living in the richest
40% of households (4th and 5th top quintile), is recuperated tax neu-
tral. Meaning the richest 40% do receive N$100 per month but at the
same time N$100 is recuperated through adjustments in the tax sys-
tem, so that their net benefit / cost is kept at N$0.
The total net cost for a BIG in this scenario would be N$1,251 million
per year. And out of this NS$978 million would go into rural areas.
37
180,000
160,000
140,000
120,000
Destitution is
100,000
effectively Many people
80,000 eradicated. escape poverty.
60,000
40,000
20,000 Inequality
is reduced
0
per adult eq.
N$ 11
N$ 14
N$ 19
N$ 25
N$ 33
N$ 44
N$ 58
N$ 78
N$ 103
N$ 138
N$ 183
N$ 244
N$ 325
N$ 432
N$ 575
N$ 765
N$ 1,019
N$ 1,356
N$ 1,805
N$ 2,402
N$ 3,197
N$ 4,255
N$ 5,664
N$ 7,538
N$ 10,034
Figure 5: The impact of a BIG on Namibia’s income distribution compared to the
current income distribution (dotted line) - Source: DfSD Microsimulation Model
Figure 5 shows the dramatic effect the BIG has on income security.
Destitution is
effectively Destitution is effectively eradicated. As the BIG is a right, each and
eradicated everybody has at least some income. This would go a long way to
through a eradicate hunger and malnutrition.
BIG.
With the BIG, many people escape poverty and are brought over the
crude poverty line. The head count index of people having to live below
The head
count index an acceptable minimum income would drastically be reduced.
of people As the graph in Figure 5 is much narrower than in Figure 4, it be-
having to live
below an ac- comes obvious that the BIG reduces inequality. The gap between the
ceptable rich and the poor would be no longer as extreme as it currently is.
minimum
income would
drastically
be reduced. 4.4 The developmental impact of a Basic Income
Grant
The positive impacts of the BIG, despite being straightforward and
simple, are nevertheless extremely manifold and cut across many
fields. Although it is clear that N$100 is not adequate for a person to
live on, on household level the proposal makes a decisive difference
(e.g. a household of six people would receive N$600 per month). The
next part of this paper is going to look at the developmental effects.
38
Resources to meet basic needs (nutrition, access to health

facilities, housing etc.)
• On a household level, the BIG would effectively eradicate desti-
tution and provide a lifeline for people living in poverty.
• Given the increasing effects of the HIV/AIDS pandemic, the BIG The success
would bring crucial resources into households, which are in- of the roll-out
fected and affected. Nutrition is a pre-requisite for a healthy of ARVs (…) is
inseparably
lifestyle. Furthermore, the success of the roll-out of ARVs,
linked to ac-
which is crucial to enable many Namibians to continue living a cess to basic
productive life, is inseparably linked to access to basic nutri- nutrition. A
tion. Like e.g. TB treatment ARVs can only work, if taken after a BIG would
guarantee
meal. What about people who do not have the means to provide these means
for regular meals? A BIG would guarantee these means to eve- to everybody,
rybody, regardless of whether they are infected or affected. Es- regardless of
pecially in rural areas, lack of transport money to access health whether they
are infected
care is often the reason for people to get no, or too late medical or affected.
assistance, which could save lives.
People living
Capability (“real opportunity”) in formerly
disadvan-
• The following two graphs explain why people living in formerly taged com-
disadvantaged communities, still continue to carry a dispropor- munities,
still continue
tionally high burden of caring for other poor people. It can be to carry a
argued that this informal social security system effectively im- dispropor-
poses an informal tax on the poor, which prevents people from tionally high
escaping poverty and developing their own full potential as well burden of
caring for
as that of the whole economy. other poor
people.
40%
34
33
30%
30
% of people paying remittances
20%
20
19
18
14
10% 11 12
0%
poorest 2nd 3rd 4th 5th 6th 7th 8th 9th top
Figure 6: Percentage of people paying remittances to other households from their

income.
39
Figure 6 shows the percentage of households paying part of

their income to other households in the form of remittances.
One would expect that the richer the households are, the more
likely they are to support other households, especially the ex-
tended family. What is especially striking in Figure 6 is that
from the third poorest ranking to the poorest the percentage of
households is again increasing and not decreasing.
30%
23
20%
Mean % expenditure on remittances
19 18
17
15
10% 11
10
9 9
8
0%
poorest 2nd 3rd 4th 5th 6th 7th 8th 9th top
Figure 7: Percentage of income paid as remittances to other households
A BIG is an Figure 7 now looks at the percentage of income, which is paid to

effective tool other households. It becomes obvious that there is a linear cor-
in lowering relation of the richest households only supporting other house-
this regres-
holds with about 8% of their income to the poorest households
sive informal
tax on the spending up to 23% of their income of the little income they get
poor. for other poor people! This can be explained by the demand
Thereby, brought forward against income earners in poor communities.
money of the
working poor
Social solidarity and the absence of any other form of formal so-
would be cial security necessitate that income earners in poorer commu-
freed for nities assist their extended families and neighbours to cover
economic costs like medical expenses for children, funeral costs, school
investment.
fees etc. In economic terms this, however, means that this in ef-
fect imposes a regressive tax on the poor, diminishing their abil-
ity to save and invest, and thereby diminishing the chance to
ever escape poverty. A BIG is an effective tool in lowering this
regressive informal tax on the poor, as it would put in place a
basic social security system and the poor would not be as de-
pendent on other members as before. The burden of caring for
the poor would be more justly and progressively distributed over
the whole society. Thereby, money of the working poor would be
40
freed for economic investment, to productively use their own re-

sources and potential in the economic realm, and ultimately of-
fer the chance to escape the vicious circle of poverty.
• On the expenditure side, a BIG has again various impacts. A A BIG of
BIG of N$100 per month per person will generate a net-benefit N$100 per
month per
of over N$900 million a year reaching the rural communities in person will
Namibia. It can well be argued that this will work as an engine generate a
for local economic development. The poor have the propensity to net-benefit of
over N$900
spend larger amounts on goods and services, which are pro-
million a
duced locally. It will create more viable and sustainable oppor- year reach-
tunities for self-employment in the rural areas. ing the rural
communities
• Many Namibians are trapped in unemployment, lacking the in Namibia.
necessary resources to successfully enter the job market. De- This will
cent clothing, a permanent postal address, telephone etc. are work as an
engine for
important prerequisites to be employable. The BIG would assist local eco-
in providing necessary start-up capital. nomic devel-
opment.
• The BIG, by securing nutrition, is a human capital investment.
Currently children who do not get proper nutrition cannot per-
form at school. Children who are malnourished under the age of The BIG, by
4 years are stunted and will never develop their full potential. providing the
The BIG, by providing the means for basic nutrition, would in- means for
basic nutri-
crease capabilities and real choices of the future workforce of
tion, would
Namibia. increase ca-
pabilities
and real
Freedom of choice, security and power to take ownership choices of the
future work-
• Currently, many communities are inflicted by the loss of vision force of Na-
for a future and thereby the loss of hope. This results in social mibia.
illnesses such as drug- and alcohol- abuse and a non-caring at-
titude, when it comes to HIV/AIDS as an illness, which strikes
you only years after you contracted it. The BIG, by guaranteeing
opportunities for a future, would contribute to reversing this ef-
fect and could give hope to build a future.
• Economic insecurity prevents people from taking entrepreneu- The BIG
rial risks. If people are faced with the alternative of buying food would pro-
vide income
for the household for the day or of investing the money into self-
security,
employment, with the risk of no or delayed returns, people nec- which would
essarily are reluctant to take risks, which endangers the sur- free re-
vival of their families. The BIG would provide income security, sources for
entrepreneu-
which in return would free resources for entrepreneurial risk- rial risk-
taking, which in turn is crucial for a growing and innovative taking,
economy. which is cru-
cial for a
• The BIG would help to rectify current power imbalances, which growing and
are created by severe dependency on any form of cash income. innovative
economy.
This is applicable to intra-household distribution, where espe-
41
The Basic cially women would be empowered to say ‘no’ to abusive rela-
Income Grant tionships. This would also go a long way to strengthening work-
is not a ers’ bargaining power against exploitative labour practices (e.g.
panacea, but
domestic or farm workers etc.).
a big step
that has the It can be concluded that the extremely unequal distribution of wealth,
potential to
the high levels of poverty, as well as the HIV/AIDS pandemic, necessi-
yield crucial
developmen- tate urgent measures in Namibia. The Basic Income Grant is not a
tal benefits panacea, but a big step that has the potential to yield crucial develop-
for the ma- mental benefits for the majority of Namibians while being economically
jority of Na-
mibians sensible and socially acceptable.
while being
economically
sensible and
11 This paper is written by Claudia and Dirk Haarmann. They are pastors
socially ac- of the Evangelical Lutheran Church in the Republic of Namibia (ELCRN)
ceptable. and are currently working as the Project Directors of the Desk for Social
Development (DfSD-ELCRN). Both hold a PhD in Social Development
from the Institute for Social Development (UWC, South Africa) and a
Masters in Theology (Germany).
12 RAVALLION, Martin 1994. Poverty comparisons Switzerland, Australia,
Belgium etc. (Harwood Academic Publishers). (Fundamentals of Pure
and Applied Economics).
13 For a detailed discussion of the methodology see Haarmann 1999 and
2001:
HAARMANN, Dirk 1999. The living conditions of South Africa's children.
Cape Town (Applied Fiscal Research Centre). (= Research Monograph
Series.9)
HAARMANN, Dirk 1999. The use of microsimulation in social policy
planning and implementation: The case of the child support grants.
Cape Town (Applied Fiscal Research Centre). (= Research Mono-
graph.10)
HAARMANN, Claudia 2001. Social assistance programmes: Options and
impact on poverty and economic development in South Africa Cape
Town (Applied Fiscal Research Centre). (= Research Monograph Series.
22)
42
Section 5: Financing a Basic Income
1144
Grant in Namibia
5.1 Introduction
On one level, the affordability of a Basic Income Grant poses a simple
question—how much will it cost, and what is the capacity of Namibia’s
public finances to generate the necessary resources? The affordability
of poverty-reducing policy initiatives depends critically on how they
affect the lives of the poor. The diagram below models the complexity
of poverty, illuminating how policy interventions can succeed or fail to
tackle the core of poverty. Economists often focus on the top layer—
“Livelihoods and Assets” can be measured with economic data, and
policy analysts can assess the impact of income support programmes.
Increasingly, economists are also incorporating the role of capabilities
and geography in poverty impact assessments, as depicted in the sec-
ond level.
The layers of poverty

Livelihoods &
Assets:
Precarious, seasonal,
inadequate
Capabilities: Places:
Lack of information, Isolated, risky, unserviced
education, skills, stigm atised
confidence
Organisations The Body:

of the Poor: Hungry, exhausted, sick
W eak and Poor appearance
disconnected
Institutions: Gender Relations:

Disem powering and Troubled and
excluding unequal
Behaviors: Social Relations:

Disregard and abuse, Discriminating and
By the more pow erful isolating
Security:
Lack of protection and
Source : Deepa Narayan, Robert Chambers, Meera
Peace of mind
Shah and Patti Petesch Voices of the Poor. Crying
out for Change, page 249
Figure 8: The layers of poverty
43
Financing a Basic Income Grant in Namibia
Economic models, however, rarely encompass the impact of organisa-

tions, institutions, behaviours, security, social and gender relations
and health, in spite of their important interactions with poverty. This
paper begins with a high level assessment of the cost of a Basic In-
come Grant for Namibia, and then provides evidence of its affordability
given Namibia’s current economic capacity. Then the paper discusses
the long term effects on the economy in the context of the above
model.
5.2 The cost of a Basic Income Grant

The first step in estimating the cost of the grant is to model the num-
ber of individuals eligible to receive the grant. Since the Basic Income
Grant is universal, this number is the entire population. However,
since those eligible for the State Old Age Pension already receive a so-
cial grant, the cost of their associated Basic Income Grants is already
a public obligation. (It is assumed that the total grants to the elderly
would not increase with the introduction of a Basic Income Grant.)
The official 1999 population estimate is 1.7 million people, and popu-
lation growth rate from 1999 to 2004 is approximately 1.5% per year.
The population model results for 2004 are depicted in Figure 9 below.
Namibian Population: 2004
Figure 9: Namibian Population 2004
44
Assuming a grant size of N$100 per month, with an age-eligible pro- Assuming a
portion of 93.1%, the net cost ranges from N$0.8 to N$1.4 billion per grant size of
year. Given the Gross Domestic Product estimate in 2004 of N$37 bil- N$100 per
month, with
lion, these net cost estimates range from 2.2% to 3.8% of national in-
an age-
come. The actual net cost will depend on how it is financed—with a eligible pro-
VAT-financed grant leading to a lower net cost (as low as 40% of the portion of
gross cost) while greater reliance on income taxes raises both the net 93.1%, the
net cost
cost (70% of the gross cost) and the total amount transferred to the ranges from
poor. N$0.8 to
N$1.4 billion
per year.
These net
5.3 The cost of a Basic Income Grant cost esti-
The second step in assessing affordability is determining how much mates range
from 2.2% to
additional tax revenue Namibia can afford. Economists usually ad- 3.8% of na-
dress this question with “tax effort” analysis, a type of econometric tional in-
modelling based on cross-country comparisons. Tax effort models come.
evaluate the taxable capacity of a country based on the structural
characteristics of the economy and the country’s ability to raise taxes.
The graph below documents the growing tax capacity of the Namibian
economy from 2001 to 2007.
Namibia has the tax capacity to finance a

Basic Income Grant (2.2 - 3.8% of GDP)
35
30 unutilised
25 tax capacity
20 tax/GDP
15
10
5
0
2001/02
2002/03
2003/04
2004/05
2005/06
2006/07
Figure 10: Namibia’s tax capacity
45
Namibia’s According to the econometric analysis, Namibia’s taxable capacity ex-

excess capac- ceeds 30% of national income. Yet Namibia’s actual tax collection and
ity to raise projected tax collection over the medium term horizon has been falling.
tax revenue
In particular, Namibia’s top marginal income tax rate has been re-
significantly
exceeds the duced from 36% to 35%, and taxes on trade are scheduled for sub-
net cost of a stantial reductions over the next several years. Yet the fundamental
BIG under all determinants of taxable capacity remain strong. Namibia’s excess ca-
the financing
scenarios.
pacity to raise tax revenue significantly exceeds the net cost of a Basic
Income Grant under all the financing scenarios.
5.4 The economic impact of a Basic Income Grant

for Namibia
The preceding analysis documents current affordability of a Basic In-
Estimates of
come Grant for Namibia. Estimates of the net cost in the first year
the net cost
in the first range from 2.2% to 3.8% of Gross Domestic Product, while Namibia’s
year range excess taxable capacity exceeds 5% of national income. This means
from 2.2% to even at current economic levels the BIG is affordable, without jeopard-
3.8% of Gross
Domestic ising fiscal policies. But even more important are the second round
Product, effects. What are the long term prospects for the economy if a Basic
while Na- Income Grant is introduced in Namibia? The answer to this question
mibia’s ex-
depends on the impact of the grant on household well-being, labour
cess taxable
capacity ex- productivity and the macro economy.
ceeds 5% of
national in-
International experience with social grants documents the positive im-
come. This pact on household well-being. Low income households that receive
means even social grants spend nearly the entire amount on food, education and
at current transportation—expenditures that support long term household well-
economic
levels the BIG being. Children in households that receive social grants are more likely
is affordable, to attend school, and this effect is particularly strong for primary
without jeop- school-age girls, supporting gender equity effects. Social grants are
ardising fis-
associated with significantly greater household expenditure on food,
cal policies.
and children in households receiving grants have lower rates of hun-
ger, even compared to households with similar income levels. Social
grants reinforce developmental household spending.
46
The household spending effects improve labour productivity, providing Workers in

a means for households to accumulate human capital that can help to households
break the poverty trap afflicting low income households. International that do not
have access
studies document how social grants increase labour force participation
to safety nets
by very low income households. In addition, job-seekers from house- cannot afford
holds receiving social grants are more likely to succeed in finding em- the risk that
ployment than comparable income job-seekers from households that the few re-
sources they
do not receive grants. Social grants provide security, and this security have avail-
increases the likelihood that unemployed potential workers will invest able will be
in job search. In the absence of the security social grants provide, job squandered
search is too risky, particularly when the likelihood of success is low. in futile job
search—and
Workers in households that do not have access to safety nets cannot this insecu-
afford the risk that the few resources they have available will be rity traps
squandered in futile job search—and this insecurity traps them into them into
poverty. The
poverty. The Basic Income Grant is not so much a safety net but
BIG is not so
rather a springboard that lifts the poor to more sustaining livelihoods. much a
safety net
In addition, the macroeconomic impact of social grants tends to rein- but rather a
force economic growth and job creation, further supporting their af- springboard
fordability. Social grants shift spending power from higher income that lifts the
groups to lower income groups, as taxes on the more affluent finance poor to more
sustaining
grants to the poorest in the country. Upper income households spend livelihoods.
a greater proportion of their income on imports and goods produced
with capital-intensive technology. Neither of these characteristics of A Basic In-
spending supports job creation in Namibia. The poor, however, tend to come Grant
spend a greater proportion of their income on goods produced in Na- is also likely
to increase
mibia—and goods produced in a relatively labour-intensive manner. As social stabil-
social grants shift spending power to the poor, the demand for goods ity, boosting
that create jobs in Namibia increases. A Basic Income Grant is also the confi-
dence of in-
likely to increase social stability, boosting the confidence of investors
vestors and
and supporting a greater rate of capital accumulation. supporting a
greater rate
These economic effects increase the affordability of the Basic Income of capital
Grant over time. The improvements in household well-being reinforce accumula-
the poverty-reducing income effects of the grant, improve labour pro- tion.
ductivity and support household human capital accumulation. In ad-
dition, the improvements in nutrition, education and health reduce the
direct expenditure obligations of government, further supporting the
affordability of the Basic Income Grant. For instance, a child who at-
tends school and has the resources for proper nutrition is more likely
to succeed, reducing the government’s expenditure on repeat rates.
This child is more likely to grow into an adult who can find a job, con-
tributing taxes that further support the Basic Income Grant’s afforda-
bility. As the adult ages, she is less likely to suffer from chronic and
debilitating diseases if she had proper nutrition as a child—diseases
that often increase the expenditure liabilities of the government. In
addition, the labour market and macroeconomic impacts of the Basic
Income Grant support long term sustainability.
47
5.5 Conclusions
The Basic The Basic Income Grant is more than an income support programme.
Income Grant It provides security that reinforces human dignity and empowerment.
is more than
an income It has the capacity to be the most significant poverty-reducing pro-
support programme in Namibia, while supporting household development, eco-
gramme. It nomic growth and job creation. While the cost is substantial—ranging
provides se- from 2.2% to 3.8% of national income, Namibia has the capacity to
curity that
reinforces mobilise the necessary resources without undermining international
human dig- competitiveness. Over time Namibia’s economy will benefit from the
nity and em- long-term growth impact of the Basic Income Grant.
powerment.
It has the
capacity to 14 This paper is written by Prof. Dr. Michael Samson and Ms. Ingrid van
be the most Niekerk. Dr. Samson is the Director of the Economic Policy Research
significant Institute in South Africa (EPRI) and is also an Associate Professor of
poverty- economics at the Williams College Center for Development Economics in
reducing pro-
the United States. Ms van Niekerk is a Co-Director of EPRI. Both have
gramme in
done extensive work on the Basic Income Grant in South Africa et al. for
Namibia,
the Cabinet appointed Taylor Commission.
while sup-
porting
household
development,
economic
growth and
job creation.
48
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1

The Basic Income Grant in Namibia

Windhoek, June 2005

SECTION 1: THE BASIC INCOME GRANT COALITION ...........................................3

1.1 BISHOP DR. Z. KAMEETA (ELCRN-CCN) ............................................................4

1.1 Bishop Dr. Z. Kameeta (ELCRN-CCN)1

there is no dependency on the grant, but instead it creates incentives

fort, to work towards the implementation of the Basic Income Grant

1.2 Mr. P. Naholo (Acting General Secretary

1.3 Mr. S. Tjaronda (Chairperson NANGOF)3

We all can contribute to a future we want our children and grandchil-

1 Speech delivered at the Basic Income Grant Coalition launch at the

2.1 What is the Basic Income Grant (BIG)?

2.3 How would a BIG work?

2.4 Why do we need a BIG?

whole world. The reduction of inequality - one of the greatest legacies

2.5 Why do the rich qualify for a BIG? Shouldn't

2.6 What are the benefits of a BIG?

Furthermore, a BIG is a universal grant, that means that everybody Means-tested

2.8 How would people get the BIG?

2.9 What are the disadvantages of the BIG?

2.10 How can you prevent people from wasting the

2.11 Are there better alternatives to a universal

2.12 Will people become dependent on the BIG?

2.13 What is the BIG Coalition?

4 The NAMTAX commission suggested N$ 70 per person per month in

3.2 The Problem

3.3 The Proposal

Financing this grant will require an increase in VAT of about 6 ½% . It It should be

3.4 The Assumptions

Anti-poverty grant (+) or expenditure tax (-) (N$)

3.6 The Actual Fiscal Burden Imposed by a

Those with a N$200 per month expenditure will be able to increase

3.7 Targeting the Grant, while Avoiding Poverty

Apart from this very negative aspect, the implementation of a means

Another advantage is that the system distinguishes between people on

3.8 The Dynamic Economic Consequences of a

prevent fraud. However, if one uses fingerprints, such an identification

4.2 The current situation in a nutshell

Current levels of poverty in Namibia

Methodological considerations in defining poverty

in need of policy interventions? Another concern is that the poorest

This is where composite indices with the concept of capabilities come

Score (1 = most deprived up to 5 = well off;

Housing type of house impro- tradi- apart- semi- house

Health type of water river / rain- public piped piped

Employment share of em- 0-19% 20-39% 40-59% 60-79% 80-100%

In conclusion, it is important to be clear that any poverty line is an

Poverty rates in Namibia

Crude international US$ 1 day 62.3%

One can con-

Subsistence Level) of Namibia’s people as below the poverty line. One

Accordingly, three characteristics of poverty need to be taken into ac-

4.3 The immediate effect of a Basic Income Grant

Current income distribution and inequality

N$ 0 Income distribution N$ 10,000

Figure 4: Namibia’s income distribution in a nutshell - Source: DfSD Microsimulation

Figure 4 represents the total current income distribution in Namibia

Resources to meet basic needs (nutrition, access to health