• October 22nd, 2020

BIG could cost up to N$13 billion



Edgar Brandt

A proposed universal Basic Income Grant (BIG) for every Namibian can only be sustainably implemented if government finds the funds for the initiative from existing sources, as the country cannot afford to increase either the budget deficit or its public debt. 
The BIG Coalition of Namibia, spearheaded by the Economic and Social Justice Trust, has proposed a monthly grant of N$500, which economists estimate could cost the country as much as N$13 billion per annum, assuming a population of 2.35 million up to the age of 60 years.  
Commenting on the proposed introduction of a universal BIG, which means every Namibian would be eligible for the monthly grant, local economist Klaus Schade said the grant could lift many Namibians out of income poverty. 
“Since it strengthens the purchasing power of the poor and low-income earners, it will benefit Namibian producers, since poorer households spend a larger share of their income on domestically-produced goods and services than better-off households. 
Furthermore, it would channel cash into areas with little cash in circulation and could, therefore, induce additional economic activities,” he said in response to New Era questions. 
“However, the overall, economy-wide impacts will depend on how the BIG is being financed. 
Reallocating current expenditure, increasing taxes or any other means of funding will also have economic impacts that might or might not outweigh the benefits. Therefore, it is important to run some robust economic analyses.”
Schade explained that while there will be some savings on the BIG since it will replace current child grants that are allocated about N$1 billion in the current budget, the net effect on the budget could be about N$13 billion.

Said Schade: “In the current situation, it will be challenging to finance a universal BIG due to revenue constraints and very limited space to increase taxes. Increasing income taxes for the two highest income brackets will not rake in substantial additional income tax revenue, since there are relatively few taxpayers in this income brackets. Increasing the VAT rate in a time when consumer demand is already severely suppressed is not an option”.

He added that cutting unproductive expenditure, reforming the government medical aid that receives a subsidy of about N$2.2 billion annually from the state, verifying the details of current social grant beneficiaries and perhaps limiting the current old-age pension grant to those whose other sources of income (including pensions from a private pension fund or GIPF) does not exceed to the certain annual amount, as well as some other measures could increase the fiscal space, but would not be sufficient to pay for a universal BIG.

“We cannot afford to increase the budget deficit and public debt to finance a universal BIG. The BIG needs to be funded from existing sources, which remains challenging,” Schade stated. 

‘Expand safety nets’
Schade proposed that instead of pursuing a universal BIG during the current challenges, government could gradually expand existing social safety net to those in need. 

“Furthermore, a universal BIG also competes with other priorities, such as improving educational infrastructure; there are, for instance, more than 5 000 permanent classrooms needed or servicing land to reduce the growth of informal settlements,” said Schade. 

Meanwhile, managing director of Twilight Capital Mally Likukela opined that ideally, a BIG should lead to an increase of buying power in the country and could contribute or stimulate local economic activity and growth. 

“However, this could also have unintended consequences flaming up price pressure. If this sudden power is not matched with sufficient stock and product, the shortage could trigger inflationary pressures that would lead to a loss of buying power in the long run, and this could eventually reverse the economic gains of such a policy,” said Likukela.  

He further cautioned that Namibia exhausted its fiscal space a long time ago – and as such, any additional borrowing, regardless of the source, will directly lead to more fiscal strains and increase budget deficit. 

Said Likukela: “Any borrowing for BIG is a non-productive loan and won’t contribute to the long-run economic growth of the country. A BIG loan is a consumption loan and there will be no rewards for taking it, except to increase debt stock”.

“The conversation about BIG has come at a wrong time because current unstable and depressed conditions are not supportive of this policy. The BIG can only make sense if it forms part of an economic recovery plan. Not only that but it must be sufficiently funded without taking additional loans; otherwise, it will be a fruitless effort,” Likukela concluded. 

According to the BIG Coalition, they are pushing for the urgent implementation of the universal grant due to the devastating economic consequences for individuals from the Covid-19 pandemic. 

‘Sustainable’
During a recent New Era interview, Rinaani Musutua from the Economic and Social Justice Trust said the proposed N$500 BIG was calculated on the current national budget. 

“What the BIG Coalition of Namibia proposes will take roughly 7.5% of the national budget, less than the 10% that the defence ministry takes without offering any tangible results. As much as the cost of living in Namibia is extremely high due to our dependence on imports of basic goods – and therefore, the ideal amount being N$1 000 to help Namibians afford the basic cost of living and live decent human lives, we have to meet the government halfway by considering what it can afford at this current state of Namibia’s economy,” said Musutua.  

She was adamant that government can afford a BIG, saying: “Affordability is a matter of political will and shifting of priorities. The proposed N$500 BIG cash payment is little asked in comparison to the extremely high cost of living in Namibia,” said Musutua. 

She also bemoaned the fact that government keeps pumping a large chunk of taxpayers’ money into maintaining politicians’ lavish lifestyles, unproductive state-owned enterprises and infrastructural projects such as the construction of costly government office blocks and the airport dual carriageway, which she said do not contribute to any human development. 
 
 
“The government needs to shift its priorities. When the government stops spending taxpayers’ money on unproductive activities, there will be enough resources to finance BIG. The costs of a universal BIG scheme can be accompanied by an income tax adjustment. This should be arranged progressively so that higher-income earners effectively subsidise the BIG paid to low-income earners and the unemployed,” Musutua added. 

- ebrandt@nepc.com.na 


 


Edgar Brandt
2020-09-29 09:22:34 | 23 days ago

Be the first to post a comment...

You might also like...