Almost every quarter that goes by in Namibia the issue of the country’s
income inequality comeshome to haunt the government in one form or another.
Whether it is the land issue and Affirmative Repositioning Movement last year,
or the ‘Struggle kids’ now, Namibia’s
unfairdistribution of income undermines the peace and stability of the nation
and the government wants to address the issue. Namibia has the world’s second worst
distribution of income- yes based on the so-called Gini co-efficient which
economists use to measure income inequality (zero for complete equality and 1
for complete inequality) we have the amongst highest in the worldwith a Gini
co-efficient at 0.6.
In terms of inequality, the country at the very top of the world’s inequality
ladder is South Africa,with a Gini co-efficient of 0.69 in 2011. This is of
course no coincidence as both countries suffered under apartheid and worse
still Namibia, wasa colony of apartheid South Africa. This
apartheid/colonialism narrative has been the basis for explaining Namibia’s
current situation. In part this is correct but it runs head long into some really
uncomfortable facts. The firstfact is that South Africa despite a long period
of rapid economic growth and enormous amounts of money spent on social spending
over the last twenty years such as income support for the poor, RDPhousing,
health and education expenditure has, much to the horror of the ANC government,
actually witnessed a worsening of its distribution of income since the end of
apartheid. In Namibia the two estimates that have been made of Gini
co-efficients show precious little downward movement as well. The reason is
straight forward – despite the very
rapid economic growth up to 2009, which is supposed to decrease
inequality, and the very large amounts
spent on social programs in South Africa and Namibia the rich have gotten richer
as fast as the government has increased subsidies to the poor and sowhile poverty
may in part be alleviated income inequality is not effected. Poverty
alleviation and income redistribution are not the same thing, they are related
but almost invariably confused in public discussion.
The second really uncomfortable fact in terms of Namibia’s colonialism/apartheid
narrative is the existence of Botswana. Botswana was never colonized – it was a
British Protectorate and was so poor and miserable that the British did not
even bother building a capital choosingrather
to administer it form Mafeking in South Africa until just before independence.
Botswana had no apartheid, no colonialism and very few white settlersand yet its
Gini co-efficient is not that much lower that of Namibia. Now that is a problem
if you believe that the only cause of Namibia’s inequality of income is its historic
legacy.
The country with one of the worst distributions of income in Asia is
Papua New Guinea and what all these four countries have in common is mining. The
existence of mining and petroleum puts huge amounts of wealth in the hands of
mine owners and the government. The former is not inclined to lose its income and
in the case of the latter, most governments are incapable of developing the fine
and delicate sort of policies which really alleviate poverty effectively.
Namibia’s Minister of Finance MrCalleSchlettwein, last year
suggested the implementation of a new Solidarity Tax. He has said he will raise
some $600 million in extra taxes on upper income individuals. Given the personal
company and withholding tax revenue of the country was $14 billion in 2013/14
this tax measure constitutes an increase of some 4% of tax burden. While details are scarce the tax will
presumably be implemented through the income tax system though some flat rate
taxes on corporations are also expected. This is a good proposal, which I as an
economist and one of its intended victims fully support, but the devil will be
not in the detail but what the minister actually intends to do with the money.What
would make the new tax more convincing to a skeptical public is the creation of
a fund that would ring fence this money specifically for poverty alleviation
measures. That way the public would know that existing poverty alleviation
measures would continue and that this tax would actually be over and above what
is already being implemented.
The best means of poverty alleviation is to give money directly to
the mothers as the Brazilian ‘bolsafamilia’ fund. In order to receive money women
must assure that their children are regularly inoculated against diseases and
attend school so they get a monthly lump sum payment. No bureaucrats stand in
between the government and the beneficiary. The money goes straight to the bank
accounts of the mothers. It is enormously empowering to otherwise impoverished
women and children. No system has as yet been so cost effective in alleviating the
poverty of so many and redistributing income in a country also known for its
inequality. Under former Brazilian President Luiz Inácio Lula
da Silva poverty was decreased by approximately 30% in three years
from 2003 -2006 in large part because of the program. It is widely acclaimed
across the political spectrum as an excellent way of dealing with poverty and
variants should be considered here in Namibia.
But in making this proposal for a Solidarity Tax Minister
Schlettwein has violated one of the cardinal rules of tax policy. If you are
going to hit people with a new taxes the first thing you are supposed to do,
even before the tax, is to tell them all the good things you are going to do
with their money. This decreases resistance to tax increases. Otherwise the
taxpayer may think that, because all money is fungible, the new tax is merely a
way of soaking the taxpayer to pay for the widening and unsustainable
government budget deficit. Minister Schlettwein knows full well the adage that
labor has legs and capital has wings and so he must finely balance tax
increases in Namibia against the risk that capital will fly if he pushes tax
solution too hard. But he is caught between a global economic system that
creates inequality, a middle class that is myopic and hates the proposed tax,
and a large and restive poor that will mean continual instability if the issue
of inequality is ignored.There are no easy and painless solutions to this, most
vexing of Namibia’s long term economic problems.
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