TITLE: THE IMPACT OF NEGATIVE INCOME TAX OR GUARANTEED ANNUAL INCOME, WITH A FOCUS ON NAMIBIA

Introduction Negative income tax (NIT) is a tax refund to anyone whose income falls below the cut off line and the NIT brings it back above the line, it is also know as the Basic Guaranteed Income. BIG is a form of income distribution in the society. According to Gary Becker “any state intervention, any income redistribution, creates disincentives and distortions, but if society decides that a certain level of redistribution must take place, the NIT is the best, the most minimally distorting, solution ever devised." The three countries that are adapted to NIT or basic guaranteed annual income (BIG) mentioned in this paper are Canada, The United States of America and Namibia. Many different sources of funding have been suggested for this form of redistribution and these are: incomes taxes, sales taxes, luxury taxes, wealth taxes, inheritance taxes, capital gains taxes, pollution taxes, tariffs, sin taxes, universal stock ownership, fees from government created monopolies and a national mutual fund. Most citizens of a country do not want money to be deducted from them through taxes. The unhappy citizens will end up moving provinces or countries if the money being deducted from, for examples incomes according to Tibeout. According to the Altruism theory, people might feel the need to help others because they are uncertain about future

Canada
The Manitoba Mincome administered a negative Income tax (NIT) from 1974 to 1978. The residents of Dauphin Manitoba and other surroundings were randomly selected for this pilot project. Due to the political situation in the United States of America they decided to abandon the project, therefore the Canadian government lost interest in the program. (Tim Rourke) Evelyn Forget a professor of University of Manitoba compiled information for the Manitoba Mincome. She had problems complaining the information because this information was not digitalized. She decided to look at the census and other information for Dauphin the same time the program was run. The Mincome was paid to families and not to individuals. Results: During this two year period, the census showed that children stayed in school longer than before or after, the hospital admissions dropped and regressed after 1978 and the pregnancy rate declined The divorce rate did not change because Dauphin is a very rural, conservative, religious community and four fifths of the people attend the Catholic Church or the Ukrainian Orthodox church. There was a broader effect on society that is the next generation descendants of those who lived in Dauphin the time of the study did better mainly because of more children staying in school, this was a ‘transmitter’ of prosperity to the next generation. (Tim Rourke) United States of America The American government almost adopted a GAI in the 1970’s in order to test how efficient this program was. They selected people in a specific area and distributed the grants for a specific time period. These different groups got different plans. Some received higher or lower cutoffs and some received a larger or smaller child allowance. The American studies were called Rural Income Maintenance Experiment (RIME), Seattle Income Maintenance Experiment (SIME) and Denver Income Maintenance Experiment (DIME). Results: The United States of America- the birth rate and divorce rate reported to have risen at that time. This was mainly because the funding was limited. The data to analyze was not sufficient enough because the residents did not want to participate. The programs were all run by labor economists who were interested only in the labor market effects instead of also focusing on the social impacts of the program. Namibia In 2008 a pilot project with a basic income (BIG) commenced in the Otjivero-Omitara which is located 100 kilometers east of Windhoek. This basic income grant is know as the basic income grant of Namibia (BIGNAM) and it was set to run for two years. All residents below the age of 60 years received a BIG of N$100 per person per month (this was equivalent to CDN $15.16 in 2008). Anyone living in this area since July 2007 regardless of their social status received the grant. This pilot project was successful in Namibia, in order to increase dependence it was given to individuals and not family units. Details of BIGNAM will be explained later in the paper. Results: The Namibian self-employment increased by 301%. It was noted that there is a positive relation between BIGNAM and entrepreneurial activity. The grant seeds a financing to start businesses. The additional money received was used for a little project with a large gain to the individuals and society. The residences could now travel to look for work in the bigger cities and also travel to get medication for HIV positive residences and they could afford to buy nutritious foods. This lead to an increase in buying power. BIG facilitates labor force participation, children to go to school and makes the community members be proud. The great results of this grant lead to the government wanting to be highly involved. Two of the testimonials illustrating the impact of BIGNAM: * “I started my business of making ice lollies after the BOIG started. The demand for ice lollies is big because make the biggest ice lollies in the settlement. I sell one ice lollie for 50cents and I make 50 a day. With a BIG, people have money to spend, that is why I make the ice lollies” * “The introduction of the BIG made it possible for me to start my tuck shop. It is a very small business but people support it a lot. I mostly sell sugar, tea, maize, sweet and popcorn. We make about N$800-10000 per month. I also make self-made material for donkey cars. I buy stock in Gobabis, travelling on the train.’

Many of the people in the community agreed that they were days when they would go without eating, but with BIGNAM it takes a few seconds. Advantages of BIG/GAI 1. No stigma is attached to the BIG because everyone fills out the forms and no infantilizing government meddles with a household’s food, shelter ad health care in the current system. 2. There is a freer labor market because there is no necessity of a minimum wage, since a minimum income would be guaranteed. This therefore boost employment, some economist argue that having a minimum wage in the system actually results in high numbers of employment; because, firms might not want to pay what the labor market is requiring. 3. BIG would reduce illegal immigration, this is because immigrants will not move for Government benefits. 4. Lastly BIG requires a small bureaucracy to implement, therefore it is one of the cheapest programs to implement. Since everyone benefits from this program, there is less administration cost. The government would no longer have to set up several agencies needed to redistribute food stamps, public housing, health care, cash welfare, and a myriad of community development programs. Nor would the government have to pay future pensions of the public employees who run all these programs. (Guy Sorman)

Disadvantages The information from the 1970’s is a bit dated now because the society and the economy has changed. Some entrepreneurs as known through history work a lot, this could lead to deteriorating of health. The economy is producing lot and this is depleting the natural environment. (Tim Rourke)

African culture Africa is a developing country and there is high percentage of poverty mainly because of lack of education, which is a result of lack of money to get an education. According to Bishop Dr. Z. Kameeta poverty leads to: * Mothers are forced to enter into abusive and exploitative relationships to secure a roof over their head 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 house, 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. * The mother of two cannot take life prolonging medicine, as she does not have any food in her stomach, unless a neighbor takes pity on her and her children again.
Women compared to men have the worst situations. They have no source of income because in past generations women were not seen in schools, universities and the workforce. In the past decades there was lots of stereotyping to women who pursued their education, this resulted to some parents marrying their daughters young because of the lobola they get from the groom. Lobola is when the groom pays the brides family as a token of thanks and it can be costly. According to Linda Mayoux promoting micro-finance for women is seen as initiating a ‘virtuous upward spiral’ of economic and social and political empowerment. These programs increase economic empowerment, improved well being and social/ political/ legal empowerment for women. Micro-financing is when individuals and small business that have difficulty accessing capital get funding. This is different from a BIG but it shows that when funding is given to women it is used wisely and empowers women who have no place in society. Women are considered better at handling money, as most men spend their money at shabeens (which are alternative to bars and pubs).

BIGNAM
Funds for the pilot project were raised through voluntary contributions from supporters of the idea from all selections of Namibia’s society, and by support from people, churches, organizations and donors in other countries. To measure the effects of BIG, a baseline survey was conducted in November 2007, panel surveys were conducted July and November 2008, information was gathered from key informants in the area and lastly a series of detailed case studies of individuals living in the Otjivero-Omitara area. It was noted that this area was impoverished, people were prone to diseases such as TB and HIV/ADS.

Nine hundred and thirty residents got this grant of N$100 and for children below the age of 21 the money was paid out to a ‘primary caregiver’, which is usually the mother. In order to implement this program the recipients received a 'smart card’, which contained the names, ID numbers and the picture of the recipients as well as a microchip containing the birth date, fingerprints and information on the amount and history of receiving the grant. Firstly the United African company was responsible but after six months the Namibian Post Office (NamPost) was in charge. The beneficiaries could open up a savings account with NamPost and have the money deposited monthly.

Before the introduction of the BIGNAM the Otjivero-Omitara community was characterized with poverty, unemployment and hunger. Most residence settled because they had no where to go and they had little hope for the future. The introduction of BIGNAM ignited that hope and the community established its own18- member committee to mobilize the community and advice residents on how to spend their BIG money wisely. This showed that an introduction of BIG can assist community mobilization and empowerment.
Since the BIGNAM was only introduced to one particular location there was significant migration towards Otjivero-Omitara. Even if immigrants did not get the grants, they moved because they had family staying in the community, some were relocating back and perhaps some of the people had hopes that the project will be continue. This migration affected the per capita income from N$89 to N$67 in November 2008. Household poverty dropped significantly. Using the poverty line 76% of residences fell below this line in 2007; but it was reduced to 37% within a year of the BIGNAM. It was different for households not affected by in-migration therefore it dropped to 16%. Therefore this shows that the BIGNAM has a dramatic effect on poverty levels in Namibia. The BIGNAM has lead to an increase in economic activity, the rate of those engaged in income giving activities (aged above 15) increased from 44-55%, that shows that the recipients managed to increase their work both for pay, profit or family gain as well as self employment. This lead to increase in income through starting own small business for example brick-making, baking of bread, making lollies and dress making.
Using a WHO measurement technique, there was a reduction in child malnutrition. The children’s weight increased significantly within six months from 42% underweight in November 2007 to 17% in June 2008 and to 10% in November 2008.
HIV positive residents had no access to ARV’s (anti-retro virus drugs that boosts the immune system) because of lack of transportation, but ever since the BIGNAM was introduced it enabled them to afford nutritious foods and gain access to medication. This made the government’s decision to providing the ARV’s in the Otjivero community.
Before the introduction of the BIG, almost half of the school-going children did not attend school on a regularly and Pass rates stood at about 40% and drop-out rates were high. Many parents were unable to pay the school fees. After the introduction of the BIG, more than double the number of parents paid school fees (90%) and most of the children now have school uniforms. Non-attendance due to financial reasons dropped by 42% and this rate would have been even higher without the effects of migration towards Otjivero-Omitara. Drop-out rates at the school fell from almost 40% in November 2007 to 5% in June 2008 and further to almost 0% in November 2008.
Use of the health clinic increased significantly as people could now afford to pay the visit fee of N$4, therefore clinic income increased from N$250 to N$1,300. Household debt fell from N$1,215 to N$772 and savings increased in that period. Overall crime rates fell by 42%. This grant increased women dependency from men for their survival. In order to control the problem of alcoholism, the local shebeen owners agreed not to sell alcohol on the day of the pay out of grants.
Namibia’s GDP increased from 2,3-3%. The government considering other finance methods for examples VAT combined with an increase in income taxes, which would benefit the middle and lower income households. The BIG is affordable in Namibia because the tax capacity exceeds 30% of the nation income; its current collection rate is below 25% therefore Namibia’s excess capacity to raise tax revenue exceeds the net cost of the BIGNAM.
A national BIG would have several medium to long-term benefits. Based on the developments in Otjivero-Omitara, it is safe to argue that the BIG will reduce poverty and unemployment, increase economic activities and productivity, and improve educational outcomes and the health status of most Namibians. Therefore I conclude that NIT/GAI can be used in the economy because it does not or slightly affect the behavior of consumers. Poverty will not end immediately but one day at a time will get the people of the community to patiently wait. Other African countries should consider the NIT/GAI because its not a lot of money but it can produce big results from the small project or business done by the residences.
References
Kameeta.Z. A Basic Income Grant in Namibia A response by the needy. Retrieved on April 6, 2011 from http://www.epri.org.za/BishopKameetaFullPresentation.pdf
Mayoux.L(1999). Questioning virtuos pirals:Micro-finance and women’s empowerment in Africa. The Journal of International Development 11, 957-984.
Rourke.T (2009). The Manitoba Mincome Study; Even a small Guaranteed Income has a dramatic positive effects on society. In Livable Income. Retrieved on April 2, 2011 from http://www.livableincome.org/atrmincome.htm
Sorman.G (2011). Why not a Negative Income Tax with cash subsidies to the poor? In Investor’s Business Daily Inc. Retrieved on April 5,2011 from http://web.ebscohost.com/ehost/detail?sid=896807a5-96d3-4c4a-8dd8-343bc5716e14%40sessionmgr15&vid=2&hid=12&bdata=JnNpdGU9ZWhvc3QtbGl2ZSZzY29wZT1zaXRl#db=bth&AN=57460406
Tondani. D. (2008). Universal basic Income and Negative Income Tax: Two different ways of thinking redistribution. The Journal of Socio-Economics, 38(2), 246-255.