“FINAL REPORT” (June 2014)
Assessment of Sustainable Funding Options for the implementation of universal child grants in Namibia
BY
Martin Mwinga
First Capital Consultancy
Table of Content
Table of content...... i
List of figures and tables...... ii
Acronyms...... iii
Introduction...... 1
1. Background...... 2
1.1. Commitments in NDP4 and National Agenda for Children...... 2
1.2. Evidence on child poverty and low child poverty reduction impact of current child welfare grant system 3
1.3. International evidence on positive impact of child welfare grants on child development.3
1.4. Simulations of cost and impact of child welfare grant expansion...... 5
2.Review of options for sustainable funding of child grants in Namibia...... 7
2.1. Financial Transaction Tax...... 8
2.2. Electronic Funds Transfer Levy...... 12
2.3. National Revenue Turnover Levy...... 15
2.4. Financial Sector Levy...... 19
2.5. Solidarity Tax...... 22
3. Mechanisms for allocating resources for child grants...... 25
3.1. Children’s Fund...... 25
3.2. Child Levy...... 26
4.Findings & Conclusion...... 27
5. References...... 31
List of Figures
Figure 1: Transaction fees estimates and revenues...... 10
Figure 2:Electronic financial transactions levy estimates and revenues ...... 13
Figure 3: Gross revenue estimates...... 17
Figure 4: Growth revenue levy estimates...... 17
Figure 5: Financial sector levy estimates and revenues...... 20
Figure 6:Employees compensation estimates...... 23
Figure 7: Solidarity tax revenue estimates...... 23
Figure 8: Transaction and the EFT levy revenue estimates ...... 30
Figure 9: Transaction, EFT and gross revenue levy revenue estimates ...... 31
List of tables
Table 1:Impact and cost of NDP 4 options on child poverty...... 6
Table 2: Government Revenue analysis...... 16
Table 3: Overall rating for mechanisms of financing child grants...... 29
Acronyms
APT-Automated Payment Transaction
BDH- Bono de Desarrollo Humano
CBOs- Church Based Organizations
CMG-Child Maintenance Grant
CSG-Child Support Grant
CWG-Child Welfare Grant
DSD- Department of Social Development in South Africa
EFT- Electronic funds transfer
FCG-Foster Care Grant
FTT-Financial Transaction Tax
GDP-Gross domestic product
GIPF- Government institutions Pensions Fund
IMF- International Monetary Fund
MoF- Ministry of Finance
MTEF-Medium Term and Expenditure Framework
NAMFISA- Namibia Financial Supervisory Authority
NCCI- Namibia Chamber of Commerce and Industry
NCM- Namibia Chamber of Mines
NDP- National development plan
NGOs- Non-Governmental organizations
NHIES-National Household Income and expenditure survey
NRST- Non Resident Shareholders’ Tax
NSA-Namibia Statistics Agency
PROGRESA- Programa Nacional de Educacin, Saludy Alimentacin
RPS- Red de Proteccin Social
SASSA-South African Social Security Agency
SMG-Special Maintenance Grant
UNICEF-United Nations Children’s Fund
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CHAPTER 1
INTRODUCTION
In 2013 the Ministry of Gender Equality and Child Welfare in partnership with UNICEF commissioned a study to investigate the effectiveness of the existing social protection system in reducing child Poverty in Namibia.The overall recommendation from this study was to introduce a universal child grant support and extend the current child grant to all poor and vulnerable children (including those whose poor children whose biological parents are alive but do not have sufficient income). Introducing a universal child grant program is estimated to reduce child poverty significantly and reduce inequality from 0.59 to 0.52. The study estimated that Namibia will need N$2.6 billion to finance the introduction a universal child grant program in the first year of implementation.
Currently, the source of funding for child welfare grants remains the government. According to the 2014/15 to 2016/17 MTEF available data the provision of child welfare grants in Namibia have cost government an amount of N$260 million in 2009/2010. This has been increasing due to the surplus in new beneficiaries compared to those that leave the grant system. From 2010 to 2012 an additional N$200million was incurred bringing the cost of these grants to N$390 million for the year 2012/13. Due to the increase in value of the grants from N$200 to N$250 in April 2014, the budget allocation has further increased to N$500 million, nearly doubling the amount allocated for such in the past 2 years. For government to universalize the child welfare grant, it requires resources in order to finance such a developmental initiative.
Following the introductory and background chapter, chapter 2 presents a comparative overview and assessment of different financing mechanism and their assessment criteria. Chapter 3 presents the mechanism for allocating financial resources, and, finally, the lessons learnt, findings and conclusions are presented in the last chapter.
BACKGROUND
1.1.Commitments in NDP4 and National Agenda for Children
The commitment of reducing child poverty is one of the key areas which are acknowledged in various national and sectoral policy frameworks. According to the fourth National Development Plan (NDP4), poverty among children remains high and it highlights that the current child welfare grant schemes have not been very effective in reducing child poverty. Poor children whose biological parents are alive are not covered by the current child welfare grant schemes and remain in poverty, which impacts negatively on their health and education. The NDP 4 acknowledges that “The major drawback of the current child grants namely Foster Care and Maintenance Grants schemes is that a large number of vulnerable children are excluded, namely children being taken care of by impoverished parents”. NDP4 also established that increased income equality is one of three overarching goals and sets a target of reducing extreme poverty from 15.8% in 2009/10 to less than 10% by 2017. To this end and to have a broader coverage, NDP 4 proposes the expansion of the social protection system to cover children in all poor households and advocates for the introduction of a universal child welfare grant paid to the main caregivers of all children regardless of household income or specific vulnerabilities as a way to reduce child poverty.
The Ministry of Gender Equality and Child Welfare’s National Agenda for Children (2012-2016) which is aligned to NDP4 also reveals child poverty as a major factor that leads to children’s vulnerability to lack of good health as well as poor education and wellbeing. Poor families and children face barriers in seeking to access quality services, due to distance, cost, and lack of information and/or gaps in service provision. At present, the 2009/10 NHIES reveals that the current child welfare grants remain less effective in addressing the poverty phenomenon among children. To reduce child poverty, the National Agenda for Children moves away from targeting orphans, who in many cases were not the most vulnerable, to reaching a broader group of vulnerable and marginalized children. The Agenda embraces an ‘equity approach’, i.e. that of strengthening the social protection and service delivery system to create a balance between reaching out to the broader group of vulnerable children and ensuring that the most marginalized are accessing quality services.
These strategic directions are being re-enforced by the recent African Union ‘Addis Ababa Declaration on Strengthening the African Family for Inclusive Development in Africa’ from 30 May 2014. In this declaration the AU Ministers for Social Development commit themselves to strengthening social protection systems, including urging Member States to ‘within their social, economic and political context, (a) define through an inclusive consultative process, a minimum package of social protection which includes the provision of benefits within a system of comprehensive social protection for all, prioritizing the needs and rights of children in poverty in their implementation; and (b) allocate in the national budget, resources for social protection for children and ensure that they are ring-fenced and protected in times of crises and budgetary austerity’.
1.2. Evidence on child poverty and low child poverty reduction impact of current child welfare grant system
According to the 2009/10 NHIES, the current child welfare grant reduces child poverty by 1.4 percent. It was also revealed that the current welfare grants do not cover most vulnerable children who are affected by poverty hence the inability of the grants in reducing child poverty. As proposed in the fourth NDP 4, Namibia can opt for either a child grant with a means-test set at the level of the income tax threshold (i.e. the same means-test as for the war veteran subvention) or for a universal child grant. Universalizing the child grant is estimated to reduce child poverty from 34% to 9% and income inequality (GINI coefficient) from 0.60 to 0.52. A universal child grant will ensure that all children are provided with equal protection against poverty andvulnerability. A universal child grant system can significantly contribute to closing inequality gaps. Scaling up the child grant would have positive developmental impacts in achieving better nutritional, educational and health outcomes. This grant can provide an investment in people that addresses multiple dimensions of poverty and reduces income inequality.
1.3. International lessons of the impact of child welfare grants on development
Studies that have been undertaken to analyze child grants in other developing and middle income countries show that they have impacts on children’s development and their effectiveness depends on the coverage of children who live in poverty. In South Africa, the South African Child Support Grant (CSG) was introduced in April 1998 where it replaced the child maintenance grant (Patel, L. 2005). In 2009 South Africa’s child population totaled 18.6 million with nearly two thirds of children (61%) living in income poor households; that is, below a poverty line of R552 per person per month which includes the payment of any social grant; 2 921 000 children were also living in households experiencing hunger.
The adoption of the CSG contributed to South Africa’s progressive realization of the constitutional right to social security as enshrined in article 27 of the Republic of South Africa Constitution (1996). The grant, which is paid to the child’s primary caregiver, is currently the most important form of assistance for children in poor families and offers a potential source of protection against poverty. The CSG has expanded markedly in recent years, until 2008, it was only available to children aged 0-13 years, in 2009, this was extended to include children aged 14 and from 2010 the age of eligibility was increased to include children up to the age of 18 years (South Africa Social Security Agency, 2013). Since 1 April 2014, the CSG was increased from R300 to R310 and is set to increase to R320 in October 2014 with a total number of beneficiaries of 15.8 Million as of April 2014. According to SASSA, in 2014 the CSG remains the country’s largest social transfer program, as it provides cash transfers to caregivers of over 15 million children in South Africa.
Impact assessments commissioned by the Department of Social Development (DSD) and by UNICEF have found substantial developmental impacts from the Child Support Grant. Children who receive the CSG enter school earlier, have more school years, increased school attendance, and better health and nutrition status. The impacts were the largest for children receiving CSG from birth. Adolescents showed reduced sexual risk behaviour. There was no change in the number of teenage pregnancies (Presentation by Department for Social Development, April 2014).
While the CSG is means-tested, DSD acknowledges that this excludes many poor children from grant receipt and creates inequities as well as higher administrative costs. DSD is therefore considering the universalization of CSG (Presentation by Department for Social Development, April 2014).
Universal grants do not only provide macroeconomic benefits of reducing poverty, but also reduce administration costs as they are simpler to administer, easier to access for the most vulnerable families, do not create poverty/unemployment traps and avoid exclusion errors of targeted schemes.
There are two main reasons of why cash transfers are expected to improve children’s school attendance (Hall, K. 2010). First, an injection of cash into the household improves its liquidity constraint. This implies that the household can forgo the income received from children’s labour activities, and therefore children may be able to attend school. Second, the cash transfer may lower the costs of attending school e.g. a higher level of disposable income may allow parents to allocate money towards tuition fees, books, uniforms, etc. Numerous studies have empirically tested the positive impact of cash transfer programs on children’s school attendance. In Mexico, the cash transfer program Programa Nacional de Educacion, Saludy Alimentacin (PROGRESA) has been found to generate significant increases in the school attendance of children and a reduction of the participation of boys and girls in work activities (Skoufias and Parker, 2001). Similar results were found in Ecuador, where the cash transfer program Bono de Desarrollo Humano (BDH) was implemented, causing an increase of 10 percentages points in school attendance and a negative impact of approximately 17 percentage points in child labour. In Nicaragua as well, studies have found a positive impact of a cash transfer program in school attendance. The cash transfer implemented in Nicaragua, Red de Proteccin Social (RPS) generated an increase on the rate of enrolments of 17 percentage points and of 23 percentage points on school attendance. The program also reduced the percentage of working children between the ages of 7 to 13 years in 4.9 percentage points.
1.4. Simulations of cost and impact of child welfare grant expansion
Bradshaw (2013) undertookvarious simulations comparing alternative schemes for expanding child grants using NHIES 2009/10 data. Two scenarios are presented below of which one scenario is analysed based on universalizing the child grant at different child age groups while the other scenario presents a case of expanding the child grants by using a means-test at total per annum household income of less than N$50 000.Both options set at a grant of N$250 per month for each beneficiary and results are shown for different age groups, providing options for a gradual roll-out of an expanded child grant. In both scenarios child poverty is estimated to decline dramatically to 9 percent with a universal grant compared to 10 percent poverty incidence that would prevail in the case of applying a means tested at N$50 000. Both means-testing and universalizing these grants to children under the age of 18 would reduce the GINI coefficient from 0.60 to 0.52. The fiscal costs would be higher for a universal child grant at N$2.58 billion per annum while the means tested grant would cost N$2.04 billion. While fiscal costs are higher for a universal child grant, some of these costs will be offset by simpler and more effective administration.
Table 1: Impact and cost of NDP 4 options on child poverty
Age / Child Poverty / GINI / Annual costUniversal N$ 250 per month/child / 0-5 / 25 / 0.56 / 810 m.
0-10 / 19 / 0.54 / 1.41 bn.
0-12 / 15 / 0.53 / 1.84 bn.
0-15 / 11 / 0.52 / 2.28 bn.
0-17 / 9 / 0.52 / 2.58 bn.
Means-test at
N$ 50,000 per year N$ 250 per month/child (coverage ~ 80% of all children) / 0-5 / 26 / 0.56 / 640 m.
0-10 / 20 / 0.54 / 1.12 bn.
0-12 / 16 / 0.54 / 1.46 bn.
0-15 / 12 / 0.53 / 1.81 bn.
0-17 / 10 / 0.52 / 2.04 bn.
Source: Bradshaw 2013
The question is how Namibia can afford extended universal child grant so as to tackle child poverty and by extension achieve the overall NDP4 targets for poverty reduction? A comparison with other countries shows that Namibia is not spending very much on child grants compared to countries like South Africa which spends around 1.3% of the GDP on child grant. According to a paper produced by the Ministry of Gender Equality and Child Welfare, Namibia in 2012/13 spent an amount of N$390 million on child welfare grants representing 0.36% of GDP. However, it is estimated that universalising the child welfare grants would increase the government expenditure on child grants as a percentage of GDP to 2.1 %.
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CHAPTER 2
REVIEW OF OPTIONS FOR SUSTAINABLE FUNDING OF UNIVERSAL CHILD GRANTS IN NAMIBIA
Private sector involvement in funding social development (including child care) has been highlighted in various statements by policy makers in Namibia, where they extended an invitation to private sector to join hands with government in funding social welfare programs in order to help lift those segments of the population trapped in poverty. Although private sector and other stakeholders may be willing and respond positively to this call there was no mechanism or avenues through which this support could be channeled. In this section we discuss various possible financing mechanisms and each financing mechanism will be assessed and scored using a set of criteria. A study by Oxford Policy Management (Lievens et al. 2012) recommends a list of criteria and for the purpose our study we selected six assessment criteria discussed briefly below. To provide an overall assessment and ranking of the financing mechanism, each mechanism is given a score from one to five (1 = very low, 5 = very high). The six assessment criteria will be applied to each financing mechanism and described as follows below:
- Size of Contribution: This criterion tries to answer the question “How much funding does the financing mechanism contribute or provide? What are the sources and drivers of this revenue?
- Political feasibility: the aim of this criterion is to ascertain the extent to which a financing mechanism is acceptable to all relevant stakeholders. Who is likely to oppose or support the financing mechanism?
- Sustainability & Stability: In this criterion, the aim is to determine the longevity of the financing mechanism. Does the financing mechanism decline over time or has an end date?The assessment criterion also determines asto what extent the financing mechanism provides for a stable source of revenue from year to year.
- Progressivity: The aim of this assessment criterion is to determine the extent to which the financing mechanism places the burden on those most able to pay for it (vertical equity) and whether the financing mechanism provides for horizontal equity (stakeholders with same income and wealth pay broadly same amount).
- Governance & Administrative Efficiency: This refers to the cost associated with the financing mechanism e.g. implementation and collection costs.
- Distortions & Side effects: This criterion tries to determine the extent to which the financing mechanism creates distortions (negative or positive effects) in the economy e.g. improved health from alcohol taxes.
2.1.Financial Transaction Tax (Levy)
Description and rationale
A Financial Transaction Tax(FTT)is a levy placed on a specific type of monetary transaction for a particular purpose. The concept has been most commonly associated with the financial sector and has been used as a tool to selectively discourage excessive speculation without discouraging any other activity. FTT came to prominence in 2009, when leaders of the G-20 countries[1] requested the International Monetary Fund (IMF) to prepare a report on options by which the financial sector could make a fair and substantial contribution toward paying for financial crises. In their study, IMF showed that many countries adopt FTT for its progressivity and ease of implementation. IMF concluded that, the potentially large base of an FTT promises an opportunity to raise substantial revenue with a low-rate tax and current estimates of the revenue potential of a low-rate (0.5–1 basis point) multilateral FTT on the four major trading currencies (US Dollar, Euro, British Pound, Chinese Yen) suggest that it could raise about US $20–40 billion annually, or roughly 0.05 percent of world GDP. A one basis point FTT on global stocks, bonds and derivatives is estimated to raise approximately 0.4 percent of world GDP.