Death And Taxes

Originally published in the Informanté newspaper on Thursday, 11 October, 2018.

‘Tis impossible to be sure of anything but Death and Taxes. So wrote Christopher Bullock in 1716, in The Cobbler of Preston. And it’s still as true today as it was then. Last month, Finance Minister Calle Schlettwein made public his proposed Income Tax Amendment Bill, reiterating this fact. Naturally, this bill contains some good portions, and some which are downright dangerous for a country in the midst of its longest recession in history.

Why tax at all, however? Well, the easiest answer would be to say that its funds the government. To put it into an economic context, there are some economic goods we expect from society that would not be provided otherwise if not provided for by government. Economic goods can be classified as either rivalrous or non-rivalrous, and either excludable or non-excludable. 

Rivalrous goods can only be consumed by one person at a time – think of a chair, in that if you’re sitting on it, no one else can. Non-rivalrous goods are like a movie – just because I’m watching it, doesn’t mean the person sitting next to me cannot. Excludable goods are those you can prevent others from using – think of a car, where if it’s locked, you cannot gain access to it without the key. Non-excludable goods are like the air – no one can stop you from breathing it.

Our society and our nation depends on several goods – marine and mineral resources, biodiversity, clean water, transport infrastructure, sanitation, defense, just to name a few. Unfortunately, while the free market economy is quite good at managing excludable, rivalrous goods, there is no incentive to provide services that could be consumed by anyone without excluding others. Yet we still depend on them. This is the ultimate reason we pay taxes – so that we all can contribute towards providing those resources we consume without a second thought. 

Of course, some services provided by the government are simply there because we wish our society to have them. As John Green so famously put it, “Let me explain why I like to pay taxes for schools even though I don’t personally have a kid in school: I don’t like living in a country with a bunch of stupid people.” 

So overall, the collection of taxes is done for a good cause. That is not to say, however, that taxes don’t have an economic impact. These impacts can be divided into one of two categories – it either has an income effect, or a substitution effect. If the tax is applied to individuals or legal entitites, taxes have an income effect – it reduces the purchasing power of taxpayers. The substitution effect occurs when taxes are placed on products – VAT for example. Those items that are VAT exempt will thus be cheaper in relation to those that are not, encouraging a shift in consumption towards those products. 

So let’s take a look at some of the changes proposed by Minister Schlettwein. In particular, some changes prepare the country for electronic tax submissions, which in my view are long overdue. Then there are several amendment to curb tax avoidance, which could be achieved with the existing tax structures. In addition, the penalties for tax evasion and tax fraud are amended to be more pertinent and scaling to the amount of tax payable, instead of a flat N$ 2000 fine. 

In addition, assessed losses can now only be carried forward for 5 years, limiting the ability to set off losses against future earnings and potentially accelerating tax payments of newly formed businesses still struggling to get off the ground. For investors in those businesses, they can expect the 10% withholding tax on dividends to be applied to them even if they are resident in Namibia. 

A welcome change is that religious, charitable and educational institutions will now be taxed on their commercial activities. However, this does not go far enough – we are a secular country, as per Article 1 of the constitution, and religious institutions have for far too long rode on the back of civil society, collecting their own forms of taxes without being required to invest that into their communities. Minister Schlettwein should consider having them register as charitable institutions, and tax all non-charitable activities they engage in. 

Finally, personal income tax is to be amended. The changes, however, provides minimal while increasing the taxes at the higher end of the spectrum. According to economic theory, income taxes would have an income effect and a substitution effect. The income effect is simply the reduction in purchasing power of everyone that’s taxed more harshly. Per theory, then, since there is less purchasing power available to these individuals, they should therefore compensate by working more.

However, in Namibia, the substitution effect would be negated by two factors. Firstly, the Labour law limits hours of work and overtime, preventing anyone from compensating the income effect by increasing their hours worked at a single employer. Secondly, with our unemployment rate being what it is, the feasibility of finding a second job would be almost nil. As such, the effect of increasing income taxes would only have an income effect, reducing consumption in the economy, and thus, as demand influences supply, also reducing economic growth. 

It is thus quite puzzling that Minister Schlettwein would seek to reduce the purchasing power of the Namibian consumer in this way, especially when the country has experienced nine consecutive quarters of negative growth. Perhaps he is gambling that the few dollars saved by the lower-end of taxpayers will be spent and outweigh the hundreds of dollars not spent by the higher end. Or, more worryingly, that he’s of the opinion that the financial condition of the Namibian government is of such a state that it can only be saved by further strangling the economy.

Up This Creek Without A Paddle

Originally published in the Informanté newspaper on Thursday, 27 September, 2018.

Every few months, Statistician-General Alex Shimuafeni and the Namibia Statistics Agency release the newest quarterly GDP figures, and we find ourselves examining of our economic performance, and seeing precisely how far up this creek we are without a paddle. With eight quarters of negative GDP growth behind us, the ninth held no suprises – the Namibian economy contracted by 0.2% in the second quarter of the year. 

Let’s see what this neck of the creek holds for us by examining the first quarter GDP report. Starting with inflation, in this quarter it was only 3.8%, down from the 6.3% recorded during the same time in 2017. The lower inflation was due to decreases in inflation for housing, clothing and footwear and communications. Inflation has finally been maintained below 5% for two quarters, the first time since 2015.

Next, let’s have a look at the different sectors of the Namibian economy. The Agriculture and Forestry sector showed a contraction of 1.1% compared to 20.9% growth for the same time last year. With crop farming easing to 10.7% growth from 27.9% compared to the prior year, and the livestock subsector contracting by 6.9% compared to growth of 20.5% last year this quarter, it becomes abundantly clear that despite a passable rainy season, farmers decided to restock their dwindling inventories instead of marketing their products. As such cattle exports to abattoirs declined by 10.4%, while cattle exported live to South Africa and Angola similarly contracted by 22.6%. The Fishing sector also found itself with a decline of 8% compared to a decline of 4% last year, mainly as a result of rising fuel costs and a decline in fish landings. 

Mining and Quarrying, however, showed growth since the start of the year, with growth of 22.4% compared to 19.6% during the same time last year. The highlight here was the uranium and diamond subsectors, which showed growth of 62.3% and 30.5% respectively. In both sectors this can be attributed to greater production, both in carats produced, as well as the new uranium mine that came on board. Unfortunately zinc and gold production contracted by 3.1% and 21.6% respectively. 

The Manufacturing sector unfortunately slowed down during the second quarter of the year, recording a contraction of 12.5% compared to growth of 9.8% during the same time last year. This is the results of a 26% decline in value added in the non-metallic minerals subsector, as well as a decline of 33.3% in the non-ferrous metals subsector. Other subsectors, such as fabricated metals, meat processing and beverages recorded declines of 33.8%, 12.2% and 12.9% respectively. The Electricity and Water sector at least showed positive signs, growing by 16.7%. This is due to the electricity subsector growing by 17.5%, compared to growth of 12.5% last year. The main reason for this is the surge of locally generated electricity from Ruacana Hydro power station that reduced the need for electricity imports. 

But after two years of contractions, the Construction sector has sustained positive growth! And quite strong growth as well – 23.8%! This strong growth is the results of value of buildings completed increasing by 4.9%.  Government expenditure on construction declined by 21.5%, however compared to last year government expenditure on construction that declined by 68.1%, this is considered a significant recovery. 

Wholesale and retail trade, however, continued to feel the effect of negative economic headwinds, contracting by 5.8% during the second quarter, though it is up from the 11.4% contraction recorded last year. Hotels and Restaurants found itself stuck with its reversing fortunes, as it recorded a decline of 2.6% this quarter compared to a decline of 2.6% last year. 

The Transport and Communication sector at least remained in positive territory, with growth of 1.9% compared to last year’s 2.5% growth. The Financial Intermediation sector continued its slow growth, growing with 0.5% compared to last year’s 3.6%, with the banking subsector contributing 0.1% growth and the insurance subsector contributing 1%. Finally, the Public Administration, Defence, Education and Health sectors still shows the effect of government consolidation, with Public Administration and Defence growing by 1.2%, with Education contracting by 6.2% and Health by 4.9%.

Wounded sailors during the time of Admiral Horatio Nelson were transported up Haslar Creek in Portsmouth, to be taken to the Royal Naval Hospital to either recover or die. The ships moored, and wounded soldiers were transported up via tramline, or ‘without a paddle.’  They were held prisoner so they would not desert while being treated, but some tried to by going through the sewers to the salt Haslar Creek (where we also get the other origin, ‘up shite creek’). Without a paddle, however, this would merely result in the men being stuck, trapped and helpless.

Well, after examining that data, it would appear that Namibia herself is wounded, and badly so. For the past two years, we’ve been transported to our own hospital, up the salted creek, and we neglected to take any paddles. We cannot desert, as we have no paddles, and as Namibians we cannot afford to. But like the soldiers in Nelson’s navy, we have but two choices – recover or die. We truly are up this creek now, and we’ve run out of options.

Finance and Namibians

Originally published in the Informanté newspaper on Thursday, 6 September, 2018.

It is a fact of life that there exists but limited resources, yet we as a people have unlimited wants. As a result, we had to develop an equitable system of resolving this in our lives, and over the centuries, this has developed into a system of finance that has permeated our lives. However, not all of us are equally adept at navigating the flow of funds that surround our lives. As Namibians, we need to know what we’re missing, and as usual, Statistician-General Alex Shimuafeni and his team at the Namibia Statistics Agency have our backs.

Recently, they released a report called the 2017 Namibia Financial Inclusion Survey, to determine how we as Namibians interact with the financial system, and how we interact with it. As only those 16 years or older can legally enter into financial transactions, they were the focus of the survey. Due to its nature, we could also see some key demographic statistics concerning the Namibian populace. 

Per the survey, the eligible population of Namibia for financial services was estimated at 1.45 million people, living in approximately 570 000 households. 52.5% were female, with 47.5% male, while 52.9% reside in urban areas, and 47.1% in rural areas. 61.3% of Namibians have never married, while only 31.7% are. Only 8.3% have a tertiary education, with 54.8% having completed high school, and a further 23.9% primary school. 10.1% of the population has never attended school. 

Let’s have a look then at the hardships faced by Namibians. Only 37.3% could say they’ve never had to go without a cash income, with only 45% able to claim that they have never had to skip a meal due to financial troubles. 62.6% could at least say that they’ve never not been able to send their kids to school due to monetary problems, and 55.1% could claim money had never prevented them from getting medical treatment.

In terms of homes, 68.8% of Namibians could claim to own a home, with 17.1% renting and a further 13.2% living rent-free. Of those, 66.4% built the home, while 20.4% bought it and 10.5% inherited it. Of those who built or bought their home, 40.6% used saving to fund it, with 22.9% simply using materials from nature, with only 8.6% using a bank loan.

Of these homes, 60.4% have piped water available, while 23.1% uses a public tap or standpipe. In terms of sanitation, 43.8% have no facilities and have to use the veld, while 41.4% have a sewer system or pit latrine. 49.6% still use firewood to cook, with 35.3% using electricity and 12.6% using gas. Communication-wise, 94% of households have access to at least a cellphone, with 29.2% having internet access.

So how do we receive our incomes? Turns out 17.3% of us receive salaries from private companies, with 10.3% from government or a parastatal, and 9.9% receive income from pensions. Surprisingly, 62.5% of Namibians receive their income as cash, with only 37.1% receiving into a bank account, and 1.4% into bank wallets. 67.3% report that they receive this income on a monthly basis. In terms of the amounts, we can see that 32.5% of Namibians receive between N$ 1 and N$ 1000 per month, with a further 29.1% receiving up to N$ 2000. Only 9.7% reported receiving more than N$ 11 000 per month. 

When we look at our financial capability, however, we see other issues emerging as well. 46.7% reported that it is very difficult to keep up with financial commitments, with another 21.8% reporting it to be somewhat difficult. Only 6.9% reported it to be very easy. Furthermore, only 23.1% could report that their income lasted until the next paycheck, with 40.2% reporting that it never did. To cover the difference, 61.5% would get money from family and friends, while only 10.5% could dip into savings. 

In terms of spending, the three things we buy first when paid appears to be groceries (76.8%), paying our water bills (36.5%) and putting some money aside for household items (30.6%). 31.5% of people make their financial decision alone in their household, with a further 50.9% sharing that responsibility with other members. About 15.7% reported that they are not involved with any of the financial decision making in their households.

Perhaps most disconcerting, however, is that fact that the data reveals that Namibians suffer from the superiority illusion, or above-average effect. When asked, 71.2% of Namibians indicated that they consider themselves organized when it comes to managing their money, with 58.9% considering themselves savers rather than spenders. 

The survey, however, tells us a rather different story. Only 28% of Namibians record money received monthly, and 26.3% recorded expenses monthly – and 58.3% and 59.8% respectively do not keep record at all. And while 73.7% indicate that they plan on how to spend their salaries, 77.6% have to change their plans if something unexpected occurs, with only 12.2% having made provision for unexpected events. 

If we consider ourselves organized when it comes to our financial matters, but cannot even create a budget or plan for unexpected events, we certainly cannot claim that as fact. The full report has many more interesting statistics, but this one, I feel, cuts to the heart of the matter. As long as we believe ourselves to be financially competent, we do not try to improve our capabilities, and we remain unable to manage our income properly. The time has come to swallow our pride, and start asking for help from those more financially literate if we are truly to become as financially organized as we believe ourselves to be.