BIG Pilot Project - Assessment Report - BIG Coalition Namibia

Section 3: A national Basic Income GrantThe second step in assessing affordability is determininghow much additional tax revenue Namibia can afford.Economists usually address this question with“tax effort” analysis, a type of econometric modellingbased on cross-country comparisons. Tax effort modelsevaluate the taxable capacity of a country based on thestructural characteristics of the economy and the country’sability to raise taxes. The graph below documentsthe growing tax capacity of the Namibian economy from2001 to 2007.Namibia has the tax capacity to finance aBasic Income Grant (2.2 - 3.8% of GDP)353025201510502001/022002/032003/042004/052005/062006/07unutilisedtax capacitytax/GDPAccording to the econometric analysis, Namibia’s taxablecapacity exceeds 30% of national income. YetNamibia’s actual tax collection and projected tax collectionover the medium term horizon has been falling.Namibia’s excess capacity to raise tax revenue significantlyexceeds the net cost of a Basic Income Grant underall the financing scenarios.3.2 SustainabilityThe preceding analysis documents the short term affordabilityof a Basic Income Grant for Namibia. Estimatesof the net cost in the first year range from 2.2% to3.0% of Gross Domestic Product, while Namibia’s excesstaxable capacity exceeds 5% of national income.More important than short term affordability, however,is the question of sustainability. What are the long term86