The Ugly Secret About Needs-Based Poverty Eradication: It Doesn't Work

Nicholas Freeland takes us through the preconditions needed for poverty targeting to work (excerpt):

Poor targeting: a response to Pathways’ paper on how best to reach those in poverty

In an ideal world, poverty targeting would be sensible, which is why it intuitively appeals to those who are new to social protection, or who don’t understand the true complexities of poverty. I would even go so far as to accept that, if all of five conditions were met, there are circumstances in which poverty targeting might be the optimal choice. But we don’t live in an ideal world, and Development Pathways’ paper clearly demonstrates how very unlikely it is – in the real world – to fulfil each one of those five conditions, let alone meet all five simultaneously!

For poverty targeting to be the best option, all of the following five assumptions need to hold true:

• The poor represent a small residual group;
• The poor will remain poor (and the non-poor will remain non-poor);
• Inequitable outcomes are acceptable;
• The resource envelope is fixed; and,
• You can accurately identify the poor.

Talking About Belanjawanku

I was on BFM yesterday, talking about UM's new Belanjawanku reference budget:




One thing I should have mentioned/emphasised more is the splendid work done by Prof Datuk Dr Norma Mansor and her team at the Social Wellbeing Research Centre in coming up with it. You can also hear her talking about it here:

Why low income households have more children

On social media lately, I’ve been reading this sentiment that people who are poor shouldn’t have so many children. The apparent reasoning is that if you can’t afford to bring children up properly, you shouldn’t have them.

This attitude is not just paternalistic and condescending, it also ignores the economic incentives facing the poor.

There are, I think, two main reasons for the poor having more children:

Negative Income Tax: Someone’s Finally Trying It

I came across this on Twitter last night – Mauritius is taking on the challenge of implementing a negative income tax (excerpt):

Negative Income Tax scheme: Beneficiaries receive first payment

GIS - 27 November, 2017: The first payment of Negative Income Tax (NIT) allowance to beneficiaries was effected on Friday 24 November 2017 at the seat of the Mauritius Revenue Authority (MRA) in Port Louis in the presence of the Prime Minister, Minister of Home Affairs, External Communications and National Development Unit, Minister of Finance and Economic Development, Mr Pravind Kumar Jugnauth.

Cheques were handed over symbolically to some thirteen beneficiaries under the NIT scheme which came into effect as from 1st July 2017. Out of the 21 800 applications received, 12 100 persons have already benefitted from an allocation. The NIT consists of a financial support from the Government to be effected by the MRA on a quarterly basis to employees whose basic salary is less than or equal to Rs 9 900 monthly.

Before anybody sneers at this, Mauritius has a GDP per capita roughly on par with Malaysia, and the scheme will benefit something like 25% of the workforce. The support isn't much – roughly USD30 per month for the lowest income category – but it's the principle that counts.

One obvious drawback is that only those in paid employment are eligible (full criteria here), which leaves out the informal sector and those out of work for other reasons (such as disability). I don't know Mauritius so well that I can say whether that's good or bad. Nevertheless, here's hoping someone's tracking the outcomes of this policy. That would be one piece of research worth waiting for.

Increasing the EPF Withdrawal Age

Since I’m hardly an unbiased observer in this instance, I’ll forbear from commenting. However, public feedback on this and on the other three proposed changes to the EPF Act can be given here. You will need to open an i-Akaun, if you don’t have one already.

The four proposals are:

1. Raising the withdrawal age to 60, with two options given: Either a graduated increase in the withdrawal age (to take place over 15 years); or an immediate switch, with full withdrawal at 55 still available, but new contributions after 55 to be sequestered until age 60.
2. Streamlining EPF contributions to the minimum wage i.e. those paid below the minimum wage will now be required to contribute as if they were paid the minimum wage, to apply to both employees and employers.
3. Raising the dividend payout period from 75 to 100.
4. Giving members a choice for a Shariah compliant portfolio.