Fiscal review: The positives and negatives

LAST week the Minister of Finance, Tendai Biti, presented his 2012 mid-year fiscal policy review to parliament, updating the country on fiscal and economic developments during the first half of 2012, and outlining new policies to be pursued. As with most such reviews, it had positive content but also negative features, and in some respects failed to address critical issues.At the outset, Biti contended the 2012 national budget “was crafted with the objective of democratising the economy through strengthening and sustaining macro-economic stability, leveraging the country’s potential in order to attain inclusive and pro-poor growth capable of generating jobs and uplifting the standards of living” of Zimbabweans.

He further claimed these objectives “were anchored under the budget’s theme of sustaining efficient and inclusive growth with jobs”, with especial reference to “consolidating macro-economic stability, promoting inclusive growth with jobs, capital formation through both domestic and external investment, promoting the stability and role of the financial sector, and increasing investment in the social sectors of health and education”.
Tragically, the desirable and admirable objectives were not realised in the first half of 2012, while the prospect of achieving them in the second half of the year are extremely remote. Instead of consolidating macro-economic stability, the growth of the economy has diminished against that attained in 2011, and has been relatively minimal.  Rather than job creation there has been shrinkage in employment, especially so in the manufacturing sector where more factories closed down, or downsized operations. Although there has been substantial approval of intended investments by the Zimbabwe Investment Authority, very few of the approved investments have materialised.

Investors remain concerned by the unrealistic, onerous indigenisation and economic empowerment policies so vigorously pursued by the Minister of Youth Development, Indigenisation, and Economic Empowerment Saviour Kasukuwere, and by his National Indigenisation and Economic Empowerment Board. Investment also continues to be discouraged by the magnitude of Zimbabwean bureaucracy, by government’s resistance to administrative devolution and by the erratic and unreliable availability of essential utilities over and above continuing non-conducive taxation policies.
Financial sector stability and security has not been fully realised, with another two bank-failures in 2012, absence of lines of credit from external sources and reluctance of the public to use banking services. Many still fear a future loss of their deposits, and are confronted with onerous interest rates, bank charges and minimum duration of bank loans.  The intended increase in investment in the social sectors of health and education has been severely constrained, falling far short of required levels.
In light of all of these negatives, Biti acknowledged targeted economic growth of 9,4% in 2012 will not be achieved and has revised the target to 5,6%.  Moreover, he has had to reduce his projected revenues and expenditures for 2012 from US$4 billion to US$3,6 billion. It is arguable whether that reduced budget will be achieved.  It is important to note the budgetary performance inadequacies have not been spuriously attributed to the so-called “illegal economic sanctions”, but instead there has been greater recognition of facts and realities.  This enhanced recognition of actual circumstances included awareness that original expectations of agricultural outturn in the 2011/2012 season were unrealistic.
In part, the below-forecast agricultural performance was caused by negative climatic conditions, but Biti also recognised a major limitation to output was the financial constraint on most farmers.  He highlighted the damaging delays in payments to farmers by the Grain Marketing Board and the inability of farmers to access loans due to lack of collateral security.  He said:  “issuance of bankable leases has previously been emphasised in order to give value to land, that way facilitating the participation of private players in the much-needed financing for agriculture”.  (It is almost a year since President Robert Mugabe said leases would be transferred to accord farmers collateral value, but nothing has happened as yet).
Biti also recognised and acknowledged “the immense endowment of resources in the mining sector” saying that “there is potential for generating substantial benefits and revenues to the economy”.  However, he also recognised “the long overdue amendment to the Mines and Minerals Act continues to obstruct new exploration”.
Yet another key positive of the fiscal policy was Biti’s recognition that substantial new investment is much needed, including investment in mining, manufacturing and tourism sectors, but one of the major deterrents to such investment is the oppressive nature of Zimbabwe’s indigenisation and economic empowerment policies and legislation. Biti disclosed cabinet had agreed foreign investors will not be obliged to cede 51% share ownership to indigenous Zimbabweans, although he neither described what the new prescribed minimum indigenisation shareholdings would be, nor when parliament and Senate would effect the amendments to the prevailing legislation.
Another positive inclusion in the review was Biti’s criticism of the magnitude of travel expenditures incurred by the political hierarchy and senior public servants, and his emphasis that such expenditures must be stringently curtailed.  He also reiterated valid concerns at the ongoing magnitude of corruption which prejudices the fiscus.  However, such concerns on travel expenditure and on corruption have been previously voiced many times, and the populace must yet again ponder whether substantive corrective actions will be energetically and urgently pursued.
Amongst the negatives in the policy review is that, with his hunger for revenue, Biti has failed to review upwards the tax threshold and tax bands for individuals, with the result that those who struggle to survive on incomes well below the Poverty Datum Line (PDL) remain subjected to taxes minimising their  inadequate incomes. When will Zimbabwe align its taxation policies with the PDL, thereby marginally minimising the substantial suffering of so many?
Most regrettably, Biti has yet again disregarded the numerous, well-justified representations for an extension of time within which businesses must remit value added tax to the Zimbabwe Revenue Authority.  Currently, payment is prescribed within 25 days of each month-end, with the result that businesses cannot afford to extend credit to customers.

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