Funding the state’s burgeoning expenditure
By Eric Bloch
FRONT-PAGE headlines were struck last week on the announcement by government of markedly increased salaries for the public service in general, and for teachers and nurses in parti
cular. Not only did that announcement provoke much media coverage, but it also became a key discussion theme among the population as a whole, and especially so between members of the business community.
At the outset, it must be acknowledged that the salary increases were very necessary and justified for, not only have Zimbabwe’s civil servants long been under-remunerated, but they have been as severely affected by the ravages of inflation as have all other Zimbabweans.
For decades the employees of the state have not received market-related emoluments; with the rare exceptions at upper echelons’ levels, they have received incomes which have been appallingly low. Despite the “protectionism” of employment within the public service, the paucity of civil servants’ pay packages was unwarranted. Although in alignment with much of the private sector, remuneration above prescribed minima should be performance-related, as will apparently now partially be the case, for the first time.
With inflation over the past year approximating 1 000%, it was very necessary that there be significant upward revision of governmental salaries and, somewhat belatedly, that has now occurred. However, although the civil servants appear, by and large to have welcomed the announcement and to have received it positively, many still bewail that the new salaries are below the poverty datum line (PDL). In so doing they overlook that invariably, in families wherein the principal income earner generates income below the PDL, there is at least one other income earner.
Essentially, in a family of, say five, one income earner should be receiving at least two-thirds of PDL, whilst one or more of the other family members produce a further one-third or more of PDL.
However, although the state’s pay increases were very necessary and overdue, they are also a cause for very great concern for, to all intents and purposes, the state is already insolvent. Its revenues are vastly exceeded by its expenditures and it is very heavily borrowed.
It cannot readily increase its revenue flows without severely harming the extremely distressed economy and population. The aggregate of direct and indirect taxation is exceptionally heavy, with individuals being taxed from income levels far below the PDL, at rates which progress to as high as 40%, and corporates paying taxes as high or greater than those payable elsewhere within the region.
The tax burden upon the populace is exacerbated by heavily increased charges for governmental services such as education and hospital facilities, by massive indirect taxes such as Value Added Tax (Vat), carbon tax, impending road toll fees, customs duties, and very much else. Therefore government cannot, or must not, resort to further taxes, which would oppress the populace untenably.
But it would be as catastrophic for government to worsen further its gargantuan debt burden by resorting to additional borrowings to finance the increased salaries. It is already very hard-pressed to service its debts, and is repeatedly having to seek new borrowings to repay old ones. Its immense deficit revenues against expenditures is increasingly intensified by an unavoidable recourse to borrowings at rising rates of interest, responsive to the rates of inflation. Its borrowings frequently crowd out the private sector from the money market, to the prejudice of economic revival, and its deficit and concomitant reliance upon borrowings are major fuellants of inflation.
The Minister of Finance, Dr Herbert Murerwa, has already intimated that, at variance to his declared intents when he tabled his 2006 budget to parliament last December, he will have to revert to parliament with a supplementary budget, necessitated by the impacts of inflation.
The announced salary increases render such a supplementary budget unavoidably necessary, with governmental expenditures aggravated and intensified by not only the higher costs of the public service, but also increased operational costs due to inflation and exchange rate movement despite the near “freeze” in rate since January, and rising costs of borrowings.
However, that supplementary budget must not, under any circumstances, impose new or additional taxes upon the straitened circumstances of the Zimbabwean taxpayers, for they are already greatly over-burdened.
Similarly, the minister must not seek to access increased borrowings, for the consequences will be devastating.
There is, therefore, only one substantive course of action available to government, and that is to reduce other expenditures very markedly. It will, inevitably, plead an inability to cut expenditure, but such pleadings will be unacceptable, for there is no viable alternative and there is scope for expenditure cuts, if the governmental will to effect them exists.
Opportunities of expenditure reduction are numerous. First and foremost, the huge size of government must be contained. Zimbabwe does not need 59 ministers and deputy ministers!
How can a population of about 11,4 million require 59 ministers to direct the operations of the state? That is a greater number than in US, any of the countries in Europe, Russia and most other countries. Not only is each and every one of them a direct cost to the state, but so too are their massive support infrastructures.
Similarly, it defies credibility and fiscal responsibility for a country of Zimbabwe’s population size to have a two-tiered parliamentary system. The creation of the senate was not a measure to ensure good governance, but to create “jobs for the boys”! Zimbabwe’s impoverished circumstances dictate that the senate is a luxury that Zimbabwe cannot afford, and therefore the constitution should be amended and the senate disbanded.
And how can Zimbabwe justify the size of its defence forces, the continuing purchase of military aircraft and other ordnance, and the overwhelming other costs of maintaining a huge defence infrastructure? Zimbabwe is not at war with, or under threat from any other country. Its only war is an economic one, and its only enemy is itself or, to be more precise, the governmental mismanagement of the economy. Its defence forces are only used for ceremonial purposes and for such specious internal security purposes as controlling many of the state’s economic and fiscal arms for which the defence forces are totally unqualified. A substantial cut in the overly-sized militaristic wings of the state would go a long way to balancing the budget.
Yet another very major cost of government is the plethora of diplomatic embassies and missions around the world, many being in countries with which Zimbabwe has minimal trade relations and very few other interactions. The international representation of Zimbabwe should be consolidated and streamlined in alignment with the availability of funding.
And positive measures to curb corruption, instead of endless talk about doing so, without commensurate action, would also very significantly contain governmental expenditures, assist in balancing the budget, and thereby aid the long overdue, very greatly needed, economic recovery.
Concurrently, government will have to take a vibrant role in convincing labour in commerce and industry, and other economic sectors, that the salary increases given by it cannot be regarded as a blanket precedent for the private sector as a whole. As deserved as substantial salary and wage increases may be, in many instances, a large number of enterprises cannot sustain the necessary increases and will collapse if they have to pay them, thereby intensifying the already very pronounced levels of unemployment.