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Eric Bloch Column

The good, the bad and the ugly budget

IT is almost inevitable that a national budget will not satisfy the entirety of a country’s populace, no matter how valiantly the responsible minister may strive to please all, and no matter which country’s budget it may


But in the environment in which the acting Minister of Finance and Economic Development, Herbert Murerwa, had to formulate and present Zimbabwe’s 2005 budget, the task confronting him was the epitomy of the impossible.

The budget required of Murerwa was one which would stem the economic decline which had set in at the end of 1997 and had steadily intensified. His budget would have to be economically stimulatory, and strongly complementary to the monetary policies of the Reserve Bank of Zimbabwe (RBZ). The budget needed to be one which would become a plank in the platform of rapprochement between Zimbabwe and the international community.

But at the same time, the budget would be driven by governmental dictates intended to influence the electorate favourably ahead of the March, 2005 parliamentary election. It had, therefore, to encompass tax reductions whilst funding enhanced remuneration packages for public servants, and for the armed forces. And yet the reductions could not be of such a magnitude that government would be driven towards massive further borrowings and which would fuel a new spate of hyperinflation. The end result was a budget which was reminiscent of that renowned movie: The Good, The Bad, and The Ugly.

Given the environmental constraints upon the minister, and those imposed upon him by the government, it was unavoidable that some of the elements of the budget are bad, whilst others cannot be described as anything other than ugly.

Amongst the good elements of the budget statement and the underlying budget was the extent to which the minister gave recognition to the magnitude of Zimbabwean inflation.

The minister raised the threshold at which individuals begin to pay income tax to $1 million per month compared to $180 000 a year ago, and $750 000 since September.

However, as the poverty datum line for a family of five is now more than $1,5 million per month, Zimbabwe will still be taxing the poor.

Admittedly to some extent the minister has reduced the extent that the poor are taxed, for not only did he raise the threshold, but he also widened the tax bands considerably.

Moreover, he announced added relief by way of increased tax credits for the elderly, the blind, and the mentally and physically handicapped, and the exemption from tax of certain of the income of the elderly.

The budget proposals were also good and commendable in that the minister is significantly combating unfair competition to the Zimbabwean textile, clothing and footwear industries as recently was sustained from vast

importations of low quality products from countries which provided export subsides of such huge proportions that the finished products could be sold in Zimbabwe at less than material cost.

Yet another very positive factor within the budget was the changes to capital gains tax, with the minister exempting sale of a principal private residence by the elderly, and with inflation allowances being correlated to the consumer price index. Also very commendable was the minister’s very evident resolve to continue enhancing the fiscal disciplines within government which have been progressively introduced during the last two years.

However, these and other positives do not detract from the negatives of the budget. Deserving of the classification of “bad” must, first of all, be the extent of misplaced optimism on the state of the economy. Government clearly continues to contend that the economy is on a recovery path, whereas the reality is that it is still in decline. All that has changed is that the economy is now dying more slowly than previously.

The hard facts are that inflation continues to be the highest in Africa, if not in the world, unemployment is at an all-time high, more and more business failures are being reported, the country has a critical lack of foreign currency, Zimbabwe is an economic (and political) leper in most of the free, developed world, investment is at an all-time low, and the country’s skills’ resourse is fast contracting as a result of the brain drain.

Yes, 2004 has seen some remarkable economic developments, mainly as a result of constructive monetary policies, but those developments have not healed the near-chronically ill economy. They have only alleviated some of the pain and diminished some of the symptoms.

The blame for the misplaced optimism does not lie with the minister, for it was very apparent from his budget statement that the governmental disinformation machine continues to operate vigorously, deceiving not only the populace but government itself. This was loud and clear when the minister cited an expected growth in agriculture in 2005 of 28%.

With less than 30 000 hectares of tobacco under cultivation, the expectations of a 2005 crop of 120 to 160 million kg are illusory in the extreme. All indications are that a like circumstance will pertain to the maize crop. (Government still claims a 2004 crop of 2,4 million kg, whilst on the ground it’s almost universally recognised that the actual crop was about one-third of the mythical figures cited by government.)

Yet another deception, even if not intended, is in respect of the fiscal deficit. The minister stated that for the nine months to September 2004, the deficit was $1,346 trillion, compared to a budgeted deficit of $2,179 trillion.

However, governmental accounting is on a receipts and payments basis, taking no account of expenditure incurred but not paid. Thus, with the pronounced delays in effecting value added tax refunds, payment of customs duty drawbacks, and other amounts payable, the payments which are offset against revenues to determine the deficit are effectively grossly understated.

The adjective “bad” also attaches to the extent that carbon tax increases from January 2005, for those increases are 500%, which is not readily justifiable if, as the minister projected, year-on-year inflation this month will be about 160%. The same applies to the increase in

duty in cheques and ATM charges, which rise from $50 per transaction to $500, being a 1 000% increase (which, in his speech, the minister suggested was aligned to inflation! In practice, it is aligned to the grossly excessive bank charges).

But even worse is the “ugly” of the budget. The Defence vote rises from $0,933 trillion to $3,043 trillion, or 226%, and yet again exceeds the vote for Health and Child Welfare. How does Zimbabwe justify continuing to spend

more to kill people than it spends to keep them alive?

The Education, Sport and Culture vote rises from $1,538 trillion to $5,554 trillion. The needs of education are undoubted, but how will Minister Chigwedere reconcile his seeking, and receiving, a vote which is increased by more than twice the percentage increases he was prepared to authorise for independent schools?

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