Mumbengegwi budget devoid of reality
By Eric Bloch
FINANCE Minister, Dr Samuel Mumbengegwi, in presenting his 2008 Budget last week demonstrated, yet again, government’s ability to declare good and positive intents, co
upled with its pronounced skills at pursuing those intents negatively, counter-productively and destructively.
As government has done all too often, the minister highlighted his, and his government’s, total detachment from reality. With a few very sound exceptions, the budget contains nothing to bring about Zimbabwe’s desperately needed, anxiously awaited, and very long overdue economic recovery. Instead, it contains much to exacerbate the already horrendously tumultuous downward slide of the economy to near oblivion.
The few positives included the substantial increase in the tax-free threshold for individuals from $4 million to $30 million per month (representing about two-thirds of the probable current Poverty Datum Line (PDL) level), and the widening of the tax bands to an upper level of $500 million per month. Concurrently, the level of tax-free bonus was raised to $75 million, and the non-taxable threshold of retrenchment packages to $10 billion (from $1 billion).
These adjustments were fairly realistic, and long overdue, but unless reviews are effected very regularly, they will soon lose that realism, for the ongoing magnitude of inflation will fast erode that realism. By the time the new levels become effective (January, 2008, with the exception of the bonus level, which is immediately of force and effect) rampant inflation will have more than halved the real values, and monthly thereafter they will again reduce to at least the same extent.
Similarly commendable is the exemption from withholding tax of payments to exporters by the Reserve Bank upon surrender of foreign currency by exporters, and increases in various tax credits and in deductibility levels of donations to schools, hospitals, clinics, and research and development institutions. But there, the positives virtually end, and almost all else in the budget statement is deserving of nothing but scathing criticism.
The minister correctly recognised that economic recovery is contingent upon increased productivity, but failed to make any proposals, or to initiate any meaningful actions, to bring that productivity enhancement into being. Yet again he failed to move exchange rates, which movement is a prerequisite for viability of exporters. Manufacturing industries, mining, agriculture and tourism, cannot survive in a regime of static, meaningless exchange rates, whilst costs soar upwards by between 100 and 200% a month. The gargantuan levels of poverty in Zimbabwe preclude any substantive increases in consumer spending, compounded by foolhardy, cataclysmic price controls and other adverse, excessive economic regulation. Therefore, the only real prospects of obtaining greater productivity is through export operations, and yet the minister endlessly frustrates that by maintaining exchange rates which have no correlation to reality and to viability needs.
This myopic approach to productivity was echoed by the minister in relation to agriculture, which should be Zimbabwe’s economic foundation. Reiterating the tragically laughable governmental contention that 2007/8 will be “The Mother of Agricultural Seasons”, the minister eulogised the role that, he contends, agriculture will fulfill in bringing about economic recovery in 2008. It is pitiful that he, and his government, cannot recognise that this “mother” will be barren or, in the alternative, the birth will be still-born. It is common knowledge that the availability of required fertilisers as required during the last two months was, at best, one-third of actual needs. It is equally common knowledge that the actual availability of maize seed represents less than two-thirds of that required to achieve government’s production forecasts, and that much of the available seed is defective.
But although common knowledge, the minister, and the state’s propaganda machine, are clearly unaware thereof. Someone needs to explain to the minister that seeds not planted cannot grow, that defective seed will not sprout, and that unfertilised soils can only enable seed to whither and die.
The minister is also pinning his expectations upon a turnaround in livestock production, but even with foreign currency funding (from whence?) for importation of breeding stock, rebuilding the national herd must take several years, at the very least.
Very correctly, the minister accorded recognition to Zimbabwe’s disastrous, continuing, hyperinflation. However, he suffers delusion in the extreme when he projects a decline in annual inflation, by the end of 2008, to an annualised rate of less than 2000%, from present levels which, in reality, must be significantly in excess of 20 000%. That cannot occur when, on the one hand, government does nothing which can effectively reduce inflation, and when, on the other hand, it concurrently resorts to new inflationary actions. Failure to bring about increased productivity precludes any decline in inflation and, despite grandiose words to the contrary, the minister has said and done nothing to assure such an increase, and much to result in further lowering of production.
Amongst the greatest causes of inflation is excessive governmental spending, and the minister foreshadowed expenditure in 2008 of $7 840 trillion, as against projected revenues of $6 080 trillion. The total inability, or unwillingness, or both, of government to curb its spending has been a major fuellant of inflation, and will continue to be so in 2008. As if this does not suffice, the minister is also imposing substantially greater excise duties and levies on petroleum products, and this must markedly impact upon inflation, for fuel is an essential operational input for the entirety of the economy. In addition, by doing nothing to ensure enhanced foreign exchange earnings, the minister is assuring the alternative foreign exchange markets of ongoing virility, with continuously upward exchange rate movements therein, further exacerbating inflation.
Again with great correctness, the minister noted the critical need for Zimbabwe to maximise the retention of skills, with its skills resource having been catastrophically contracting in recent years, as ever more have departed to seek livelihoods in non-moribund economies.
But although he recognised the need to hold the skilled, he has retained a tax rate regime which results in Zimbabwe taxing the skilled more highly than they would be taxed anywhere else in the Region. Not only are the tax bands unreasonably narrow, but the top rate tax at 47,5% is grossly greater than elsewhere. In most of the region the maximum rate is in the range of 30 to 35%, with the exception of South Africa, having a maximum rate of 40%. Mr Minister, over-taxing the skilled is yet another major incentive to the skilled to depart Zimbabwe and earn their livelihoods elsewhere!
Unless, like Dick Whittington’s cat, the minister will turn and proceed in a diametrically opposite direction, the continuing decline of the economy is assured.