Expectations Galore as Budget Announcement Looms

AGAINST a backdrop of “extraordinary uncertainty” and a liquidity crisis, will Finance minister Tendai Biti downgrade his positive growth forecasts, or strike a remarkably upbeat national budget, with a consistent approach to longer-term planning focused on increased production?

Will Biti reiterate that economic policies should focus on the country’s longer-term interests, highlighting the dangers of policies “designed for populist appeal”?

How will he deal with the country’s financial health and liquidity challenges at a time when there has been a “destructive implosion” in world financial markets?

What will he say about the performance of the current budget? Will his revenue projections be realistic and where will the money come from?

These are questions being raised ahead of the announcement of the national budget by Biti on Wednesday.

According to a document compiled by the business community entitled “The voice of Business: Proposition to the 2010 National budget”, increasing the tax-free threshold would go a long-way in reducing the number of families living under the poverty datum line.

“The 2010 national budget should seek to increase tax-free threshold to US$500 and the first income bracket should be taxed at 10%,” reads part of the recommendations.

According to the document it was vital for government to introduce a tax-free bonus in the income Tax Act.

Economic and trade unionists this week said reducing the high unemployment rate remained a priority for government and wondered how much would be set aside to create jobs in the next three years.

The business community said the budget should seek to increase the salaries of civil servants with immediate effect.

“There is a need to improve the remuneration of the civil servants to match regional standards,” the business community said.

Civil servants are currently earning US$150 monthly.

Economist Brains Muchemwa described the previous budget as “good” adding that the crucial aspects of the coming budget should centre on allocating International Monetary Fund loan to sectors that have strong primary multiplier effects on employment creation so that the secondary effect on government revenue creation will assist equally in repaying the loan and put the economy on sustainable growth path.

“We need to start creating the platform for reviving the defunct middle class. And the government, being the single largest player in the market now, should have the right priorities in place to create a sustainable middle class to cultivate strong and rising domestic demand that will provide the vital anchor for growth,” Muchemwa said.

Muchemwa said Zimbabwe needed a strong private-public sector partnership framework that would revive its infrastructure much faster and put an end to fiscal antics of attempting subsidies on empty coffers.

“An economy, just like a private company, needs to run on goodwill and competitive economic pricing. And with the dollarised economy, good times lie in waiting,” Muchemwa said.

The business community said Biti should reduce all taxes, which include Value Added Tax, Pay As You Earn and the corporate tax.

“In order to fund State expenditure wholly from revenue and also balance recurrent and non-recurrent expenditure without recourse to borrowing, it is recommended that a marked reduction in the number of ministers be considered,” reads part of the document.

The business community said Biti should adopt a growth budget adding that the country should make use of cost effective and transparent systems to collect taxes as a way of cutting the country’s expenditure.

Some of the recommendations include privatising or commercialising operations of parastatals.

“Parastatals commercialisation and privitasation, partial and total privatisation of parastatals should be vigorously pursued thereby generating fiscal inflows from disinvestments,” said the business community.

Economist, Eric Bloch said it was critical for Biti to announce steps and incentives that would facilitate investments.
Bloch said realignment of tax rates should be considered so that they match those that are being charged in the region.
“The tax rates that are being charged in the country are a major deterrent to investments and they have also led to a serious brain drain,” Bloch said. “The ministry (of Finance) needs to look into these so that the rates are similar to those in the region and also as a way of curbing brain drain.”

Bloch also said businesses should not be forced to pay value added tax by the 15th of every month when they only receive money from their clients at the end of the month.

Confederation of Zimbabwe Industries is, among other tax reforms, pushing for an increase in value added tax from the current 15%, a move that is likely to see a surge in consumer prices.

“We recommend an increase in the rate of VAT to 17,5% and a sharp reduction in the number of exempt products to compensate for revenue loss under other tax heads. This will revert to 15% once revenue generation has improved,” reads the CZI input to the national budget. “The due date for VAT payments should revert to the end of the month following the month which VAT is accrued to encourage credit creation in the economy.”

Apart from the tax reforms industry also recommended the creation of an “Independent Budget Office” to “oversee the budget from a non-partisan perspective”.

The Zimbabwe National Chamber of Commerce is against plans to increase VAT to improve revenue generation.
Instead it recommends that government should lower taxes.

“In order to then increase the revenue base the following recommendations are being made — review or reduce all taxes VAT, Pay As You Earn, corporate tax etc to stimulate demand by attracting more players and compliance,” the ZNCC said.

Addressing parliament recently, Biti projected a rise in government revenue next year despite the current dwindling monthly revenue saying it had reached a “plateau”.

He said monthly revenue generated since June had remained stagnant, signalling a budget deficit for the current fiscal year.

This means government would fail to generate US$1 billion targeted in the revised national budget, piling more pressure on the fiscus following the dollarisation of the economy in February. Biti said plans to increase revenue in a “shallow budget” of US$1,3 billion was a reflection of lack of meaningful foreign direct investment in the economy.

Dogged by the current economic problems, the Finance minister said any plans to service the US$5,7 billion external debt using the current revenue inflows were far fetched. Government requires over US$60 million for wages and pensions each month apart from other expenditures.

“So if our unvalidated debt is $5,7 billion, it means assuming that we are living on water and air and God’s grace, we are required to pay that debt for six years and clearly that is not sustainable,” Biti told parliament.

 

Paul Nyakazeya

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