How the GNU has performed

IN formulating Zimbabwe’s 2010 National Budget, Minister of Finance Tendai Biti was confronted with a horrendously difficult task.

Government is bankrupt (as recently openly admitted by Prime Minister Morgan Tsvangirai) and opportunities of access to revenue are very limited.

Although 2009 has indisputably witnessed some significant economic recovery developments, that recovery is not yet so extensive as to yield substantial inflows to the fiscus.

In contradistinction, the monetary needs of government are immense, and especially so if government is to rapidly minimise the magnitude of suffering within Zimbabwe, and is to stimulate ongoing and rapid economic recovery.

Bearing in mind the greatly constricting and demanding circumstances confronting the minister, the budget that he presented to parliament last week must be commended as being very comprehensive and substantially sound.

But that does not detract from the fact that there are some material deficiencies and omissions in that budget, many of which could have been addressed, and inevitably one must ponder on the calibre and capability of some of the minister’s advisors, for they apparently failed to focus his attention on those deficiencies and omissions.

The resultant conclusion of in-depth consideration for Biti’s 2010 Budget is that it is similar to the title of a renowned movie of yesteryear: The Good, The Bad, and The Ugly.

What were the ugliest features of the budget? Undoubtedly the foremost of those features was that he accorded the harshly oppressed low-level wage earners a ludicrously contemptuous increase in the threshold of individual income tax of US$10, from US$150 to US$160.

In October (the most recently available Consumer Price Index data being for that month), the Poverty Datum Line for a family of six was approximately US$496.

Assuming such family has two income earners, generating income in a 3:2 ratio, one would have an income of marginally under US$300, and the other an income approximating US$200.

Thus the minister sees it fit to levy direct tax from those who are desperately struggling for the survival of themselves and their families, and to intensify their immense hardships and distress, with a virtually meaningless concession, reducing their devastating tax burden by a niggardly US$2 per income earner.

Another ugly feature of the budget is that it contains very little to encourage the much needed investment which would be a key catalyst of economic recovery.

It contains no investment incentives whatsoever, and no incentives to stimulate employment.  Instead, it reduces the first year capital expenditure allowances for businesses (SIA) from 50% to 25%, foreshadows discontinuance of export market development expenditure incentives in 2011, and berates the mining sector, concurrently with increased imposts upon that sector, and that with disregard for the extent that mining can accelerate economic recovery.

Yet another ugly feature of the minister’s budget statement is the absence of any policies to bring about public private-sector partnerships, being partial privatisations of parastatals, or to facilitate total privatisations.

Without such actions, it is inevitable that Zimbabwe will continue to suffer, extensive, interruptions in energy supplies, erratic and defective telecommunications, appallingly poor rail services, air service deficiencies and similar inadequacies from other parastatal service providers.

Not as ugly, but nevertheless bad, were some other budgetary features.

The level of bonuses not subject to taxation was set at a miniscule US$400.

The tens of thousands of employees struggling to fund the basic needs of their families and themselves, including rents and utilities, food, transport, health care and education, were anxiously hoping for some temporary relief from year-end bonuses, but now know that little of those bonuses will escape the income tax noose.

Moreover, greater generosity by the minister would not have been of substantial cost to the fiscus. The bonus recipients would have had greater disposable income, as a result of lesser incidence of income tax, and the fiscus would benefit from enhanced indirect taxes (Vat, customs duties etc) on the increased spending of the bonus-receiving employees, and as a result of improved income tax flows on the greater profits attainable by commerce and industry as a result of the greater spending by the bonus-recipients.

Another tragic feature of the Budget is that the minister has extended the date for payment by businesses of Vat by a “grandiose” five days, from the fifth to the tenth of the month.  This is a very shallow concession, of exceptionally limited benefit to the business community.

With pronounced money market illiquidity prevailing, most businesses cannot accord credit to their customers, and especially so if they have to remit Vat to government long before receiving payment from customers.

But the economic recovery would be greatly accelerated, with much increased productivity, enhanced availability of goods and ongoing containment of inflation, if business was enabled to offer credit, which would partially be made possible if Vat was remittable to the state only once received from customers.

Of lesser consequence, but nevertheless of concern, was that the minister saw it fit to contend that the economy has “stabilised”, implying that it is now stable.

That is not so!  It is recovering, and in some respects impressively so, but it is still very volatile and vulnerable, and therefore contentions of stability are deceptive.  So too were certain of government’s economic projections, enunciated by the minister.

He suggested that next year Zimbabwe’s tobacco harvest would exceed 200 million kg, against the 2008/9 crop of a paltry 46 million kg, and that Zimbabwe would produce at least 1,4 million tonnes of maize, compared to the last crop of 600 000 tonnes.

These projections are far-fetched and extremely misleading with no prospect of attainment in the absence of sufficient inputs, effective and constructive land usage programmes, and consistent utility availability.

However, there were some very positive and good contents in the budget, to some extent overriding the negatives.  First and foremost was the minister’s categoric statement that “re-introduction of a local currency” would not occur in the foreseeable future.

He said that such re-introduction could only be effected when there is evidence of a strong economy, “with annual sustainable GDP growth rates of over 6%, high exports and high foreign exchange reserves” and when there is “a balanced budget and institutional credibility”.  He was also emphatic that until then, Zimbabwe would continue to operate a multi-currency basket.

In doing so, he has constructively squashed the endless flow of specious and damaging currency rumours which have greatly intensified money market illiquidity, and recurrently increased economic despondency, depression and negatives.

Constructive, and the one limited budget boost to the investment drive, was the reduction of corporate income tax and withholding taxes on royalties, technical fees and the like, and on dividends on quoted shares, closer aligning Zimbabwean taxation to regional levels.

The minister’s policies to resolve the endless, highly costly (business-wise) and tourist demotivating, chaos at Zimbabwe’s border posts are exceptionally commendable, as are his intents to temporarily continue the suspension of duties on imported basic commodities and on manufacturing inputs of basic commodities.

 

By Eric Bloch