Eric Bloch: You only reap what you sow

MOST admirably the Minister of Finance Tendai Biti has, ever since he came into office 18 months ago, vigorously pursued a policy that the Zimbabwean government should only “eat that which it gathers”.

In his very first fiscal policy statement to parliament, reviewing and modifying Zimbabwe’s 2010 national Budget (which had been formulated and presented by his immediate predecessor, then Acting Minister of Finance Patrick Chinamasa), he emphasised a determination that the state cease expending far beyond its means, incurring ever greater debt.  Already then the debt that had been accumulated over many years was gargantuan to such an extent that Zimbabwe did not, and does not, have the resources to fund its debt service obligations. 
The minister justly considered this circumstance to be untenable, and that it had to be forthrightly addressed. He strove to slash expenditure intensively, concurrently with endeavours to enhance the state’s revenue inflows.  Although he has had some success in his drive to curb expenditure, growth in revenue has been relatively minimal, primarily because the country’s economic circumstances have been and still are gravely straitened, yielding relatively minimal inflows of direct and indirect taxes.
In awareness of the distressed state of the economy, notwithstanding some recovery achieved in 2009, the minister has also recurrently emphasised the need for more substantive recovery.  Although hindered in pursuing the recovery by innumerable counter-productive government policies on agriculture, mining and investment promotion, he has sought to motivate economic upturn and can justly claim much of the credit for the improvements achieved in 2009, notwithstanding that they fell far short of those needed.
However, the minister has nevertheless failed to recognise adequately that the maxim “you can only eat that which you gather” must be matched with pursuit of the maxim “you can only gather (reap) that which you sow”.  Whilst limiting fiscal consumption to the funding inflows he was able to gather, he has not sufficiently sought to increase the ability to gather more, other than by pursuit of burdensome taxes excessively beyond the sustainable means of the economy.  In failing to achieve significant growth in state revenues other than by ongoing imposition of onerous taxes, and by ensuring greater national compliance with taxation laws, he impairs attaining the objective of raising sufficient revenue to meet necessary expenditures.
Admittedly, he can credibly contend that Zimbabwe would have had, and will have, far greater economic growth, with consequential considerably greater fiscal revenues, if his “inclusive government” colleagues would determinedly ensure a stable political environment (including unequivocal implementation of the global political agreement, devoid of endless breaches of that agreement).  If they would not repeatedly create economic recovery and growth hurdles such as the ill-conceived Indigenisation and Economic Empowerment legislation, and the equally ill-conceived Mines and Minerals legislation, that greater growth would have been realised.  Similarly, if they ensured absolute democracy, complete pursuit of law and order within internationally recognised norms, cessation of farm invasions, effective enablement of new farms, and restoration of property rights, the economic growth would be such as would enable Biti to gather much, much more.
But Biti cannot abdicate responsibility for pursuit of that economic growth exclusively to his colleagues, and he must be far more innovative in his endeavours to gather more.  To do so, he must not leave it to others to sow the seeds and to ensure their growth, so that he can gather more.  He too must do so.  Opportunities for him to do so abound, including:

 

  • Allowance of an extended period of time (at least two months) for commerce and industry to remit Value Added Tax (Vat) to the Zimbabwe Revenue Authority (Zimra), instead of payment having to be made within 15 days of month-end.  The present constrained payment period precludes manufacturers, wholesalers and retailers from extending credit to customers, as they then have to have the financial liquidity to pay the Vat to Zimra before receiving it from customers.  An extended Vat payment period would enable them to sell considerably greater volumes, yielding far greater Vat inflows to the fiscus, and enhancing profits with resultant increased income tax being payable.  Moreover, increased sales volumes would necessitate employment creation, which would result in greater consumer spending power, generating even greater Vat and income tax inflows to the fiscus, as well as growth in customs duties revenues, and more Paye being generated for the state.
  • Introduction of meaningful export in-

centives to accord potential exporters opportunities of being export market competitive, notwithstanding higher production costs in Zimbabwe as a result of high charges by parastatals and local authorities, and caused by wage levels generally exceeding those borne by competitors abroad.  Export market competitiveness would result in increased sales, yielding profits which would result in increased income tax being payable, and would yield employment creation which would increase the inflows of Paye, and of vat and customs on the spending of those gaining employment.  The incentives would not entail a cost to the state, for they apply to revenues which would not accrue in the absence of enhanced exports.

  • Similarly, substantive investment incentives should be introduced to stimulate investment which would contribute to economic recovery, with concomitant employment creation and consequential enhanced direct and indirect taxation inflows.  The incentives would be linked to investment earnings which would not be attained in the absence of the investment, and which therefore would not have generated taxes, and hence would be devoid of real cost to the fiscus.
  • Meaningfully increasing the Paye threshold (instead of the hideously minimal US$15 increase granted in the recent 2010 Budget mid-year review).  If the threshold were US$300, instead of an insignificant US$175, not only would the gap in the Poverty Datum Lime be narrowed, but consumer spending power would increase, resulting in attendant increased fiscal revenues. In like manner, the various Paye tax bands should be realistically modified upwards.
  • The minster’s recurrent assaults upon the mining sector should be replaced with inducement and motivation of mining development by the private sector in general, and by foreign investors in particular.  This would result in massively increased numbers employed, with attendant tax revenues to the state, and considerable downstream economic growth, similarly fuelling improved governmental revenues.

These and many other constructive taxation policies would accord the minister ability to reap much more than is presently the case, for the sowing of such seeds would considerably increase the harvestable crops.

Eric Bloch