FINANCE minister Patrick Chinamasa yesterday delivered his delayed maiden 2014 mid-year fiscal policy review statement — practically two months before the 2015 national budget — which contained bad news of continued economic tailspin and an array of further taxes which will overburden individuals and companies amid withering criticism from his predecessor who accused him of tinkering with symptoms instead structurally tackling a deepening recession.
Faced with dwindling government revenue collections, Chinamasa raised duty on fuel and even on airtime in a desperate bid to raise cash in the face of a growing fiscal crisis.
He also raised duty on a wide range of imports of finished products, including cooking oil, poultry, soap, maize meal, flour, beverages, dairy produce, furniture, sugar, fresh and canned fruits and vegetables, among others, saying they were accelerating collapse of the local industry and unnecessarily ballooning the country’s import bill which stood at US$3 billion in the first six months of 2014.
While total imports for the first half of the year were down on last year, relatively these remain high at US$3 billion.
Corresponding imports for last year were US$3,9 billion. From January to June, total exports stood at US$1,2 billion compared to US$1,5 billion during the corresponding period last year, showing production is falling.
Latest government figures presented by Chinamasa show revenues were below target in the first half of the year, while expenditures exceeded budget due to growing non-discretionary spending. Similar spending patterns are expected to persist in the last half of the year.
According to the figures, cumulative revenue collections for the period January to June, stood at US$1,735 billion. The figure was 6,1% below projections, while expenditure amounted to US$1,953 billion against targeted expenditures of US$1,848 billion, largely due to loan repayments and an increase in the wage bill.
In a bid to shore up declining revenues, Chinamasa also increased excise duty on diesel and petrol from 25 US cents and 30 US cents per litre to 30 US cents and 35 US cents per litre respectively, with effect from September 15. Apart from the increased duty on petrol and diesel, Chinamasa also levied excise duty of 5% on airtime for voice calls and data. He also proposed to levy customs duty on mobile handsets at a rate of 25%, with effect from October 1. This reverses an August 2009 decision to reduce duty on handsets and encourage growth in communication.
Chinamasa also increased rentals on government properties.
In general, he painted a gloomy picture of the economic situation.
“Economic developments during the first half of the year, together with projections to the end of the year, necessitated the revision of the 2014 macro-economic framework. GDP growth for the year has been revised downwards from 6,1% to 3,1%, in view of the under-performance of mining and manufacturing,” Chinamasa said. “The slowdown in GDP growth is also reflected in reduced revenue collections, depressed exports and imports.”
He said as a result, the budget would have to be revised.
Anticipated out-turn to year-end has been scaled down on account of shortfalls in revenue collections, coupled with new expenditures on loan repayments, as well as higher-than-projected employment costs.
Former finance minister Tendai Biti said Chinamasa’s fiscal policy review statement and proposed interventions in support for agriculture, domestic industry, facilitation of foreign investor partnerships, clarity on indigenisation, demonetisation, continuation of the multiple currency system; formalisation of business activities for tax purposes, additional revenue measures in support of the 2014 budget, review of public procurement, parastatal reforms and debt resolution strategy would not work unless “anti-recession measures” were adopted.
“I don’t envy Chinamasa; he is in a difficult situation. His statement only served to confirm what we know: the economy is now in a recession and we need anti-recession measures to rescue it. Fiddling with symptoms, including embracing fascist fiscal interventions, won’t help,” Biti said.
“We are now formally in recession because we are witnessing economic decline during which production and trade are falling as shown by a drop in GDP in two successive quarters. The intervention measures Chinamasa proposed are well-intentioned but superficial. They amount to posturing given his fear and lack of urgency to deal with hard political and policy questions sabotaging the economy.”
Biti said the economic rebound experienced since 2009 has ended, with economic growth decelerating in 2013 and Chinamasa needs to think in that framework in order to tackle the vulnerable external position, widening current account deficit, overvalued exchange rate and low international reserves, as well as diminishing tax revenues without “taxing people to the bone”, deal with policy inconsistencies, financial sector stress and liquidity crunch.
“What he is doing is not going to work without improving production on an industrial scale. The minister is trying to protect dying industries, while taxing people to the bone. The measures will be disastrous as they may lead to unintended consequences of shortages, passing of costs to consumers and capital flight.”
Analyst Takunda Mugaga said Chinamasa’s “fiscal tricks” were acts of desperation which will not achieve intended results.
“These are just spruce-up measures because the situation is so bad. It’s too late to work for such sort of interventions,” he said.
Biti said disinflation (slowdown in the inflation rate) which has reached deflation (negative inflation) levels will aggravate recession.
“It is clear that a year after last year’s general elections, the Zimbabwe economy has entered into the realm of a U-shaped recession in which GDP may shrink for several quarters, and only slowly return to trend growth, unless game-changing interventions are made,” he said. “(The government’s economic blue-print) ZimAsset is unworkable; we can’t even talk about it. The Chinese deals are just pie in the sky. To change, we need political and economic measures dealing with the situation in a comprehensive manner, not these disjointed interventions.”
Former International Monetary Fund chief economist, Simon Johnson, famously said a U-shaped recession is like a bathtub: “You go in. You stay in. The sides are slippery. You know, maybe there’s some bumpy stuff at the bottom, but you don’t come out of the bathtub for a long time.”