Chinamasa’s fiscal policy uninspiring

At a breakfast meeting held in the capital this week, Finance minister Patrick Chinamasa warned the private sector would collapse if it did not deal with its unsustainable cost structures, particularly wages.

Zimbabwe Independent Editorial

A day later, Chinamasa presented his mid-term fiscal policy, which exhibited government’s desperation for cash as evidenced by a raft of taxes on fuel and even mobile phone airtime.

Ironically, Chinamasa said 76% of government’s budget was going towards civil service wages.While it is no secret that Zimbabwe’s civil service is bloated, with reports of thousands of ghost workers.

Instead of dealing with the situation, Chinamasa has gone on to levy punitive tax on already over-taxed workers.

For instance, he has proposed to broaden gross income and include any amount equal to the value of an advantage or benefit in respect of employment, service, office or other gainful occupation in order to enhance and restore equity and fairness to those employees who do not receive fringe benefits, while enabling the tax administration to fairly assess taxpayer liability.

Going forward, it is feared Chinamasa could be running out of fiscal space and will soon have to realise government is in fact in a serious fiscal crisis when it can no longer meet its obligations.

While he proposed a series of interventions, Chinamasa failed to come up with a clear position on indigenisation only asking Indigenisation minister Francis Nhema to “clarify” the policy. The policy has wrought havoc on the investment front and economy.
For a country that is in serious economic trouble, characterised by massive job losses and company closures, Chinamasa needed to tackle toxic political and economic issues in a comprehensive manner.

The country’s unemployment rate is hovering above 80%(no one believes the fictitious 10%). With a small number of the population in formal employment, Chinamasa should be formulating policies that boost the productive sector’s capacity utilisation.

Given that banks are saddled with non-perfoming loans and cutting back on lending, improving capacity utilisation is proving to be a challenge.

While Chinamasa showed good intentions when he introduced taxes on imports, this is however another wrong prescription. He cannot protect dead and uncompetitive industries.

The increased duty on imports will most likely have unintended consequences.

The use of foreign currency saw an influx of cheap imported products against a background of outdated and antiquated equipment, unreliable and expensive power supply, lack of long-term funding to sustain operations and low capacity utilisation which plunged from 57,2% in 2011 to 39,6% last year.

To make matters worse, the country finds itself in a tricky spot given that the Reserve Bank of Zimbabwe is crippled when it comes to monetary policy intervention.

The central bank cannot do simple things expected when signs of a recession appear such as coming up with a stimulus plan to kick-start the economy. It doesn’t even have lender-of-last-resort capacity.

As we have repeatedly said our problems are structural and thus need structural interventions, not tinkering with symptoms.

2 thoughts on “Chinamasa’s fiscal policy uninspiring”

  1. Sylvester 'Sly' Mpanduki says:

    I think the finance minister wasn’t suppose to increase taxes on workers because high taxes on workers might cause their purchasing power to be reduced, aggregate demand might fall consequently and therefore this might result in low aggregate consumption levels. The worse part might be that, those few remaining viable firms will end up cutting out production or even closing down due to low demand of their product.

  2. lele says:

    zanu matofo or wat? wat is it they are not doing kandi , aghh zvakaoma zvatichangofa hedu nyika yedu ichingova yekutambura surely , this is really crazee , they nid to cme up nemazano ane musoro for us to survive in the country.

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