HomeAnalysisMid-term fiscal policy: Ignoring fundamentals

Mid-term fiscal policy: Ignoring fundamentals

THE hike in taxes announced during the mid-term fiscal policy statement presented by Finance minister Patrick Chinamasa will further burden ordinary citizens in an environment characterised by low and inconsistent salaries, company closures and retrenchments.

Kudzai Kuwaza

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.

This will further set a wave of price increases on the country’s citizenry which is battling a severe liquidity crunch and increasing unemployment.

Employers are now failing to pay salaries on time with some having their wages cut while some companies have frozen recruitment of workers.

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. Petrol now costs between US$1,54 and US$1,55 up from US$1,49/US$1,51 a litre for the 15% ethanol blend.

Apart from the increased duty on petrol and diesel, he also levied excise duty of 5% on airtime for voice calls and data.
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.

The finance minister justified the move pointing to the need to reduce the import bill, which was pegged at US$3 billion for the first six months of the year.

Chinamasa’s fiscal policy statement clearly shows how desperate the government is in trying to replenish its depleted coffers that have affected its ability to pay civil servants within set timeframes.

Government’s revenue base has dwindled largely due to company closures and retrenchments. According to the sources at the Retrenchment Board, 4 668 have been laid off between January and August this year.

The National Social Security Authority revealed that an average number of 10 companies were closing every month since January this year, adding thousands more onto the streets.

The burden of the increased taxes will also impact on the ability of employers to effect salary increments as pointed out by the Employers’ Confederation of Zimbabwe (Emcoz) executive director, John Mufukare.

“The tragedy is that the needs of the employees worsens and becomes more genuine, but the employer’s ability to meet employees’ genuine requirements becomes greatly diminished,” Mufukare said.

He said the poorest sector of the country’s population will feel the full brunt of Chinamasa’s hike in taxes.

“Our concern is for the poorest sector in our economy that do not have anyone to pass the increase to” the Emcoz boss lamented.

Mufukare said while they understood that the finance minister “needed money from somewhere”, the recent hikes will have a ripple effect across the broad spectrum of the economy.

Chinamasa’s hikes will also have a devastating effect on wage negotiations that have been contracted between employers and employees.

Workers have been advocating a minimum wage linked to the poverty datum line (PDL), which currently stands at US$540, a stance vigorously resisted by employers arguing that it is not feasible due to low productivity.

Zimbabwe Congress of Trade Unions (ZCTU) secretary-general Japhet Moyo said the tax hikes are signs of a government in panic mode.

“All governments which panic do not tax the rich, they tax the poor,” Moyo said of the tax increases announced by Chinamasa.
He said the hikes will put another nail in the coffin of organised labour in Zimbabwe.

“Workers are very, very scared,” Moyo said “What we have worked for over the years as organised labour is being destroyed.”

Moyo said Chinamasa’s increases in tax could trigger more job losses.

“The increased taxes will force businesses to restructure and this will put more people on the street. The employer will look at the weaker point which is the workforce, a situation which is not good at all.” Moyo said.

He said the hike was a firefighting mechanism to raise revenue instead of working on long-term measures to boost revenue streams.

“This fiscal statement is anti-poor. It is targeting the poor and taking away from those who do not have anything. This is an anti-poor policy from Chinamasa,” Moyo charged.

His remarks are further substantiated in the trade union’s analysis report of the mid-term fiscal budget in which they say the budget will not improve the lives of the poor.

“The revenue measures in the mid-term review will only attenuate rather than abate the structural poverty that afflicts 62,6% of households as they are indirect and hence regressive,” says the report.

“Neither does the budget and its mid-term review take a human rights approach that prioritises basic socio-economic rights to water, health care, education, provision of basic utilities, housing and sanitation, decent employment and poverty reduction.”

The report adds: “Critically, therefore, the mid-term fiscal policy review budget fails to provide stimuli for a new paradigm that is pro-poor and inclusive, fails to promote the integration of marginalised groups (women, youths, people with disabilities and people living with HIV and Aids) and sectors especially the informal and rural economy, and unleash a more employment intensive pathway out of poverty.”

The tax increases will result in workers facing problems from all angles according to the University of Zimbabwe economist Fanuel Hazvina.

“The fiscal policy will generate revenue for the government at the expense of the worker,” Hazvina said.

“Workers will be facing problems from all directions from increases in transport costs, increase in the price of goods on the shelves to facing retrenchment at work.”

Hazvina said the increase in taxes will result in civil servants demanding an increase in salaries as their disposable income is further eroded.

He said the country will remain in a cycle that will be impossible to get out of because of failing to address pertinent issues.

Chinamasa is expected to present the 2015 budget in November this year and Hazvina does not think there will be any reprieve for the ordinary Zimbabwean.

“There is nothing to look forward to in the 2015 budget as long as we don’t put in place policies that revive industry,” Hazvina said.

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