Fiscal review skewed against the taxpayer

The mid-term fiscal policy review that was presented by the Finance minister Patrick Chinamasa last week came with uniqueness in that government has shown signs of giving in to the reality that, as the economy falters, they cannot continue serving pudding at the high table.

Daniel Ngwira,Chartered Accountant

In fact, government should do more and be inspired by Tanzanian President John “The Bulldozer” Magufuli who, since assuming power, has introduced radical cost-cutting measures, including in his office. He also reduced the income tax rate from 11% to 9%, openly stating that he was doing it to help the working class.

Chinamasa highlighted that he had the guidance and support of President Robert Mugabe. This statement is of significance, considering that the minister did not apparently have the support of the same last year when he suggested that there was no money for bonuses.

It should, however, be noted that the 2016 National Budget theme, “Building a Conducive Environment that Attracts Foreign Direct Investment”, is not easy to achieve given the current paradigm. While the minister has tried to be as realistic as possible by adjusting the sectoral growth rates, he has maintained a positive growth of 1,2% though down from the initial projection of 2,7%. This is optimistic. Given the events on the ground, growth is likely to be negative.

He indicated that cabinet had already approved the civil service wage bill rationalisation measures to reduce baseline employment costs by circa US$118 million by close of 2016. While this looks very palatable to citizens who are keen on seeing government reduce its expenditure in order to create fiscal headroom, there is no need for popping the champagne yet. This is because such employment costs may not, ordinarily, be reduced by the employer unilaterally without the consent of the employee.

The rationalisation and standardisation of allowances is a welcome move. Government should, however, emphasise sharing of some perks like newspaper copies or encourage online access of such. In addition, a cost-recovery mechanism should be put in place for those who exceed their perk limits or there should be a mechanism that disallows exceeding of limits. In this day of technology, this is quite imaginable.

There is no doubt that the revealed wage bill, at 97% of revenues, is unsustainably high. If indeed employment costs are 97%, where is the government getting money for travel? In the six months when government spent US$1,638 billion on employment costs, it means that on a simple average each employee earned US$916, including the 13th cheque. The question is: is everyone accounted for in these employment costs or there are some exclusions for the higher income servants?

The raft of measures proposed by Chinamasa will bring such to 75% by 2017 against a medium-term target of 50%. The review does not, however, outline a plausible strategy of how the 50% will be achieved against a backdrop of a low and declining tax base, lack of market liquidity to lubricate the economy and a predominantly informal economy which is short of foreign direct investment, domestic capital creation and job germination. The target of 50% seems highly ambitious especially when it is clear that the premise is the ZimAsset economic blueprint. This economic blueprint, in the absence of funding, remains a paper document.

While the reduction of salaries and allowances by between 5%-20% sounds welcome, the problem is the proposal that it will start with deputy directors to ministers. This is where the problem is — the range of implementation. It should include the chief executive officer of the country. No stone should be left unturned. In the first instance, why do we need a deputy director, two vice-presidents and deputy ministers when the country is broke? Besides, government should seriously consider consolidation of ministries (it is commendable that one of the Vice-Presidents Emmerson Mnangagwa also heads the Justice ministry; this helps cut costs) so that we reduce the associated costs like fuel, allowances, capital expenditure on motor vehicles and service costs. It does not end there. Why do we need two houses of parliament in the current circumstances — the upper house and the lower house?

Foregoing bonuses for 2016 and 2017 sounds very noble, but perhaps it is high time this bonus was linked to some measure of performance which can be tracked. This model will encourage each and every government centre, which pays salaries, to be a high-performance centre and as such create efficiencies across the board. It would, in addition, go a long way in eradicating a culture of corruption. Bonus, by definition, cannot be a given form of remuneration. It is a “thank you” for something. Quite clearly, for so many years it has been paid when it ought not to have been. While the affected employees would find it hard to stomach, they should appreciate that everyone must sacrifice something in order for the economy to come out of the current quagmire. Thousands of employees in the private sector have sacrificed both jobs and remuneration.

Added to this is the possibility of taxing civil servants’ allowances after engagement and agreement with unions. Besides reducing the burden on the taxpayer, this move will ensure equity on similar allowances and benefits earned in the private sector.

Chinamasa revealed that even as the government moves its wage bill to 76% of revenues, a combination of employment costs and commitments to meet Treasury Bill maturities would still exceed revenue inflows. There would be no space for capital expenditure and “critical debt repayments”. This lends credence to the view that all measures for cutting costs and stopping the cash flow haemorrhaging should extend to the presidency.

In addition, it should touch the heart of government expenditure and review the type of cars senior government officials drive at the expense of taxpayers. Furthermore, to be effective in this regard, government must strengthen public procurement as servants may want to recover the lost benefits through corruption. If this is left unchecked, then it could still result in inordinate costs and cash flows from Treasury. Of course, it is worrying that the Zimbabwe Anti-Corruption Commission (Zacc) has not been submitting accounts.

Perhaps what is striking about this budget review is that it is late in coming while it carries most of the elements of being a carefully thought-out review equipped with seriousness. The raft of measures that government is proposing through Treasury should have been implemented at least a decade ago. Scores of economists have been calling for such measures to be implemented over the last several years. For instance, the suspension of government financial support to state enterprises and parastatals that lacked plausible recovery plans has long been suggested and not carried through by government. It is coming late, when government, more than ever before, is desperate to create and save jobs. In a synopsis, the proposals being made by the Finance minister are important, but they are what would have made a huge difference several years ago.

Government should crack the whip on errant state enterprises and parastatals (SEPs) which do not play ball regarding accounting for public funds. These enterprises, by failing to submit accounts, are making it difficult to help government account for public funds. Surely, as there are senior managers being paid in those enterprises, they should equally find it compelling to submit accounts or else face the chop. These institutions include the Cold Storage Company, Arda, Air Zimbabwe (which is still being audited for 2010), Zimbabwe Mining Development Corporation, National Libraries and Documentation Services (which is still to submit accounts for 2009), Zimbabwe Broadcasting Corporation, Zimstats, Zacc. Some of these enterprises have been through massive scandals regarding abuse of public funds while others take patronage too far for business success.

Of all the reasons Chinamasa may suggest as the inhibiting factors for the performance of SEPs, it is interesting to note that leadership has been uppermost. No direct mention of this is made in the budget. The poor balance sheets of the SEPs and unattractiveness to lenders as well as the poor corporate governance are a result of poor leadership. A balance sheet needs to be managed. Managing a balance sheet is an expert area which requires expertise of fully trained and qualified accountants or finance professionals. Sadly, in SEPs such professionals may find it hard to endure the overbearing conduct of the politically powerful. Chinamasa is silent on this matter yet it is the most important factor. All the other factors are either symptoms or subsidiary factors. For most of these enterprises, management is appointed not purely on the basis of qualifications and experience, but rather on the basis of proximity to the establishment.

Some of the factors mentioned, like the high cost of capital and limited access to lines of credit, are conditions which the central government has created and as such should deal with. It is the policies that government has put in place that have resulted in lenders demanding a premium on their capital.

The minister laments that one of the reasons why performance is poor in SEPs is due to “old and inefficient, and in other cases, dilapidated infrastructure, machinery and equipment installed in the 1960s and 1970s”. While this could be factual, surely, who was responsible for this? All along these enterprises have generated wealth for individuals who managed the enterprises yet they could not equip them for continued existence. All these years they have been buying latest motor vehicles for managers. Boards and their managers are responsible for this and, in many cases, the responsible ministers must keep a close eye. This exposes the weaknesses of government controls as it can be noted that 50 years later the SEPs are still using the same equipment and technology which undoubtedly is obsolete due to the evolution of technology.

Moreover, he attributes the poor performance of SEPs to defaulting consumers. It needs to be brought to his attention that some of the defaults, if not most, are caused by the inappropriate pricing of the services offered by these enterprises. This results in overstated debtors. More often it is not easy to discuss one’s bills with these enterprises.

At the turn of the multi-currency regime, we saw citizens being forced to carry outrageous Zesa debts which had been converted from Zimbabwe dollar estimates to US dollar values at controversially low exchange rates. To date, the recovery of these bills is skewed towards the enterprise, thereby disadvantaging the consumer. Sadly, the private consumers are the weaker targets and thus they carry the burden of the public sector that is among the defaulters.

In the entire review, while Chinamasa acknowledges that the macro-economic environment is tougher than expected, it appears all the measures are for the benefit of the mighty in government. There is no relief which is being offered to the taxpayer who is more burdened. Instead, what the taxpayer is getting are continued threats of property attachments for late or non-payment of utility bills, garnishees for non-payment of tax or delay of same. There is no consideration that the taxpayer needs his disposable income augmented to help keep him going.

The cost cuts proposed are meant to help government ease paying its bills and not create employment or fund social services; the minister indicated that even in the event of moving the wage bill to 75% of the revenues, government will still struggle to pay its debts. Government should consider this as an imperative to expedite the engagement process with the international community; this engagement should not only be verbal or confined to piles of documents, but government should address substantive matters at hand regarding the ease of doing business, police brutality, the current liquidity crisis, indigenisation laws and curtail rhetoric that has the potential to scare away investors and lenders. Further, government should be realistic in its pronouncements. How does one declare a banking sector strong when it fails to disburse cash to customers or fails to honour international payments on behalf of customers?

Ngwira is a chartered accountant, former bank treasurer and former university lecturer. He holds finance and business qualifications. — daniel.ngwira@gmail.com, +267 73 113 161.