CONFEDERATION of Zimbabwe Industries (CZI) has called on Finance minister Mthuli Ncube to put in place measures that will boost the spending power of the country’s citizens when he presents the mid-term fiscal budget on Thursday next week.
This comes as the economic crisis is deepening characterised by a debilitating liquidity crunch, acute foreign currency shortages, a rapidly depreciating local currency and runaway inflation.
Ncube recently announced a 100% increase in civil servants’ salaries beginning July 1.
“Industry needs a spending population to thrive, hence the 2022 national budget should prioritise increasing the spending power of the population,” CZI stated in the 2022 mid-term budget review submission.
The organisation added that with year-on-year inflation for June 2022 at 191,6%, the 100% wage increase does not match inflation. The purchasing power of civil servants is diminishing, which will have the huge impact of reducing aggregate demand.
The CZI noted that the income that the general populace earns is greatly affected by the tax bands and the tax-free threshold is pegged at ZW$25 000, which is now too low due to the prevailing inflationary environment.
“Using the official exchange rate, the tax-free threshold is US$68 and using the parallel market it is US$37, this is against a tax-free threshold of US$100 for those being paid in USD,” the CZI said.
The majority of workers in Zimbabwe, the CZI noted, earn their salary in the local currency, which is then overtaxed and reduces their disposable income as well as decreasing aggregate demand.
According to the business grouping, in order to boost aggregate demand, the mid-term budget review must revise the tax bands upwards, adding that to hedge against inflation these tax bands must be CPI-indexed.
This should be done, it said, while also prioritising social safety nets to ensure that the vulnerable population can at least afford some basic needs, which industry would help meet.
The increase in the total demand will in the end have limited trickle-down effects to industry if the bulk of consumption is on imports, the CZI prescribed.
The CZI warned that the manufacturing sector can only achieve growth if there is an increase in the production of outputs. Government projected that the manufacturing sector will grow by 5,5% this year.
“Growth of the manufacturing sector only happens when output being produced locally increases. However, some of the measures that have been put in place by the Ministry of Finance in the year 2022 hinder the manufacturing sector from achieving the growth targets,” the business grouping said.
Recently the government announced the opening of borders for the importation of selected basic goods as a result of the skyrocketing prices of locally produced goods.
The CZI, however, noted that this will severely curtail the country’s competitiveness particularly at a time the country has a high inflation unlike its neighbouring countries which generally have inflation under control with respect to competitiveness.
The CZI recommended that the government should introduce some incentives for buying locally produced goods to offset the inflation induced competitiveness challenges.
It also called for the removal of the current excise duty on cigarettes.
“In the 2020 national budget, the minister increased excise duty on cigarettes from 20% + US$5/1000 cigarettes to 25% + US$5/1000 with the justification that this would be similar with the practice in the region and hence this would curb illicit flows.” the CZI noted ”
“CZI recommends that there is a need to migrate from the current mixed excise duty regime for tobacco to a specific excise duty regime, which brings certainty to investors while also maintaining revenue inflows for the government as well as eradicating illicit cigarette markets. The current ad valorem excise duty is prone to manipulation by cigarette companies through falsification of ex-factory prices or controlling sales transactions with third parties so that the ex-factory price is lowered to reduce the excise amount. Neighbouring countries such as South Africa, Botswana and Mozambique have already migrated to specific excise regimes.”