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Minister Chinamasa

Finance Minister Patrick Chinamasa did not have a lot of fiscal space to make dramatic changes in his budget. He could not order significant tax increases because the economy would not stand these; and he could not make significant tax cuts because the Government still has to provide a lot of services to the people.But within these limits he has made adjustments that should help push economic growth, provide better financial stability, and cut some of the cheating that is not only unfair but which distorts the economy.

Industry is the biggest winner. He is extending the SI64 list of items that need special permission to import to include school uniforms, all bags and luggage, and wheat flour.

The addition of flour just tidies up the list since almost all flour on our shelves is already locally milled, admittedly from imported grain which is still allowed, but the additions of all school uniforms and all luggage, including all those satchels children use for school books, is a significant boost to restoring our textile industry.

It was not that long ago that all uniforms were made in Zimbabwe. Cheap imports damaged that industry. And the minister is putting in higher duty on imported textiles to provide more pressure to go local and more incentive to investors to invest in textiles, a traditional industry for industrialising states.

Whatever extra revenue he gets from textile duties will probably be spent on the reduction in duties in raw materials for local manufacturers as he tries to solidify the restoration of industry started with SI64.

Small businesses, easily the most obvious route to higher incomes and more employment, since most Zimbabweans are self-employed in agriculture and small businesses, are helped with lower presumption taxes and a reduction in tax on mobile banking. Basically they should do more business and do it cheaper and more efficiently.

The modest amount of money the minister has after paying his salary bills has been divided among the most critical social sectors, such as health and education, but with agriculture getting the biggest share. This makes sense.

Much of what the minister has scraped up for these non-salary purposes probably comes from the fact that more people in the second half of 2017 will be eating their own food rather than drought relief food he has to pay for.

So it makes sense that they can grow their own food with extra for the urban areas and that irrigation is expanded so Zimbabwe can survive the next drought in far better shape. Better agriculture can generate more exports, fewer imports and higher incomes among farm families. And that makes a big positive difference to Zimbabwe.

Cheating and loopholes do not just cut revenue, they also fuel resentment. Most of the minister’s extra revenue comes from his moves to close loopholes in the tax law uncovered by ingenious tax lawyers and accountants, and his expansion of the systems needed to stop smuggling and ensure all providers of goods and services pay VAT. Those fancy tills Zimra uses to monitor sales for VAT will be cheaper.

Paraffin will now be taxed. It is no longer the basic poor man’s fuel and was being bought by the tonne to mix with diesel. The bit of extra tax, largely on higher diesel sales as cheating stops, will pay for that 1c/litre tax cut on most fuels.

His other tax increases are interesting. Higher taxes on imported wine will largely be paid by the better off who buy this luxury, and might see more sales of the beer and spirits produced locally.

His 5 percent tax on airtime will be paid by almost everyone in Zimbabwe, but rather cleverly he earmarked the whole of this tax for health services, which everyone wants and needs. The drift from expensive voice to cheaper data will probably leave most people’s airtime bills the same, but with a better hospital thrown in. The changes might be modest, but the minister has used his limited space to make life a bit better for most and to help build future growth.