EDITORIAL COMMENT: Budget will ensure growth stability, fairness

25 Nov, 2022 - 00:11 0 Views
EDITORIAL COMMENT: Budget will ensure growth stability, fairness Minister of Finance and Economic Development Mthuli Ncube

The Herald

In his National Budget for next year yesterday, Minister of Finance and Economic Development Mthuli Ncube stressed his double objective of growth, which is being accelerated, and macro-economic stability, required to maintain growth as well as letting Zimbabweans enjoy the fruits of that growth.

So populist measures were eschewed, to be replaced by the solid prudent fiscal policies that have been the hallmark of the Second Republic in the last four budgets presented by Prof Ncube.

Growth is needed, and despite the falling back of the global economy, Prof Ncube is optimistic that he can keep Zimbabwe right there in the top of the African and Southern African growth figures, even though he has had to recalculate growth this year at 4 percent and next year at 3,7 percent.

But both figures are around two-a-and-half times what regional economic powerhouse South Africa is expecting.

Having sorted out the tax structure in his mini-budget this year, Prof Ncube largely left out tax increases and decreases.

Inflation has been very low since that budget brought in changes so his tax bands, including the tax-free band, remained unaltered and his tax changes were largely a 0,5 percent increase in VAT to 15 percent.

This brought Zimbabwe closer to what our neighbours charge, although we are still almost the lowest, and that should help prevent smugglers arbitraging on different tax rates in the neighbourhood.

Price rises will be trivial, around 0,4 percent, and partially offset by plans to expand the list of essentials that are not taxed.

Otherwise his tax measures were to stop cheating, and stop people taking advantage of loopholes in the tax system. VAT fiscalisation, whereby businesses that have to charge VAT do so in a way that Zimra can read in real time, is being pressed to the limit, although made cheaper with technology                                                     changes.

Oddities where one tax could be offset by another are ending, and those who want to report income late or pay their taxes late are being hammered by penalties and interest rates.

Late payment now attracts 200 percent interest, and will be legally set to the rate set by the Reserve Bank of Zimbabwe, so those who are effectively borrowing from Zimra by delaying tax payments will find that very expensive.

As has now become the norm the Government is keen on using market forces to make people walk on the straight and narrow.

These sort of measures will have high levels of support from the businesses that do follow the rules, and complain when competitors get away with cheating, and from all those PAYE and other payers of income tax who get no option, but to pay on time.

Capital development remains a major thrust of the Government, all that money spent on roads, dams, power stations and so many things that create the business environment that can then be exploited by the private sector to increase production, create new jobs and raise more taxes.

Next year the Government intends to push capital spending from $454,7 billion to $656,5 billion and Prof Ncube wants priority being given to development that is work in progress.

For example he wants to see the Gwaii-Shangani Dam, the Harare-Masvingo-Beitbridge Road, and the Mbudzi multi-bridge interchange all completed next year, along with a good batch of Government housing and many other projects.

This is required. He also wants older projects to start being more use. Several dams have been finished and filled, but little water is being drawn.

He wants to see the irrigation installed, fisheries started and other development so Zimbabweans can start benefiting. He has put money in the budget to allow this.

The second change we see is the continued process of devoting moderately higher percentages of tax income to paying civil servants.

This was below 40 percent near the start of the Second Republic as the whole budget system was revamped to produce growth rather than decline.

This year, through the mini-budget, Prof Ncube pushed it to around 42,6 percent of spending.

Next year he is taking it to 51,8 percent of spending, but before the ultra conservatives complain about civil servants pay they need to realise that the overwhelming majority of State workers are in education, health, the security services (with police dominating) and agriculture.

The rest of the ministries and units do not require vast numbers.

As a prime priority Prof Ncube wants macro-economic stability. He and the Reserve Bank have largely achieved this in the last couple of months, bringing down inflation sharply, making speculation very expensive and crippling the black market. But he wants more.

Monthly inflation is now targeted at 1 to 3 percent, and the Reserve Bank needs to do what must be done.

Minister Ncube has done his bit by retaining the high level of fiscal prudence, with Government spending roughly what we pay in taxes. Borrowing is limited to less than 1,5 percent of GDP, and every dollar borrowed goes into income-producing capital development, so risks are very low.

Although the Government is not creating money supply, and although the currency account is in surplus, in other words foreign currency inflows exceed outflows, that surplus requires diaspora remittances, about to hit US$2 billion a year.

This is the lever the black market speculators used for the two jumps in inflation in the first half of 2020 and the first half of this year.

The Government response of first the auctions, and then this year setting the official rate through the market-driven interbank market, killing most speculation by making borrowing prohibitively expensive, offering the more honest the option of gold to store value, has now largely killed the black market premiums.

This is seeing a lot more of the diaspora money entering the official markets through the tills and bank accounts of people who sell goods and services, where it needs to be and where it is in most countries. It is this stability that Prof Ncube wants.

The budget is generally a complex document, but the way it is put together is to encourage the private sector to invest, produce and sell, to encourage farmers to produce, and the Pfumvudza/Intwasa budget goes up again, and to ensure through targeted spending that the vulnerable get a fair deal from the rest of us, without money being wasted on those who do not needed it.

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