Maravi

(TALKZIMBABWE) Biti's election budget does little for the poor

Biti's election budget does little for the poor
Itayi Garande - Opinion
Mon, 20 Jul 2009 04:53:00 +0000

I WILL not sing hosannas in praise of the latest budget by Finance Minister Tendai Biti. If it wasn't an election campaign budget, one would be hard-pressed to understand what the minister was trying to do with it.

A close look at that budget statement will reveal its real intentions. Without reading the fine print, it might be difficult to fault the budget: it claims to have something for previously marginalised sections. That is the problem with it.

Budgets have an economic, political and technical basis. Different interests push and pull in an attempt to obtain benefits and avoid burdens. But budgets should also be designed to allocate scarce resources for the best economic use.

In the case of Biti's budget where he is trying to move from what he calls "an era of economic fascism and economic hedonism," this budget was lacking in many ways.

It is, however, difficult to understand how the budget statement, which was hailed by the MDC party and other sectors as pro-poor, could deliver many landless and poor vulnerable Zimbabweans out of the current economic crisis.

Biti proposed to increase taxes in certain sections of the economy: tobacco rate of excise duty was increased from 60% to 80% with effect from 1 August 2009. Duty on wines and spirits was increased from 10% and 15% to 15% and 20%, respectively, with effect from 1 August 2009. Excise duty on diesel was reduced from US20 cents to US16 cents per litre with effect from 17 July 2009. Excise duty on petrol remained at US20 cents per litre.

He slashed the 40% import duty on foreign newspapers; reduced the duty on line telephone sets with cordless handsets from 25% to 5%; slashed duty on cellular telephone handsets from 25% to 0%; and slashed import duty on computers and printers from 25% to 0%.

Biti made a huge political statement by proposing to suspend reviewing of taxation of the mining sector until the 2010 Budget and proposed to lift the suspension of royalty remittance on gold, with effect from 1 August 2009.

A new taxation structure was introduced on on raw materials, intermediate and capital goods with effect from 1 August 2009. Taxation on raw materials was reduced from 0-15% to 0-10%; on intermediate goods 10-15% to 10% and on capital goods 0 – 5% to 0%.

Biti also proposed to raise revenue by taxing motorists through toll gates from 1 August 2009.

The minister hoped these, among other measures, will move Zimbabwe "from the era of economic fascism and economic hedonism" to some "promised land".

A closer look at Biti's proposals will reveal some serious contradictions and "clawback clauses" that should concern ordinary citizens and indigenous businesses.

The reduction of excise duty on diesel is good news to industry, but maintaining petrol at US20 cents per litre does not augur well for motorists and garages alike as they will find costs of operation (of businesses and commuting unchanged and still restrictive).

To slash duty on newspapers to 0% was a political move that had nothing to do with addressing the immediate problems of Zimbabweans and recovering the Zimbabwean economy.

The fiscus still needs the revenue generated therefrom.

While we all agree that 40% was hefty, 0% will not help the fiscus that desperately needs injection. Newspapers are businesses and hence should be taxed. We all agree, nevertheless, that taxation should not be tantamount to suppression of information.

Reducing duty on telephone sets, computers and printers will hurt the local companies that sell these products; driving huge masses of people who work in these small informal sectors out of employment.

Small scale traders who currently sell these products should not be penalized; but encouraged to operate and should be properly regulated.

Biti was completely silent on health insurance. Given that the country is battling with HIV/AIDS and other diseases, it would have sufficed to announce health insurance plans for civil servants and private healthcare plans and how such provision would be taxed.

The minister should have announced health insurance schemes for workers, especially in the unorganised sector - comprising more than 80% of Zimbabwe's working class. That's the ranks of self-employed, day labourers and other groups of non-unionised workers.

There were also no safety measures announced for senior citizens and other vulnerable members of the community, like women, the disabled and children.

Biti also remained mum on mining taxation. Corporation tax of 15% does not say anything about entry and competition and is no incentive for investment. Progressive taxation could be employed; where increases in tax are based on profits generated by those companies.

Biti was silent on how much profit would be retained in the country as a percentage of total profit, in this and other key sectors. It is not a secret that any meaningful taxation policy by Zimbabwe will have to look at the mining sector; among other key sectors.

The minister decided to remain silent and not propose such controversial initiatives - teachers, doctors, nurses and other civil servants are already up in arms against the government on account of the proposed salary levels.

Other sectors will follow suit as the budget is unpacked in the next few weeks.

It would be important to find out from the minister why it was more important to announce immediate taxation policy on media and communication related activities, and not also on key revenue generating sectors like mining, manufacturing and agriculture.

It is not unreasonable to assume that Biti's supposed "tax buoyancy" will not be able to finance parastatals that urgently need subsidies, or extend pro-poor policies; e.g, the farm mechanisation programme and other public expenditures.

The fiscus, looking at Biti's proposals, is simply unable to meet the Short Term Eeconomic Recovery Programme (STERP) proposed levels of public expenditure.

Two out of three Zimbabweans depend on agriculture for their livelihood. The farm sector that accounts for more than two-fifths of the country's gross domestic product has been growing the slowest.

The farm sector has languished and is slated to grow by a niggardly 1.6% this financial year. It is unlikely to finance the huge public expenditure budgeted for in STERP.

This is, maybe, one of the reasons why the minister could not announce the salary scales for civil servants, or why he announced a paltry increase. He simply does not think his budget is sustainable.

Although barely 20% of Zimbabwe's estimated 12 million population pay personal income tax, Biti has failed to announce an effective cut in tax rates that would benefit the middle classes, especially the salaried sections that have taxes deducted before they receive their pay cheques.

He has, surprisingly, factored them in his STERP programme as a source of revenue (through the fiscus).

The vocal section of the country is also disaffected by the rise in food prices over the last few years. Hyperinflation has hit the poor - comprising at least three quarters of the total population - really hard.

More tax giveaways to farmers; communal and commercial alike should have been offered. A pro-poor budget would have announced tax breaks, or reduced taxations, for the salaried, the aged and women. Increased allocation on education and heath would also satisfy most social interests and challenges.

Simply put, this is a political budget -- which is not in itself surprising -- but is also an election budget -- which is surprising in a country urgently needing emergency recovery.

Biti's budget is the only budget one can think of since 1980 that has nothing for the export sector. The minister makes passing comments about the export sector; hence Zimbabwe's compromised gross international reserve position will remain as such and one wonders whether domestic fiscal policy is well poised to contribute to the US$8 billion needed to finance the STERP programme.

STERP, is therefore, not in step with the new budget.

The budget has, therefore, dealt a triple blow to Zimbabwe's economy: it has reduced protection to domestic industry, hurt the export sector and did little for workers and the vulnerable poor.

On a political front, as already stated, the partisan and sectoral tax giveaways have been made keeping in mind the promised general elections after the life of the inclusive Government.

Finance Minister Biti, therefore, has to be careful and rise above this politicking. He runs a technical ministry and politics should be kept at a minimum.

In any case, this is the platform on which the MDC-T party campaigned on: depoliticization of technical ministries and improving efficiency.

Biti should be wary of the fact that budgets rarely win elections. Since electors know the elections are coming, budget giveaways tend to be viewed as one-time bonuses and do not affect political choice.

In any case, this hidden election campaign was not directed at party political supporters; but organisations that can help his party in disseminating information: come election time.

Even more important, the tax breaks seem to make this an MDC-T budget: and present it as the only party which tries to accommodate as many interests as possible. This seems to have been achieved, albeit clumsily, in this budget.

But it does not do well for the electorate, which remains poor.

To the extent that elections are unlikely to be held before the next budget, this politicking seems a no-brainer. If the mid year budget does not deliver, Biti's move will boomerang and sting him more, putting a dent on his political ambition.

In any case, those expecting elections in the next few months, don’t hold your breath. Signs are that many new ministers are quite comfortable in their current positions and will endeavour to go the full five years.

Ironically, Biti's budget seems quite hedonistic and is yet to be proved not be smack of "economic fascism" - a charge he levels against previous budgets.

Labels: BUDGET, NEOLIBERALISM, TENDAI BITI

posted by MrK @ 3:08 PM