Budget is good, but falls short — experts

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BUSINESS says while Finance minister Mthuli Ncube’s 2023 national budget contains many positive aspects, it does not go far enough to lift the country’s economy.
Speaking to The Financial Gazette this week, captains of commerce and industry said much more would need to be done to boost companies and the economy.
The chief executive officer of the Zimbabwe National Chamber of Commerce (ZNCC), Christopher Mugaga, said Ncube’s budget particularly fell short of business’ expectations.

“It’s a budget that tried to balance the country’s economic challenges and realities. To the public, it appears to be friendly, but to businesses it is a harsh budget.
“It is a delicate budget that attempted to address some of the key issues, including some of the suggestions that were made earlier on.

“For example, the intermediated money transfer tax (IMTT), which was reduced to two percent on forex, is a good move, but we actually need to scrap the IMTT as we do not want it in its current state,” Mugaga said.

“The budget is in the main tax focused, which is unfriendly to business. As such, the budget is over reliant on the private sector in generating revenue.
“On the plus side, the reinstating of the duty which was suspended on the importation of some goods is commendable as it is key for business confidence and will, in a way bring back confidence to local goods.

“But the allocation to the Ministry of Industry and Commerce is inadequate considering that we are moving towards industrialisation,” Mugaga further told The Financial Gazette, the country’s number one business publication.
The president of the Confederation of Zimbabwe Industries (CZI), Kurai Matsheza, echoed the same sentiments on the IMTT, saying the levy was a major burden on business.
“The review of the IMTT on foreign currency transactions is commendable, but we would have wanted a further review of it on both the local currency and foreign currency.
“If you noticed, there are no tax brackets in the budget. We are not sure if this was an omission or if this will come on the tax bill.
“Overall, it is an okay budget and we should bear in mind that some of the factors affecting the country are beyond our control,” Matsheza said.

Economist Gift Mugano said the budget suggested that inflation was set to continue rising next year.
“Just looking at the numbers, a $4,5 trillion budget is an increase from the original 2022 budget and supplementary budget by 385 percent and 137 percent respectively. These figures tell us that in 2023 the inflation spiral will continue,” he said.

This comes after Ncube said the government was setting a month-on-month inflation target range of between one percent and three percent, and a fiscal budget deficit of not more than 1,5 percent of GDP during 2023.

“In 2020, the government presented a budget figure of $63 billion, up from $8,1 billion in 2019, but went on to overspend by $100,2 billion in 2020. Inflation in the same year shot to 837 percent.

“Likewise, in 2021, annual inflation receded to around 57 percent by December, but shot up to 285 percent in 2022 on the back of a huge budget of $1,9 trillion.
“Building on this experience, it is clear that there is a causal relationship between the size of the budget and inflation developments,” Ncube said.
Mugano also said the omission of employment tax bands in the budget was problematic.

“In the absence of new tax bands, and if we assume that the current tax bands apply in 2023, it means that workers will be heavily taxed in 2023, since the minimum tax-free threshold is $75 000 and 40 percent tax will be effected to workers earning at least $1 million per month.
“This means that the hike of the civil servants’ budget to 52 percent, up from 42 percent, will have no effect on the disposal income of workers because of high taxes,” he said.

Another economist, Tony Hawkins, said the budget “intended, no doubt, to tide the country over until the 2023 elections, after which either he (Ncube), or hopefully a more competent minister, will have to try again”.
“The budget does not address the key issues of poverty, unemployment and economic stagnation. Since the return of Zanu PF to the government in 2013, real GDP per capita has fallen 10 percent.

“And even allowing for four percent growth next year, incomes will still be lower than in 2012. So much for the economic success of the Second Republic and the new dispensation.

“The minister has returned to the budget model used during the hyper-inflation era when increasing expenditure was financed by inflation.
“The fact that forecast revenue in 2023 is greater than last year’s national GDP of $3,2 trillion shows that inflation makes a mockery of the numbers,” Hawkins said.
“Parliament approved the spending of $545 billion and Ncube is going to spend $2,15 trillion. So why worry about budgeting? Why bother to get Parliamentary approval for only a quarter of what is actually spent?

“The minister’s claim that a 300 percent increase in government spending is a ‘tight’ fiscal policy or that a 426 percent increase in money supply is a ‘tight’ monetary policy is patently laughable.

“His budgets not only devalue the currency, but also the process of budgetary accountability and transparency,” Hawkins added.
Although he commended the IMTT on forex being reduced to two percent, economist and former ZNCC president Trust Chikohora said the levy was still a huge cost to both the public and corporates.

“Another big issue for consumers is value added tax (Vat) which is back to 15 percent from 14,5 percent, and which I think is ill-advised because it will further burden consumers who are already suffering in a difficult operating environment.

“I don’t think it is a good move. One would have wanted Vat to continue at 14,5 percent at least or even to be reduced to 14 percent.
“The increase of the proportion of salaries to civil servants is welcome in the circumstances because civil servants’ plight needs to be considered and their remuneration needs to be improved.
“So, one hopes that that increase in the proportion will help ease the situation for civil servants, particularly with the loss of staff that we are experiencing especially in the health sector. It is important that the situation is addresse,” Chikohora said.
He added that the lifting of the suspension of duty on some commodities may have an adverse effect on consumers, adding that this would depend on how locally produced goods would be priced.
Meanwhile, Treasury cut economic growth projections to four percent this year, citing the base effect, global and domestic developments — especially the impact of high inflation and resultant stabilisation measures on credit and demand.
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