Full text of the 2009
budget revision statement by Hon Tendai Biti, Minister of
Finance, presented to parliament on March 18, 2009:
Posted to the web: 19/03/2009 15:44:23
INTRODUCTION
1.1.1. Mr Speaker Sir,
Honourable Members will recall that on 29 January 2009, the Honourable Acting
Minister of Finance presented the 2009 Budget in this August House.
1.1.2. Debate on the Budget
forms part of this Session and I have the honour to open this debate.
1.1.3. In order to
facilitate this debate, I have synchronised the 2009 Budget to recent political
and economic developments, which culminated in the formation of the Inclusive
Government which in turn initiated the formulation of the Short Term Emergency
Recovery Programme (STERP).
1.1.4. Mr Speaker Sir, at
the epicentre of these socio-economic challenges, have been unprecedented levels
of hyperinflation and declining productive capacity and hence massive
de-industrialisation, food shortages, loss in value of the local currency,
corruption, deteriorating public service delivery particularly education,
health, sanitation as well as public utilities and infrastructure.
1.1.5. The impact of all the
above have been sustained negative effects on Gross Domestic Product (GDP),
resulting in cumulative fall of GDP by over 40 percent for the past 8 years,
giving rise to unprecedented increase in poverty levels and general
despondency.
1.1.6. Given the
aforementioned, the task of turning around the economy, therefore, becomes the
toughest job of the Inclusive Government.
1.1.7. Notwithstanding this
challenging obligation, the new Inclusive Government is committing itself to
putting Zimbabwe people and the country first by addressing the above
challenges, geared towards turning around the economy and, hence, afford the
people of Zimbabwe better living standards.
1.1.8. Mr Speaker Sir, as I
move this debate in this August House, I propose to revise the 2009 Budget
taking account of the above and inclusive of the following:-
l Alignment of tax and other
economic measures to the Short Term Emergency Recovery Programme (STERP),
including any new initiatives and revisions where appropriate.
l Downward revision of the
overall 2009 Budget Framework in line with actual developments in January,
February and early March 2009.
l Reconfiguration of the
Estimates of Expenditure (Blue Book) to incorporate additional Ministries in
line with the formation of the Inclusive Government.
REALITY
CHECK
2.1.1. In the four weeks
that I have been in the Ministry of Finance, there are three key lessons that I
have learnt very quickly.
2.1.2. The first being high
levels of demand on the fiscus, the second being huge expectations, and the
third being limited capacity to deliver on the part of the fiscus.
2.1.3. The demands on the
Treasury are high and appear limitless. These range from short-term requests by
ministries for such simple items as furniture for new offices, transport and
subsistence allowances, fuel, vehicle hire and maintenance, conferencing and air
fares, to more pressing demands such as water purification chemicals for local
authorities, as well as longer-term demands for infrastructural rehabilitation
and reconstruction.
2.1.4. Furthermore, our
embassies in foreign countries require over US$3 million per month. This
obligation is before account is taken of the over US$30 million we have incurred
in arrears as at December 2008.
2.1.5. There are also
unbudgeted requests from sports associations such as ZIFA, as well as some
individual sports clubs.
2.1.6. In this context, you
have perennial vehicles of fiscal drainage, for instance, the more than US$1
million weekly requests by Air Zimbabwe and other unbudgeted parastatal
bailouts.
2.1.7. Thus, if one is not
careful, one is reduced to focusing on fire fighting issues in the allocation of
very meager resources. Very easily, one can lose focus on the bigger
developmental role of Fiscal Policy.
2.1.8. Having a reality
check, having a plan and having priorities simply becomes imperative.
Modest Revenue
Receipts
2.2.1. The original Budget
of 29 January 2009 was predicated on a Budget assumption of revenues of US$1,7
billion, which averages US$140 million a month.
2.2.2. Our revenue
realisations, however, have been modest. In February 2009, we collected US$25
million, and as of now, we have just managed to collect US$30 million which will
be hardly enough for civil service allowances.
2.2.3. The reality,
therefore, is that the only thing that we so far have been able to do on our own
has been to just pay the modest civil service allowance of US$100 a month, and
other modest requirements for Government operations.
Skewed Nature of the
Tax Structure
2.3.1. Historically, the
single biggest source of revenue in Zimbabwe has been Pay As You Earn (PAYE)
which in general terms has contributed close to 40 percent of our tax
revenue.
2.3.2. The sad scenario in
our current situation is that PAYE in the two months to date has been very
insignificant, and indirect taxes, in particular Value Added Tax (VAT) have also
not fully recovered.
2.3.3. This is a reflection
of the high levels of unemployment, and the fact that many businesses had gone
informal. Furthermore, most employers are not yet able to pay significant
foreign currency salaries.
2.3.4. The Table below
contrasts historical developments against the revenue outturn in the first two
months of the 2009 Budget, that is January and February.
Tax 1996 - 2004 average (%)
2009 Jan - Feb (%)
PAYE 38,65 7,47
Corporate 11,04 4,01
Other Direct
Taxes 6,19 5,78
Direct Taxes 55,88 17,26
Sales Tax/VAT 24,03
21,96
Customs Duty 13,15 38,06
Excise Duty 5,09 20,88
Other Indirect
Taxes 1,84 1,85
Indirect Taxes 44,12 82,74
Total 100,00 100,00
2.3.5. Quite clearly, the
above situation where direct taxes account for only 17 percent of total revenue
if not reversed during the remainder of 2009 is undesirable. That is why it
makes sense that any economic recovery and rehabilitation programme in Zimbabwe
has to be capacity based.
Engagement of the
International Community
3.1.1. Mr Speaker Sir, given
that over and above the initial proposed 2009 Budget provisions of US$1,7
billion we face other emergency financial requirements to end of the year
amounting to over US$2 billion, it is imperative that we engage the
international community for financial support.
3.1.2. Such support is
required to augment items in the Budget related to the delivery of urgent public
services in health, education, water, sanitation, food security, infrastructure
rehabilitation, among others.
3.1.3. The international
community will also play a critical role in supporting self liquidating lines of
credit required by our industries to restore production levels.
3.1.4. This way, Mr Speaker
Sir, we will take advantage of the peace and stability we are beginning to
experience following the formation of the Inclusive Government, that way also
mitigating scope and opportunity for social discord which no one
wants.
Death of the
Zimbabwe Dollar
4.1.1. Since February this
year, the Zimbabwe dollar is no longer a currency that the public and any trader
will accept. Our national currency has, thus, become moribund. Financial assets
denominated in Zimbabwe dollars have become valueless, thereby wiping out a
large portion of national savings.
4.1.2. The immediate
implications of this are devastating:
¶ The level of economic
transactions in our economy will be determined by the amount of foreign money
supply. We start out with a small stock of inflows of South African rands and
United States dollar notes in circulation and minimal foreign currency accounts
(FCAs) deposits. Increasing our access to the required higher foreign currency
supply, critical for GDP growth, requires us to export more than we import and
to maximise whatever remittances from our fellow Zimbabweans abroad, attract
foreign loans and grants through what co-operating partners are able to
provide.
¶ All economic enterprises,
from the informal sector, street vendor, to the largest national corporates
listed on the stock exchange, must henceforth trade and meet their tax
obligations in foreign currency.
¶ In respect of the National
Budget, we are immediately operating on a cash basis. We are only able to spend
what we receive in tax revenues, fees for services and subventions from
development partners.
4.1.3. The net effect of the
above, including lack of Budgetary support, reduced income levels and the death
of the Zimbabwe dollar, must result in us doing the following:
a. Embarking on cash
budgeting;
b. Creative ways of raising
additional financial resources, including disposal of 'family
silverware';
c. Dealing with hygiene
issues and proper implementation of the letter and spirit of the Global
Political Agreement (GPA).
4.1.4. Out of an abundance
of caution, I will now expand on the concept of cash budgeting and creative
fundraising.
Cash Budgeting: What
We Gather is What We Eat
4.2.1. The natural law of
cash budgeting is “what we gather is what we eat” or “We eat what we
kill.”
4.2.2. This is the basic
economic law of all hunting communities. No ministry or public agency should
expect to eat beyond what we have gathered through collection of taxes, fees and
any other legitimate sources of revenue.
4.2.3. “What we gather is
what we eat” unambiguously defines the priority not just in the Ministry of
Finance but throughout all arms of Government. If we want to continue eating, we
must all focus our minds and energies on maximising the revenues that are needed
first to get those of us in the public sector back to work and then to implement
all of the pressing issues.
4.2.4. As a matter of
fundamental economic policy, all sources of public revenue must be directed and
remitted to the Treasury.
4.2.5. Government agencies
providing fee-earning services will be allowed to retain part or all of their
earnings. This will be on a case-by-case arrangement with Treasury, as provided
for in Treasury regulations.
4.2.6. Retention of part of
the fee revenue collections, rather than 100 percent remissions to the Treasury,
is intended to provide an additional incentive for diligent collection of due
revenues from fees and charges.
Confidence Building Measures
4.3.1. As I have already
alluded to, without significant external financial resources it will be
difficult to support STERP and other Government programmes critical for us to
overcome cycles of economic decline, and alleviate poverty.
4.3.2. In this regard, the
key Political and Governance reforms that are emphasised in the Global Political
Agreement and STERP, particularly the issue of a “new people driven
Constitution” and the process of national healing are as important as the
measures to lay the economic foundations for the resumption of growth and social
development in Zimbabwe.
4.3.3. In short, what is
required is to create confidence and sculpt a construction that Zimbabwe is on
an irreversible paradigm shift.
4.3.4. Over and above the
Sadc initiatives underpinned by South Africa, there should be serious engagement
with all cooperating partners, including the World Bank, International Monetary
Fund, as well as the African Development Bank, with the objective of restoring
the country’s status as a credible recipient of external financial
assistance.
4.3.5. As confidence is
restored, private sources of external finance will also become available to
Zimbabwean companies and banks.
4.3.6. Hence, as part of
this strategy should be an aggressive programme of bilateral engagement with all
the key strategic countries.
4.3.7. Meanwhile, before the
above gestates, it is important to consider disposal or rationalisation of one
or two of the country’s “silverware”.
4.3.8. In addition, we
should also consider issues of Public Private Partnerships, particularly in the
field of health and infrastructural development, issues of external bonds, an
Investor Conference, as well as an aggressive Zimbabwe Road Show Marketing
Programme.
KEY
PILLARS OF STERP
5.1.1. Pursuant to the above
Reality Check and the overall economic challenges we face, it became imperative
that an emergency stabilisation programme had to be crafted. Thus, in a matter
of days, we set down as a Ministry and, in consultation with our stakeholders,
formulated STERP.
5.1.2. Mr Speaker Sir, under
STERP, cognisance is taken of the fact that an agenda for economic stabilisation
that does not address the issues of democracy and governance is not
sufficient.
5.1.3. Therefore, the key
pillars of STERP include:
Democratisation
5.2.1. The Global Political
Agreement recognises that the foundation for a new Zimbabwe needs to address not
only economic issues, but also related issues such as:
¶ The rule of law;
¶
Crafting of a new people driven Constitution;
¶ Restoration of property
rights;
¶ Restoration of political legitimacy;
¶ Freedom and
liberties;
¶ Restoration of personal measures;
¶ Opening up of the media;
as well as
¶ The restoration and re-integration of Zimbabwe into the
community of nations.
5.2.2. Furthermore, it is
trite that without a well functioning economy, democracy and human rights are
impossible and equally, without a well functioning democracy, economic
development is impossible.
5.2.3. Mr Speaker Sir,
STERP, therefore, recognises the irreversible commitment of the Inclusive
Government to the making of the new Constitution as defined under Article 6 of
the GPA. This should be commenced as a matter of urgency. The Constitution
reform process will open up debate, and usher in a new society able to tolerate
different views without confrontation and, thus, promoting national
healing.
5.2.4. Also critical to the
democratisation matrix is the imperator of liberalisation of the air waves,
freeing the media, and ensuring that plural voices are heard through both the
electronic and print media.
5.2.5. Over and above this,
the GPA recognises the importance of creating a vibrant and free media as an
important democratic aspect. Therefore, legislation will be passed cementing the
enjoyment of the right of freedom of expression and freedom of association.
Hence, the review of such laws as the POSA, AIPPA and the Criminal Code will be
speeded up.
5.2.6. Indeed, some of these
rights have been recognised under the Constitutional Amendment Number 19.
Therefore, the democratisation agenda should eventually ensure that there is a
democratically elected Government of Zimbabwe based on the new
Constitution.
Values and
Aspirations
6.1.1. The Inclusive
Government is founded on certain values that are at the core and epicenter of
STERP. The preamble to the GPA acknowledges that 'the values of justice,
fairness, openness, tolerance, equality, non discrimination and respect of all
persons without regard to race, class, gender, ethnicity, language, religion,
political opinion, place of origin or birth are the bedrock of our democracy and
good governance'.
6.1.2. In addition, the GPA
itself has a vision of the new Zimbabwean society that is 'free of violence,
fear, intimidation, hatred, patronage, corruption and founded on justice,
fairness, openness, transparency, dignity and equality'.
6.1.3. STERP is loyal to the
above aspirations and values, which are essential and critical to get Zimbabwe
moving again. In this regard, the issue of corruption and combating corruption
particularly in the public service is vital to the enforcement of the above
values.
6.1.4. Combating corruption
will involve strengthening the Judiciary, the Attorney General's Office, the
Anti-Corruption Commission and more importantly ensuring that high standards of
accountability and honesty are maintained in the public service.
6.1.5. Government and
parastatals cannot be institutions of handouts and, therefore, all leakages must
be plugged.
6.1.6. In addition, where
possible, new Laws will be enacted, while present Laws such as the Prevention of
Corruption Act will be strengthened.
Social Protection
Programmes
7.1.1. The provision of
adequate and quality basic social services is a key area of this Programme. The
liberalisation of the foreign exchange market as well as the removal of price
controls will also have implications on vulnerable groups in our
society.
Education
7.2.1. Mr Speaker Sir, STERP
will give priority to the resuscitation of the education sector, which had
almost grounded to a halt after having seen most schools failing to open at the
start of the school's calendar year in January.
7.2.2. Priority will centre
on improving conditions of service for the teachers, including providing
incentives to attract those in the diaspora, the marking of 2008 public
examinations, as well as provision of learning material and equipment in schools
and other tertiary institutions.
Health
Delivery
7.3.1. The economic decline
has resulted in a sharp decrease in funding for health in real terms. This has
directly contributed towards an unprecedented deterioration of health
infrastructure, loss of experienced health professionals, drug shortages and a
drastic decline in the quality of public health services.
7.3.2. For example, highly
experienced health professionals left the health sector as evidenced by the high
vacancy levels. There are about 68 percent of vacant posts for
doctors.
7.3.3. Other challenges
include serious shortage of functioning essential medical equipment, high burden
of preventable diseases such as malaria, HIV and Aids, Tuberculosis, diarrhoeal
diseases, maternal care.
7.3.4. Mr Speaker Sir, a
major focus of STERP will, therefore, be on interventions to resolve the above
challenges, consistent with the objectives of achieving the Millennium
Development Goals.
7.3.5. This will require
both internal and external resources.
Specially Targeted
Vulnerable Groups
7.4.1. Mr Speaker Sir, with
regards to vulnerable groups which include the elderly, orphans and child headed
families as well as the physically challenged, the Programme provides for
enhancement of publicly funded social safety nets, with specific allocations
made for vulnerable groups and those institutions catering for such
people.
Humanitarian
Assistance
7.5.1. Food relief would be
required for the remaining period to harvest time. Over and above the food
relief, urgent humanitarian assistance is also required in the area of water and
sanitation.
7.5.2. Mr Speaker Sir, such
support will empower local authorities under whose mandate water management has
reverted back to.
Supply Side
Reforms
8.1.1. Mr Speaker Sir, I
have already alluded that the economy has been under severe stress, with annual
real GDP growth suffering declines averaging — 5.9 percent since 2000.
Cumulatively, output declined by more than 40 percent during that
period.
8.1.2. The deepening
economic crisis is reflected in sectoral performances, which followed the same
trend. Since 2006, virtually all sectors recorded declines in output, with
agriculture, manufacturing and mining estimated to have declined by 7,3 percent,
73,3 perent and 53,9 percent, respectively, in 2008.
Agriculture
8.2.1. Under STERP, the key
issues which will be addressed in order to facilitate productivity in
agriculture will also focus on the land issues.
Mining
8.3.1. Mr Speaker Sir, in
the mining sector, measures are aimed at raising the capacity in mineral
production. Continuous exploration, as well as beneficiation and value addition
of minerals will benefit from joint venture strategic partners who have the
necessary technology and foreign currency back-up.
8.3.2. A key component of
STERP in reviving the mining sector will be to ensure that international
commodity prices are levied and received by mining houses. In short, the pricing
gap in respect of which domestic prices lagged behind international prices is a
thing of the past.
8.3.3. Mr Speaker Sir, to
enhance value, the framework for the marketing of all minerals. In the case of
Gold, the same will remain a strategic reserve asset whose licensing and
marketing will be in line with the Gold Trade Act.
8.3.4. Taxation and royalty
levels will, however, be reviewed in line with international best
practices.
Manufacturing
8.4.1. Mr Speaker Sir, the
manufacturing sector will be at the epicentre of this stabilisation programme.
The sector is already beginning to benefit from the decontrol of prices, and
should further benefit from arrangement of external lines of credit for the
importation of raw materials and retooling, thereby ensuring that the current
industrial capacity utilisation is increased from the current low levels of
around 10 percent to over 60 percent in the next six to nine months.
8.4.2. Mr Speaker Sir, total
requirement for lines of credit facilities will be in excess of US$1 billion,
for the short term period to year end.
Tourism
8.5.1. Mr Speaker Sir,
regarding revival of tourism, STERP is prioritising securing external lines of
credit for working capital, rehabilitation of infrastructure and importation of
capital equipment, launching an aggressive marketing campaign covering regional
and international markets as well as improving access to resorts by allowing
more airlines into the country.
8.5.2. The Nation's Tourism
Strategy will also be fast tracked to take advantage of the 2010 World Cup to be
hosted by South Africa.
Construction
8.6.1. In order to
resuscitate construction activity in the country, Mr Speaker Sir, construction
companies will also benefit from access to external credit facilities being
organised by Government. This will ensure financing for retooling and equipping
of the industry.
Housing
8.7.1. The enhancement,
evaluation and improvement of the current national housing policy will be
carried out during STERP in order to take advantage of significant portions of
land acquired under the land reform programme by local authorities for housing,
as well as enhancing the servicing of such land.
Demand Side
Reforms
9.1.1. Mr Speaker Sir, the
precondition of any capacity based stabilisation programme is the implementation
and execution of a sound macro-economic stabilisation programme. Certainty and
credibility has to be established with regards to money supply, interest rates,
inflation and a credible exchange rate management framework.
9.1.2. Also central to the
macro-economic stabilisation is the obligation to ensure strict fiscal
discipline of a carefully managed budget deficit and one that is not funded by
the printing of money.
9.1.3. Mr Speaker Sir, the
macro-economic stabilisation measures I propose below are, thus, predicated on
certain key fundamental principles which are:
¶ Cash budgeting for fiscal
discipline;
¶ A positive real interest rate regime;
¶ Raising savings to
above 25% of GDP;
¶ A vibrant labour market policy;
¶ A Social Contract,
based on respect of the contracting parties;
¶ A market based exchange rate
regime;
¶ Use of multiple currencies as legal tender, and
¶ The removal of
foreign exchange surrender requirements.
Inflation
9.2.1. To get Zimbabwe
moving again, it is critical that the hyper-inflationary environment be a thing
of the past. Three issues were at the epicentre of hyperinflation in
Zimbabwe.
9.2.2. These are the absence
of meaningful production, which would mean that at any given time, demand
exceeded the supply of the few goods available.
9.2.3. Secondly, has been
the budget deficit financed through printing of money.
9.2.4. Third, has been the
engagement in illegal and excessive quasi-fiscal activities that have been done
outside the provision of the Constitution of Zimbabwe.
9.2.5. Basing this Programme
on capacity expansion clearly addresses the first inflation driver.
9.2.6. Furthermore, the use
of multiple currencies will also eliminate the habit of printing
money.
9.2.7. More importantly,
consistent with the 2009 Budget Statement, quasi-fiscal activities by the
Reserve Bank are to be ceased forthwith.
9.2.8. Treasury, as overseer
of the Reserve Bank Act, the Audit and Exchequer Act, will ensure that these
laws are strictly complied with and more decisively that the Constitution is
complied with fully in so far as all outlays from the Consolidated Revenue Fund
have to be approved by Parliament.
Utilities, Amenities
and Infrastructure
9.3.1. Mr Speaker Sir, STERP
also prioritises the enhancement of efficiency in delivery of public services,
including water reticulation, by our public enterprises and local
authorities.
9.3.2. Reforms for the
public enterprises will focus on re-capitalisation, commercialisation,
privatisation and part, or outright, disposal as well as allowing the charging
of cost reflective tariffs.
9.3.3. Total requirements for the above are
estimated at US$740 million, as indicated earlier on.
Energy
9.4.1. “Getting Zimbabwe
Working Again”, requires that the country has adequate and reliable energy
supplies at all times.
9.4.2. In power, the
following are critical imperators, whose requirement is estimated at over US$1
billion:
¶ Completion of Stage 1 of
the Hwange Power Station rehabilitation;
¶ The expansion and increase of
capacity at Kariba South Bank;
¶ The rehabilitation of the transmission and
distribution infrastructure in Zimbabwe;
¶ Securing long term import lines in
respect of the country's power deficits.
Infrastructure
9.5.1. Mr Speaker Sir, the
Programme also prioritises provision of public resources for the rehabilitation
of infrastructure, such as railways and roads, among others.
9.5.2. This will be
complemented by private sector participation.
Local
Authorities
9.6.1. Service delivery in
housing, health, road maintenance, waste collection, street lighting, among
others, will receive attention and funding, benefiting from the charging of
economic tariffs.
ORIGINAL BUDGET
PROPOSALS
10.1.1. Mr Speaker Sir, the
2009 Budget presented by the Acting Minister of Finance to Parliament on 29
January 2009, provided for revenues of US$1,7 billion and expenditures of US$1,9
billion.
10.1.2. The 2009 Budget was
premised on a macro-economic framework targeted at reduction of inflation to
double digit levels as well as attain a positive economic growth rate of about
two percent.
10.1.3. Nominal GDP of
US$5,5 billion was projected. Informed by past trends where revenue collections
are normally about 30 percent of nominal GDP, revenue for 2009 was therefore
projected at US$1,7 billion.
10.1.4. The estimate was
premised on the implementation of proposed fundamental macro and micro economic
reforms, as well as legal and institutional reforms targeted at stimulating
positive supply response in the manufacturing, tourism, mining and agricultural
sectors, thereby increasing economic activity.
Revenue
10.2.1. Mr Speaker Sir,
implementation of some of the revenue measures such as road tolling fees, which
were targeted to raise a substantial amount of revenue, have however been
delayed, pending approval of the Finance Bill by Parliament.
10.2.2. Furthermore, most
companies have paid subsistence allowances to their employees, and not actual
salaries, resulting in low Pay As You Earn (PAYE) collections.
10.2.3. Although customs
duty rates have been revised downwards, the volume of trade has nevertheless
declined, hence customs revenue inflows to the fiscus have not performed as
anticipated.
10.2.4. In spite of
improvements in the supply of goods on the local market, VAT collections have,
however, been low owing to low disposable incomes which resulted in most
consumers spending on non-vatable basic commodities.
10.2.5. Mr Speaker Sir,
cumulative revenue collections in January and February 2009 amounted to US$36,8
million. This clearly fell short of expenditure demands given that employment
costs alone would have amounted to about US$60 million had payment of allowances
in foreign currency been effected from January 2009.
10.2.6. The low revenue
collections have already forced us to pay public servants and pensioners only
foreign currency denominated allowances from February and March,
respectively.
PROPOSED REVISION OF
THE 2009 BUDGET
11.1.1. Mr Speaker Sir,
STERP and the 2009 Budget should consolidate our key macro-economic policy
shifts, most of which are already beginning to bear fruit.
11.1.2. Therefore,
as I move the 2009 Budget debate, I propose to revise the 2009 Budget taking
account of the following:-
" Downward revision of the
overall 2009 Budget Framework in line with actual developments in January,
February and early March 2009.
" Re-configuration of the
Estimates of Expenditure to incorporate additional Ministries in line with the
formation of the Inclusive Government.
Revenues and Other
Policy Measures
12.1.1. Mr Speaker Sir, as a
result of developments to date which I outlined earlier, revenue anticipated for
the 2009 fiscal year is accordingly being reviewed downwards from US$1.7 billion
to US$1 billion.
12.1.2. Following post
Budget consultations with some of our stakeholders, I am proposing to review
some of the policy measures that were announced during the 2009 National
Budget.
12.2.1. Mr Speaker Sir, the
2009 first quarter Monetary Policy Statement compelled all traders to adopt a
dual pricing framework where goods and services would be quoted in both local
and foreign currency.
12.2.2. This requirement was
enforced through Statutory Instrument 5 of 2009.
12.2.3. Dual pricing
promotes unintended consequences whereby some traders and shop owners attempt to
avoid meeting their foreign currency tax obligations by misrepresenting actual
transactions as having been undertaken in Zimbabwe dollars. In reality, at
present, no business is still trading in the local currency.
12.2.4. With immediate
effect, therefore, Statutory Instrument 5 of 2009 has been revoked to enable the
use of multiple currencies in order to facilitate trade and tax collection in
the economy.
12.2.5. The necessary
amendments to the Exchange Control Act allowing for use of multiple currencies
as legal tender will be effected.
Flat Rates of
Duty
12.3.1. For convenience of
travellers, a flat 65% rate of duty is charged on excess goods that are not
accommodated in the travellers' rebate of US$300 per calendar month.
12.3.2. The flat rate of
duty was set at a time when duties were high, hence, I propose to review
downwards this rate of duty in line with reduced customs duty rates as
follows:
Product Current
rates of Customs Duty Proposed rates of Customs Duty
Clothing 40 - 60% + US$10
per kg 40% + US$5 per kg
Foot wear 40%-60% + US$5 per pair 40% + US$5 per
pair
Other goods 65% 40%
12.3.3. This measure will
facilitate swift clearance of goods, thereby reducing long waiting hours endured
by travellers at ports of entry, especially at Beitbridge border
post.
Customs Duty Credit
facility on Licensed Customs Clearing Agents
12.4.1. Mr. Speaker Sir, the
current Customs and Excise legislation obliges importers to pay customs duty due
upon registering a Bill of Entry. Since the introduction of payment of duty and
VAT in foreign currency, importers face challenges to effect payments to clear
their goods. This is mainly due to delays in the banking system, whereby
transfers take as long as five days to reflect in the ZIMRA account.
12.4.2. As a result, cargo
remains uncleared for longer periods, thereby causing congestion at ports of
entry. Importers also incur demurrage charges, which increase the landed cost of
goods.
12.4.3. In order to
facilitate prompt movement of goods, I propose to introduce a customs credit
facility, valid up to seven days. This facility will be granted to selected
importers and clearing agencies.
Rummage
Sales
12.5.1. Mr. Speaker Sir,
ZIMRA last conducted rummage sales for motor vehicles and other durable goods in
2007. As a result, there is now congestion of unclaimed vehicles and other
durable goods at border posts. Furthermore, these goods continue to deteriorate
because of exposure to adverse weather conditions.
12.5.2. ZIMRA, working
together with the State Procurement Board, has been directed to conduct rummage
sales immediately. In addition to decongesting the border posts, rummage sales
will also generate additional revenue for the fiscus.
Accelerated VAT
Remittance Period
12.6.1. VAT payment dates
have been brought forward to the third day of the following month in order to
improve cash inflows to the Exchequer Account.
12.6.2. Mr Speaker Sir, in
order to reduce administrative problems associated with reconciling sales from
several depots, I propose to shift the VAT payment date from the third to the
fifth of the following month.
Tax on Miscellaneous
Income Deposits into Individual & Corporate Accounts
12.7.1. A special tax had
been proposed on deemed unproductive income deposited into individual and
corporate accounts for purposes of discouraging exchange rate related
speculative activities.
12.7.2. Given policy and
other market developments, such a tax is no longer relevant as transactions are
now in foreign currencies.
PAYE in Foreign
Currency
12.8.1. Mr Speaker Sir, the
2009 Budget proposed a separate PAYE Tax Table with a tax free threshold of
US$125 per month.
12.8.2. Given market
developments, I am therefore proposing to increase the tax free threshold to
US$150 per month with effect from 1 April 2009.
Presumptive
Tax
12.9.1 Mr. Speaker Sir,
presumptive tax was introduced in order to capture the hard to tax informal
businesses that remain outside the tax net. There has however been minimal
progress in terms of revenue generated due to non-compliance by most informal
sector businesses.
12.10.1. In order to
encourage tax compliance by informal businesses, I propose to empower the
Revenue Authority to issue a provisional attachment order, after which failure
to pay tax due would result in the auctioning of the attached asset.
Foreign Currency
Surrender Requirements
12.11.1. Mr Speaker Sir, the
Monetary Policy Statement of 2 February 2009 contains the foreign currency
surrender regimes.
12.11.2. Under this regime,
all licensed traders were to sell 5% of their gross sales to the Reserve Bank at
the going market exchange rate.
12.11.3. Similarly, under
this surrender framework, all exporters, including gold producers, were required
to sell upfront to the Reserve Bank 7.5% of their gross export proceeds in their
Foreign Currency Accounts (FCAs).
12.11.4. Mr Speaker Sir,
given that all businesses now transact in foreign currency, any requirement on
their part to surrender a portion of their proceeds is tantamount to imposition
of a tax on business proceeds. Such tax of a presumptive nature on gross
proceeds erodes markup of exporters to an extent whereby some businesses are
rendered unprofitable, thereby, threatening their viability.
12.11.5. To the extent that
surrender requirements are a tax, it means that the matter becomes a tax issue
which is the domain of Parliamentary Budget approval. In this regard, I have
issued a directive in terms of Section 62 of the Reserve Bank Act advising the
Board to take note of this.
12.11.6. I therefore
announce the removal of all foreign currency surrender requirements with
immediate effect.
12.11.7. As a quid pro quo
to the above, it is only fair that I review upwardly business taxes, to our
limping business community, once I am sure that most of them have
recovered.
12.11.8. I will, therefore,
be announcing new tax measures in due course.
Stock
Exchange
12.12.1. Whilst it is
appreciated that fungibility in share trading would be ideal. This, however, in
our case has tended to be used as a conduit for externalisation and is,
therefore, not recommended for the time being.
12.12.2. I however wish to
assure that we will consider this once bulls return to our bowels.
Revised Expenditure
Proposals
13.1.1. Mr Speaker Sir, I
have proposed revision of revenue projections for 2009 from US$1.7 billion to
US$1 billion. Accordingly, pursuant to the balanced Budget thrust whereby
expenditures are to be linked to actual revenues, I am proposing that the 2009
Expenditure Proposals be revised downwards from US$1.7 billion to US$1
billion.
13.1.2. The revised Budget
will, to the extent possible, focus on the key areas identified under STERP,
which I have alluded to earlier.
13.1.3. Mr Speaker Sir, I
highlight below some of the Revised Budget provisions.
Remuneration of
Public Servants including Pensions
13.2.1. Under the STERP, the
payment of civil servants is recognised as the most pressing issue and,
therefore, becomes the first charge on our revenues.
13.2.2. As I have already
indicated, payments to our public servants in foreign currency could only be
made as from February 2009 on the basis of an allowance fixed at US$100 per
member while pensioners' allowances are only being paid as from March
2009.
13.2.3. Existing pension
regulations provide for payment of pensions proportionate to payments to serving
members. Current revenues dictate that we maintain payment of pensions in line
with these regulations.
13.2.4. The current US$100
foreign currency monthly allowance paid irrespective of rank or grade to all
civil servants is clearly undesirable. However, given that we now project lower
foreign currency revenues in the revised Budget, I have been unable to either
increase or differentiate the quantum of the allowance.
13.2.5. I have therefore set
aside US$299.4 million covering payment of the foreign currency allowance for
staff in the civil service, pensioners, and staff and grant aided
institutions.
Health
13.3.1. The economic decline
has contributed to the deterioration of health delivery, including the shortage
of health professionals, inadequate supply of essential drugs, equipment and
other medical supplies, inadequate provision and maintenance of equipment,
infrastructure, ambulances and service vehicles. The provision of health
facilities is critical in order to meet increased demand for
services.
13.3.2. The above have
contributed to an increase in the incidence of preventable diseases.
13.3.3. In line with STERP,
the revised Budget targets redressing the challenges in this sector. However for
maximum impact from the limited budget provision, it is proposed that to avoid
spreading resources thinly to all the health institutions, a new targeted
approach be adopted.
13.3.4. Under this approach,
funding available in any given period will be directed and concentrated towards
critical requirements for one institution, starting with Harare Central
Hospital, before moving on to the next institution.
13.3.5. Government funding
of US$118 million, which excludes employment costs, will be augmented by the
current interventions and expected contributions into the sector by our
cooperating partners as well as revenue generated from fees and
charges.
Water and
Sanitation
13.4.1. The frequent
occurrence of communicable disease outbreaks, such as cholera, is directly
linked to inadequate provision of safe water and poor sanitation facilities
country wide.
13.4.2. Therefore,
responsible authorities for both rural growth points and urban centres have to
be assisted to purchase chemicals, repair sewer and water conveyancing systems,
construct and rehabilitate boreholes and provide suitable sanitation
facilities.
13.4.3. Recognising the huge
level of funding required on an emergency basis, the Revised Budget provision of
US$10.5 million for selected urban local authorities will need to be
complemented by external funding being sourced to support STERP.
13.4.4. To augment the
Budget allocation, part of the revenue collected through rates, fees and other
charges should be set aside for re-investment in equipment and restoration of
the conveyance system.
Education
13.5.1. It remains critical
that we address the challenges affecting the education sector, in particular,
improving the conditions of service for teachers in order to ensure that they go
back to work.
13.5.2. In addition, the
lack of effective learning and teaching in our schools and institutions of
higher learning is undermining public confidence in our education system and
threatens to reverse the gains made, thus, far.
13.5.3. The integrity of our
public examinations has also recently come under spotlight following the delays
in their setting, conduct and marking.
13.5.4. To address some of
these challenges, Government has allowed schools and institutions to charge fees
which will allow for the procurement of adequate teaching and learning materials
and other requirements.
13.5.5. Mr Speaker Sir, the
Ministers of Education have already announced to the Nation the new fee
structures in this respect.
13.5.6. To afford equal
opportunity to education by all, especially the vulnerable, programmes are in
place for them to access resources through the Basic Education Assistance Module
(US$9.2 million) and the National Education Training Fund (US$5 million),
including Cadetship.
Specially Targeted
Vulnerable Groups
13.6.1. Under STERP,
Government recognises that there will be some adverse effects on the vulnerable
and disadvantaged groups within our society from the impact of measures that are
being put in place, especially following economic liberalisation.
13.6.2. Therefore, the 2009
Revised Budget includes provision of US$32 million in support of the specially
targeted vulnerable groups under the existing social protection programmes such
as Public Health Assistance, Children in Difficult Circumstances, Public
Assistance etc.
13.6.3. This is also an area
where our cooperating partners may want to contribute by taking part in availing
the much needed support.
Agriculture
13.7.1. The country stands
to benefit from increased agricultural output as it will reduce on grain
importation and also provide stimulus for the local industry. In addition, it is
critical that programmes focusing on rebuilding the national herd start bearing
fruit.
13.7.2. Given that
Government has deregulated the marketing and distribution of agricultural
products, this provides a window for farmers to access resources from the
market.
13.7.3. On its part, the
Revised Budget will focus on strengthening extension services under the
departments of AGRITEX, Tsetse Control, Veterinary Field and Veterinary
Technical Services.
13.7.4. Agricultural
production also stands to improve, if irrigation capacity is increased through
rehabilitation and development of irrigation schemes on underutilised existing
water bodies as well as construction of additional dams. In this regard, an
allocation of US$5.4 million has been set aside for the completion of
Bubi-Lupane and construction of Mutange dams.
13.7.5. With regard to
irrigation development, an allocation of US$18.1 million has been set aside for
targeted schemes already espoused in the 29 January 2009 Budget
Statement.
Infrastructure
Development
13.8.1. Infrastructure in
various sectors of the economy, especially water, roads, railways, airports and
electricity now pose serious bottlenecks to the country's economic recovery and
growth prospects.
13.8.2. The challenge we
face in our efforts to rectify the situation arises from our inability to
mobilise sufficient financial, human and material resources. The Revised Budget
proposes to only make provision for the restoration of priority
infrastructure.
Other Operations of
Government & Grant Aided Institutions
13.9.1. As recognised under
STERP, the basic economic philosophy of our Budget is that 'what we gather is
what we eat'. Therefore, the operational budgets of Government institutions can
only be financed subject to availability of our foreign currency revenue
receipts.
13.9.2. It is, therefore,
critical that Ministries reduce non productive expenditure.
13.9.3. However,
Budget provisions have to enable Ministries to undertake monitoring and
evaluation of projects and programmes under their portfolio so as to realise
value for money and ensure that resources reach intended
beneficiaries.
13.9.4. Consistent with
STERP, some Government agencies will augment their budgetary allocations through
fee earnings from their services as they will be allowed to retain part or all
of these earnings as an incentive for diligent collection of revenue.
CONCLUSION
14.1.1. The presentation
herewith seeks to observe actual fiscal developments to date as well as
operationalise relevant elements of STERP.
14.1.2. Mr Speaker Sir,
given the downward revision in the Budget Framework I have proposed above, it
has become necessary that the Budget Estimates (Blue Book) be amended to reflect
revised provisions as well as incorporate the proposed Votes of new
Ministries.
14.1.3. Mr Speaker, I seek
the support of Honourable Members in considering and approving the 2009
Budget.
14.1.4. Government is ready
to launch STERP, and I advise that all Members of Parliament are invited to
participate in the launch on Thursday, 19 March 2009 at the Harare International
Conference Centre, starting at 10:30 am.
14.1.5. Mr Speaker Sir, I
have made arrangements for this Statement to be printed in Booklet form, which
all Honourable Members will receive at the end of delivery of this
Statement.
14.1.6. Mr Speaker Sir, I
accordingly lay the 2009 Budget Expenditure Estimates on the Table of this
August House, taking account of the new Ministries, as well as the rationalised
envelope of US$1 billion.
14.1.7. I thank
you.
