`Budget surplus: Oh, at what cost?

Source: `Budget surplus: Oh, at what cost? – The Zimbabwe Independent June 7, 2019

FINANCE minister Mthuli Ncube — who should by now have discovered that working with Zanu PF is like a riding a tiger; a dicey and risky mission — never misses an opportunity these days to brag ad infinitum about the budget surplus, which he says government has been recording since his arrival. In other words, he is claiming to be the saviour.

Zimind Comment

The surplus, largely but not always a good thing in national economic terms as compared to a household situation, is Ncube’s silver lining. The minister’s crowing is understandable in such a sea of failure. Ncube has been trying to dramatise this prospect of hope.

However, there are many questions about the veracity and legitimacy of his claims. But this is not the most pressing issue now. The problem is a surplus at what cost to the already poor taxpayers?

How was the surplus achieved and what have been the consequences of that? And indeed, is it the most critical issue now as the minister seems to think? How will that help in the bigger scheme of things in the context of the need for comprehensive reforms and political will to implement that? We can’t take anything for granted dealing with such a complex crisis. There have been mixed reactions to Ncube’s surplus claims, which exclude loan payments and related interest. First of all, a budget surplus occurs when government tax receipts are greater than its spending.

It means the government can either save money or pay off existing arrears or national debt. It is worth noting, though, budget surpluses are quite rare. Secondly, with high levels of debt — US$18,6 billion — the surplus ordinarily should be taken as an opportunity to reduce the debt and arrears; thus relieving the burden on future generations. It also gives the government more room for manoeuvre in times of recession when borrowing tends to rise. Zimbabwe is heading into a recession.

While a surplus maybe good, using primary surplus as an indicator of progress is misleading because it does not take into account the government’s outstanding obligations. And third, surpluses are usually achieved through higher taxes and lower spending. Is that what is happening now? Has government really lowered its spending? Or it is a case of punitive taxes to increase revenues, with token reduction on the expenditure side?

What will be the impact of that on growth? And also on the cost of borrowing, investment and debt? Mostly importantly, at what cost to poverty-stricken local taxpayer? The truth is Ncube came up with a catch-all 2% — which nets everyone who has been forced to transact on electronic platforms by government’s failure to provide cash — to ramp up revenues, while not significantly cutting government expenditure. This, coupled with runaway annual inflation at 75,8%, has badly eroded purchasing power of households across all classes, reducing their ability to spend and aggregate demand; taking a heavy toll on social and economic indicators.

The surplus, even if far-fetched, is fine, but it came at an opportunity cost of robbing millions of the desperately poor, which is ruthless and unprogressive.