EDITORIAL COMMENT : It’s time to go beyond austerity 

Source: EDITORIAL COMMENT : It’s time to go beyond austerity | The Herald 01 AUG, 2019

Professor Mthuli Ncube

Finance and Economic Development Minister Professor Mthuli Ncube, will today present the much-awaited Mid-term Fiscal Policy Review Statement that will give a frank assessment of the efficacy of the interventions announced in the 2019 National Budget.

But perhaps more eagerly awaited is the supplementary Budget, in which the fiscal authorities are expected to announce additional budgetary interventions as Zimbabwe’s economy continues on a recovery path.

In no uncertain terms, the thrust of this Mid-term Fiscal Policy Review, is anchored on turning the long winter of despair into the summer of growth and prosperity.

The principle of “austerity” will again guide today’s review and the fiscal authorities are expected to consolidate and improve upon the gains made to date.

High on the agenda around debate on the Mid-term Fiscal Policy Review, has been the need to improve the lives of the majority of the country’s population that is living below the poverty datum line (PDL). In view of indications from Treasury, we anticipate Government to announce an upward adjustment in the tax threshold for low income earners in order to improve their disposable incomes.

Such a development will provide relief to those earning below the poverty datum line because of the increase in inflation.

People need to have more money to spend in their pockets and that cannot happen if they are saddled with high taxes.

The 2019 National Budget saw the adjustment of the tax-free threshold from US$300 to US$350 (prior to the removal of the 1:1 exchange rate between the RTGS dollar and the United States dollar), but those gains were fast eroded due to the inflationary pressures and more can be done to cushion the people.

Ideally, fiscal authorities should determine the initial local currency tax-free threshold by multiplying the United States dollar amount by the existing exchange rate if the people are to have relief.

The proposed review of the tax-free threshold will be welcomed by low income earners as the country’s inflation rose to 175 percent for the month of June, raising concerns of value erosion.

It is also our hope that Minister Ncube will lower the income tax structure to stimulate demand by reducing the Value Added Tax (VAT) and Pay As You Earn (PAYE) tax heads.

Reduction of the tax burden will be welcomed across the board as analysts contend that a lower income tax structure can act as an effective economic growth stimulant for the country insofar as it functions to drive up consumption demand in the economy.

Experts also say the multiplier effect of a lower income tax rate on other taxes in the economy can be significant, for instance, low corporate tax is said to boost after-tax returns on investment thus encouraging more investment.

But beyond these stated measures, Zimbabwe now needs to move beyond austerity by implementing strategies that, first, consolidate gains achieved under the “austerity phase” and second, progress on current efforts.

First things first, we propose Government should continue with cash-budgeting. No success story has been written by those spending beyond their means, and Zimbabwe is still experiencing the pain of unchecked spending of the previous regime.

To contain inflation, which appears to threaten current gains, we suggest that the authorities extend duty suspension on basic goods in order to ensure continued availability of goods in the market for a particular period. We understand the negative effects it might have to local firms’ efforts to retool and increase production.

We know it is important to curb imports, despite the attendant pains. Our manufacturing sector is still faced with intense competition from imports that are threatening their very existence and viability.

However, it is also important to avoid blanket protection measures as these have in the past had an adverse effect on the consumers who have to pay the premium price of protectionism.

Genuine cases do exist, but these need to be assessed on an individual basis to ensure appropriate and limited interventions.

But more critically — as the current power shortages have served to highlight — investment in the power sector should be accorded high priority so as to stabilise the power situation. We encourage Treasury to direct financial resources to the energy sector so that Zimbabwe can generate power to full potential.

A stable and reliable power supply will have a positive knock-on-effect on production costs and hence inflation. It’s the only way Zimbabwe can move forward!

On the area of subsidies, it is our hope that more deserving areas should be identified and directly funded to avoid undeserving people and institutions from benefiting.

Moving forward, with the interventions implemented so far, we feel Zimbabweans are now gradually graduating from the painful austerity driven era to prosperity.