I’m fixing a problem bleeding the economy: Mthuli

Source: I’m fixing a problem bleeding the economy: Mthuli | Newsday (News)

Finance and Economic Development minister Mthuli Ncube (MN) last week introduced a new tax regime which has proved unpopular with business, labour and the informal sector, as he seeks to plug a budget deficit which is dragging down the economy. NewsDay (ND) senior reporter Blessed Mhlanga talks to the minister about concerns of the people. Below are excerpts of the interview:

ND: Excessive government borrowing on the local market and a high wage bill are seen as twin evils fuelling State expenditure. How do you plan to tackle the problems?

MN: We are still deciding which areas to fine-tune in terms of savings. We haven’t decided yet, not at this stage, but that is an area that we will look into, absolutely.

The area of bonuses, allowances, travel allowances, all the perks, vehicles, for example, getting the right employees into the civil service, retiring some people and so forth.

Where there is excess capacity in terms of human capital, we will look into all those areas, but we haven’t decided exactly which areas, but the work has started.

ND: Is there political will to see through the tough measures needed to revive the economy, because previously, this was an area of contention?

MN: There is political will. It is in the stabilisation programme that I announced, so there is political will. There is commitment on that. We are going to act on that structuring agenda.

ND: Let’s talk about your new tax regime. Many say it’s going to hit the poor more and that the fine-tuning you did will only be to save those with deep pockets?

MN: We have sent out a detailed statement on how that works. I will be very precise, what it does in terms of transactions, those who are spending $10 and below are not going to pay the tax, so that is the bottom of the pyramid, that is the poor. They are exempt from the tax.

There is a cap on how much anyone can pay in terms of transaction tax, which is $10 000. So this is really impacting on corporates, private companies because they were being impacted as well.

Number three, there are exemptions on transfer funds, including transfer from intermediary accounts. These are intercompany accounts, transfer funds of the pensions, sale of equity in the Zimbabwe Stock Exchange, transfer funds in the purchase and redemption of money market instruments so that we don’t hurt the returns for money market investors, transfer of funds for payment of salaries, transfer of funds for the payment of taxes.

Why? We are the tax collectors, so we cannot double collect! Transfer of funds from intermediary accounts, for example, conveyancing in the property sector, transfer of funds in foreign currency-related payments and here we are targeting remittances from the diaspora and also transfer of funds by government.

Why? We are the tax collector, so the combination of exemptions of the flow in terms of the $10, in terms of the cap on the amount of $10 000, we believe that we have managed to accommodate everyone who matters and the tax, therefore, is more progressive than regressive.

ND: From what you are saying, are you still not saving the deep-pocketed and punishing the poor?

MN: No we are not, no, no!

ND: Your statement reflects that you protect intermediary accounts of companies, yet you don’t protect a person who wants to move their salary from their bank account to their mobile money platforms like EcoCash for a transaction where there is no swipe machine. A person who moves $400 from their bank account to their EcoCash account or their other bank account is charged while companies are exempted.

MN: You see, previously when we announced, the companies were going to pay a lot of money (which was bad because) then you start impacting on their profitability, their ability to employ people and so forth.

I think it’s fair. What we have done is we have capped the burden for the wealthy and companies and also capped the burden for the poor also, so we have impacted both ends of the spectrum and that way is progressive.

ND: Minister, if your cap for the poor is benchmarked at $10, what of a poor civil servant who earns $400 who wants to move their money? This person is paying VAT [value-added tax], income tax, airtime tax, among other taxes?

MN: No, no, you see, we have a bleeding patient and the patient needs to be fixed. So we have to stop the bleeding, we have a huge domestic debt, we need to plug that hole.

Listen, you don’t realise that you are already paying, you are already bleeding. You know what’s happening because of the high budget deficit and the issue of Treasury Bills which are keeping interest rates high?

Those interest rates are translating into a high cost of capital, especially for SMEs [small-to-medium enterprises]. So if SMEs can’t access credit and do their business and employ people, that’s a cost to the nation.

So you are paying already, but you are paying indirectly you don’t realise it.

So the idea is to fix that original problem by making sure that all Zimbabweans are in on it.
If we move to a budget surplus, that will solve inflation issues, cost of capital issues and so forth and then this economy will move to a position of strength and then you will see prosperity.

ND: But the current situation has been caused by government overspending, the Reserve Bank of Zimbabwe debt assumption — the $1,8 billion was for buying tractors, plasma TVs for judges — why make Zimbabweans pay for that?
MN: I don’t want to go into that detail, all I am saying is that I found a situation of indebtedness and I am trying to fix that.

I don’t even know some of the detail, you might even have more information than me about tractors and so forth.
The situation is what is on the books and we need to deal with that. The issue about even the debt; if you look at the debt, it is put as short-term — the duration needs to be lengthened and we will work on that.

I have said that Treasury Bills should be auctioned so that we can reduce the cost of serving that instrument from maybe 10% to 7%.

So we are doing everything to make sure that we reduce the cost of that debt, its impact on inflation, reduce its impact on the cost of capital and also reduce its impact on currency-related issues.

In the end, I think we will have a strong economy, an economy where you have confidence, where you can put your money and I think you can see growth beginning to move in the right direction.

I am also pleased that despite all these challenges, the economy is bigger than we think. Actually, the economy is not $18 billion as thought, it’s more like $25 billion, so that’s encouraging.

In fact, if you add the informal sector, it’s even bigger. So this tax I introduced also increases the net of taxation into that informal sector, but we have put a cap for those who are being taxed.

Anything below $10, we are not touching and then also a cap for corporates, because corporates are also paying taxes already, but also they are creating jobs for you and the bulk of our Zimbabweans.

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