Ncube’s budget surplus: Much ado about nothing 

Source: Ncube’s budget surplus: Much ado about nothing – The Zimbabwe Independent August 9, 2019


ALTHOUGH Finance minister Mthuli Ncube highlighted some positives such as recording a budget surplus when he presented his Mid-Term Fiscal Review last week, his measures were criticised for worsening the economic hardships and plunging most Zimbabweans deeper into poverty.

By Kudzai Kuwaza

In his presentation, Ncube announced a three-fold increase in electricity tariffs and raised tax on fuel imports in addition to raising the cost of obtaining government services, while stoking inflation currently at 175,6%. The minister banned the release of annual inflation figures for six months.

Ncube said the economy would shrink this year as a result of devastating power cuts that have decimated industry and seen households going for up to 18 hours without electricity. The drought has also contributed to the contraction. His previous annual economic growth forecast was 3,1%.

The government dropped a bombshell by suspending the publishing of year-on-year inflation figures until February 2020.

Electricity charges will go up from 9,86 cents (US1 cent) per kilowatt hour (kWh) to 27 cents/kWh (US3 cents).
Tax on fuel imports more than doubled from 19% and 16% of the landed cost of petrol and diesel to 45% and 40%, resulting in a rise in the pump price of fuel.

Ncube also announced an increase in government service fees as well as fresh taxation for electronic transactions.
For tollgates, light motor vehicles will now be required to pay ZW$10 up from ZW$2; mini-buses ZW$15 up from ZW$4; and conventional buses will now pay ZW$20 up from ZW$5. Heavy vehicles and haulage trucks will now pay ZW$25 and ZW$50, respectively.

Route authority application fees have been increased from ZW$25 to ZW$125, and the operator’s licence application fee has been reviewed to ZW$250 from ZW$50. Original motor vehicle plates now cost ZW$400 from ZW$80, while changing number plates will attract a similar fee.

“Since the establishment of an inter-bank foreign exchange rate, the local currency has lost value against major currencies. As at July 16, 2019, the local unit was trading at 8,8 to the United States dollar,” he said.

“Depreciation of the local unit against major currencies has increased the cost of goods and services, hence the current level of fees, levies and charges is no longer reflective of the cost of providing government services.”

However, analysts say the problem is that workers, including civil servants, have not had their salaries increased to levels benchmarked against the US dollar, meaning the taxes imposed by Ncube will fuel inflation, further eroding wages and purchasing power. This will also negate the tax-free threshold increase from ZW$350 to ZW$700 announced by Ncube.

While some companies have given workers hardship allowances to alleviate the difficulties they are facing, it is far from adequate and this will only worsen with the latest taxes and increases announced in the budget.

What has worsened the situation is that companies are struggling to keep afloat crippling the ability to increase salaries of workers to sustainable levels.

Companies are battling to remain viable in an economy characterised by foreign currency shortages, debilitating liquidity crunch, runaway inflation which stands at 175,66% low production and fuel shortage. However, the most devastating impact has come from the rolling power cuts.

Most companies have had to fork out millions in buying diesel for generators which has severely hampered operations.

Simbisa Brands has revealed that it has had to fork out ZW$780 000 monthly for fuel to power generators. OK Zimbabwe chief executive Alex Siyavora told a local weekly that they spent ZW$1,6 million in June alone on the use of generators.

Proplastics chief executive Kuda Chigiya said his company was operating at one third of capacity utilisation. He said equipment was damaged, forcing the company to employ mitigatory measures, while the retrenchment of workers was also now inevitable.

The surplus that Ncube has been boasting about is nothing to write home about, according to business consultant Simon Kayereka.

“The minister seems to be obsessed with the surplus resulting from so-called cost-cutting (and) an increase in revenue collections from both companies and the public. Surplus is a synonym for profit. The surplus in this instance, however, is quantitative rather than qualitative. If it was qualitative, it would at least pay for some of our challenges such as fuel and energy,” Kayereka said. “This is purely good numerator management without regard to the implications of such a policy on the general populace.”

He said the fiscal review must have had a negative impact on Zimbabweans.

“There has been an increase in toll fees from ZW$2 to ZW$10, which is an increase of 500%. If you drive to work from Marondera or Bindura everyday you must pay ZW$100 every week. This obviously increases the fares for commuters. There was also an increase in the price of fuel from last week’s ZW$7,47 to ZW$9 this week. This will also be passed on to the commuters,” Kayereka said.

“There has been an increase in the price of non-existent water, but it will still be charged by another increase in non-existent energy. I could go on and on but this budget means that the lives of the ordinary people are severely affected.”

Kayekera said there was “nothing built into this budget to provide a safety net for the general public and, worse, for the pensioners”.

Ncube has come under attack for dwelling on the budget surplus of ZW$803,6 million, with many pointing out that the majority of the country’s citizens have not felt the benefits of this extra income by Treasury.

Confederation of Zimbabwe Industries (CZI) chief economist Tafadzwa Bandama challenged Ncube at a Mid-Term Fiscal Review meeting organised by Alpha Media Holdings and the Zimbabwe Economic Society this week to use the surplus towards economic enablers such as electricity and fuel.

Economist Prosper Chitambara said it will get worse for consumers before it improves.

“The situation is already very difficult to consumers and there is going to be an increase in prices as a result of the measures announced in the fiscal review,” Chitambara said. “Things are going to get worse before they improve, if they improve.”