The 2025 Budget

It is massive and very well done but I thought the position of the President in the new Parliament was not well thought out. It looked like an afterthought. When a lightning strike interrupted power supplies, I also understood that no provision had been made for batteries.

The Minister, who is a full Professor of Economics, was in his element and I thought his presentation was excellent. When I read the full budget on line, I also appreciated that it was supported by an excellent presentation of global, regional and local conditions within which he had to try and balance supply and demand.

But the proof of the pudding is in the eating and based on past performance, our expectations are not high. A few key observations to kick this discussion off.

First, he made it very clear that we had to work within what we could raise in terms of revenue, he promised a return to the Biti syndrome of “we eat what we kill”. That has not been the case in the current year and as a result we have created a significant fiscal and monetary crisis at the end of the year.

The second main point was that we are spending too much on salaries and pensions. I understand our Civil Service is now over 400 000 and when I last looked, we had 300 000 pensioners on our books. He spelt out in some detail what they were doing to get these numbers down and to make the Service more productive. He outlined what the Public Service Commission was doing and said he hoped that would improve the situation.

I have been a Parliamentary Pensioner for 6 years and have not been asked for “proof of life” once. I am quite sure that such an exercise would trim the number of pensioners on the State system very substantially. As for making the bloated Civil Service more productive and right sized I think that is a tall order. During the Federal Government days, the then Minister of Finance followed a principle that key Civil Servants should be paid about 80 per cent of their private sector equivalents. This seemed to work as we were able to retain good Civil Servants in key positions but we could never afford that with a Service of today’s size.

Once again, they presented the budget in the local currency even though it only represents perhaps 10 per cent of all the money in circulation. The figures meant very little as they are in a currency that has little local support and is very volatile. 85 per cent of all formal sector transactions are in USD and probably 100 per cent in the informal sector. The only concession to the US dollar was in a short summary of the budget and GDP figures (US$7 billion in a GDP of US$38 billion). In addition, some of the national debt numbers were in US dollars.

An interesting feature of the budget was the disclosure of the fact that Civil Service salaries in local currency were being indexed against the exchange rate to protect value. Sensible, but expensive. Global targets for the remuneration of the Civil Service are about 35 per cent of revenue. We got there about 6 years ago but this has now slipped to 55 per cent. Low salaries are a recipe for corruption and low productivity. When he took control in 2018, we were spending 97 per cent of the budget on salaries and ran a fiscal deficit of 40 per cent of all expenditure, we have come a long way since then.

His revenue enhancing features were not impressive or significant. The sugar tax in previous budgets, introduced on health grounds, has had to be changed several times and this was again shown to be necessary with a reduction of 50 per cent on cordials. Now a small additional tax on fast foods, again on health grounds. They already pay VAT. Both of these taxes are insignificant from a revenue perspective, difficult and expensive to collect and impact nearly 90 per cent on low income and poor sectors of our population. They also do little to broaden the tax base.

More important was the decision to keep PAYE taxes at their present level starting at 20 per cent for anyone earning US$100 per month or more. Are we crazy? What is the poverty datum line in Zimbabwe? It must be more than US$3 per day. I know a middle-income family would need about US$1500 a month to survive. On the 80/20 principle, low-income workers would pay about 20 per cent of the PAYE bill. Surely, we can lift the tax-free ceiling to US$500 or more.

Has anyone in the Ministry done a calculation of all the taxes being paid by workers – NSSA, Aids Levy, Manpower Development – the list goes on and on. Taken together they must represent another major reduction in take home pay. What do we get back from these additional taxes? Very little, after contributing to NSSA for 25 years I do not bother to request my pension from them, it is so insignificant. Aids levy – when last did we see an annual report. Manpower development – I saw the report and it was pathetic. If we were to increase the spending power of a million workers, its impact on the economy would be significant and it would be multiplied many times by the circulation of money.

Then there is the whole question of the “Grey Economy” here. Anyone visiting Zimbabwe will see for themselves the signs of growth, they are everywhere, from the number of vehicles on the road to construction sites across the length and breadth of the country. I visited Mbare recently and just travelled around the Township. I was stunned by the volume and depth of the trading going on there, queues of 30 tonne trucks delivering everything from vegetables to hardware and steel. Thousands of clients buying and thousands of traders. The turnover there must run to billions annually.

70 per cent of all construction is being funded externally – again we are looking at billions of dollars annually. In the Gold industry, the Dubail Gold market reports it received 450 tonnes of gold last year and does not know where it came from. They estimated a third from Zimbabwe. I speak to gold traders and they say quite openly that they deal in tens of tonnes of gold each year. 450 tonnes of gold is worth US$38 billion – our total formal GDP.

I am told that in a drought year, up to 700 000 people go into the gold mining industry as small-scale producers, essentially to feed their families. If they produce 100 tonnes a year it is equal to US$14000 dollars per person per annum. I am told they only get less than 60 per cent in cash – that is still US$8000 a year while the rest is externalized – over US$5 billion. That is 70 per cent of the national budget.

I estimate that we consume over 3 billion litres of refined petroleum fuels pert annum. The tax is 52 cents a litre – US$1,56 billion a year. We are not collecting even a third of that – by itself this would fund our health budget. We imported US$3 billion in motor vehicles this past year – if taxed at 60 per cent this should have given us US$1,8 billion.

Yet nothing of this, let alone estimates of the cost of corruption at over US$2 billion a year, were even mentioned in the Statement on the budget. If we could harness all these leakages, we would not need to tax a cleaner, earning US$250 a month and trying to support a family of five or six.