via Economics 101: Chinamasa ’s first acid test December 12, 2013 NewsDay by Victoria Mtomba and Bernard Mpofu
FINANCE and Economic Development minister Patrick Chinamasa will next Thursday face his first acid test since his appointment on September 10.
Chinamasa will present the much-awaited 2014 National Budget at a time the economy is underperforming and everyone is looking up to him for answers.
For a man who frequently crossed swords with former Finance minister Tendai Biti during the tenure of the shaky inclusive government which ended in July, his policy interventions could present a moment of reckoning for him.
Last year, Treasury presented a $3,8 billion budget with $3,3 billion (86,4%) of the revenue going towards recurrent expenditure and the balance of $500 million (13,6%) left for capital development.
With such limited fiscal space, any Finance minister could be relegated to nothing, but a paymaster.
Experts this week said Chinamasa’s Budget was likely to be less than $3,8 billion given the drying of inflows in particular from diamond mining companies.
They say Chinamasa has to strike a balancing act in announcing measures that will inspire confidence as well as toe the party line.
Zanu PF, which is currently meeting in Chinhoyi for the 14th annual conference, has crafted an economic blueprint that has had a lukewarm reception from business organisations.
Whether Chinamasa will attract funders, especially after clashing with the United Nations Development Programme on several occasions, and whether he will eat the humble pie and seek technical support from them, only time will tell.
Miners have submitted a long wish list to the Finance minister, which they hope would be addressed in the Budget.
Now, the key economic driver, the capital-intensive mining sector, wants Treasury to review royalties, a development miners believe could ramp up production.
But for government, whose revenue inflows are trickling due to the underperformance of the economy, a downward card may reduce money in the bag.
So, in light of that, any chances of wholesome cuts in levies and ground fees remain low.
Agriculture output, which has over the past 10 years been on a downward spiral, requires urgent attention.
While tobacco output has been improving, the general state of the entire sector remains dire and funding constraints like in other key economic sectors remains the order of the day.
Local economist John Robertson says Treasury should not increase taxes for employees as it will reduce value-added tax (VAT) which is a major contributor to revenue.
VAT contribution to revenue stood at $284 million in the first nine months of the year to September against a target of $291 million.
Total revenue collections at $897 million were below the target of $905 million.
“The Finance minister will complain about the absence of money, but the money is not available. The minister has huge problems, but little solutions.
“The answer really is to build productive capacity manufacturing, agriculture and accelerate the growth of the mining sector,” Robertson said.
“If he increases taxes for employees, he will reduce VAT which is the major contributor as people will spend less,” he said.
He said Chinamasa should not bank on diamonds as the country had not realised any much revenue from them.
He admittedly said proceeds from diamond mining were not finding their way to the fiscus, dashing hopes of the sector’s capability to drive the economy.
More so, reports have shown that alluvial diamonds could be running out, meaning that Zimbabwe now required more investment to tap the gems.
Apparently, there is no money in government purses to do so and investors seem to be risk averse due to unattractive returns.
“We never saw the money in the first place from diamonds. There wasn’t any difference at all from diamonds money in the economy,” Robertson said.
Consumer Council of Zimbabwe executive director Rosemary Siyachitema said government should change the tax regime in the country as people are paying high taxes.
“Due to tax brackets people are being paid little money because of the high tax rates. There should be a ceiling to say if one gets a salary of $1 000, it should not be taxed,” Siyachitema said.
She said the Budget should focus on resuscitating the productive sectors of the economy.
“We do not expect any movement on tax on imported goods as the country’s production has not changed,” she said.
Confederation of Zimbabwe Industries president Charles Msipa said Zimbabwe, currently ranked one of the lowest investment destinations in the world, should create a conducive environment for foreign direct investment.
The manufacturing sector is on its knees and requires $2 billion to recapitalise after machinery and equipment became obsolete at the height of a decade-long economic meltdown which ended in 2009.
Critics say government should climbdown on indigenisation and empowerment regulations to increase foreign direct investment inflows.
Such a move, on the other hand, could further dent Zanu PF’s reputation given that the party used the empowerment drive as its election trump card.
“Most important for us is that the Budget should build confidence and government has to be a good steward of the economy.
“That will help the country attract domestic and foreign investors that would enhance the foreign inflows in the country.
“The inflows will ease the critical shortage of capital in the economy,” Msipa said.
Msipa said Treasury should reduce taxes to stimulate economic activity in the economy.
“Corporate and individual taxes are all ready for review due to the low levels of economic activity,” he said.
A Harare-based analyst working at a local advisory firm who requested anonymity on professional grounds said the Finance minister was likely to increase taxes to widen the revenue base.
“The only way he can broaden his revenue sources is through the increase of taxes on imports just like the way he did with beer, cigarettes and fuel to fund elections,” the analyst said.
Last December, the government increased excise duty on lager beers, a development brewers argued resulted in a knock in volumes.
Next Thursday will certainly be Chinamasa’s first test since assuming arguably Zimbabwe’s hottest seat.
The countdown begins.
WHAT LABOUR WANTS
THE Zimbabwe Congress of Trade Unions (ZCTU), like other stakeholders, submitted a paper to Finance minister ahead of the forthcoming Budget. Below are excerpts from the paper.
Since economic growth is moderating against a background of huge social deficits, it is necessary to implement active measures that deal with the most binding constraints on growth.
Beyond a macro-level approach, this needs to be replicated at sectoral level. Such constraints include the dilapidated state of infrastructure, especially water and energy provision; renewing technologies in use in industry; access to and the cost of capital; and skills. There is, therefore, need to reactivate and resource the National Productivity Institute (NPI) launched in March 2003 to make it operational.
The NPI has already developed a strategic plan, which needs to be activated and fully implemented as a matter of urgency. A board including all key stakeholders such as government, employer and worker representatives, as well as the Scientific and Industrial Research and Development Centre is already in place.
Reactivating discussions and negotiations towards a social contract
Given the significant policy trade-offs and the need to foster social cohesion among national stakeholders, it is critical to revive the social contract negotiations under the aegis of the Tripartite Negotiating Forum (TNF).
The 2014 Budget should therefore take advantage of the progress made in the development of the Social Contract Bill to provide for a statutory and independent framework for the TNF so that stakeholder participation throughout the Budget cycle is institutionalised. The active (strong) reforms required to sustained growth and recovery at the expected levels of at least 7,1% would be achievable when the TNF adopts active measures to address the existing structural bottlenecks moderating growth, including the high public sector employment costs, poorly maintained infrastructure, liquidity problems being fanned by lack of confidence among financial sector stakeholders, the poor business climate that has been associated with persistent closure of firms, among others.
The TNF could easily adopt and implement “doing business” reforms which are not complicated at all, and yet they can make a huge difference.
In addition, the 2014 budget could take advantage of the progress already achieved in the TNF. For instance, the National Productivity Institute (NPI) that was launched in 2003 has not been implemented as it has never been allocated resources.
Yet its mandate is to change the mindsets among local stakeholders and unleash a productivity-oriented culture and practice sector-by-sector. In view of the importance of growing the economy as a basis for improved well-being of Zimbabweans under the active policy reform scenario, reviving the NPI is a useful starting point because it has already adopted an aggressive approach towards enhancing national productivity and competitiveness through a sector-focused approach.
Thus, ZCTU is convinced that it is only through social dialogue and the finalisation of a social contract that the much-needed fiscal discipline, reprioritisation and improved quality of expenditures, as well as navigating policy conflicts can be achieved in the national interest. The Kadoma Declaration, which was formally adopted and launched by President Robert Mugabe in 2009, can help address the persisting Country Risk Factors. It correctly outlines what each social partner is expected to do in order to reverse the downside risks that accentuate country risk challenges.
The 2014 Budget should, therefore, ride on the momentum around the TNF and negotiations for a social contract in Zimbabwe that have been ongoing, albeit intermittently.
Some useful protocols have already been signed on the Kadoma Declaration, principles guiding the TNF, productivity enhancement among others that should form the basis for further discussions and finalisation of a social contract in 2014 and beyond. This is the only sustainable way to deal with the polarisation that currently characterises Zimbabwe.
Other initiatives the 2014 Budget could take advantage of include the inclusive Great Zimbabwe Scenarios Project, which has developed four scenarios regarding what could happen in Zimbabwe going forward. Zimbabweans could be rallied around the two progressive scenarios. The Zimbabwe Scenarios Project is now at the stage of disseminating the four scenarios, which fits well with the 2014 Budget process and implementation.