The ‘fiscal shock’ will catapult Zim out of the quagmire
THE Minister of Finance has in recent times come under immense pressure to justify the introduction of the two percent tax on selected electronic transactions. Many are concerned about the impact of the two percent tax on prices of basic commodities.
In a wide-ranging interview with Senior Writer Lovemore Ranga Mataire (LRM), Prof Mthuli Ncube (MN) talks about why the tax is necessary, its long term benefits and his relationship with key stakeholders including the RBZ Governor Dr Godwin Mangudya.
LRM: Hon Minister, how do you respond to the perception that the two percent tax was rushed and that wide consultations should have been taken to manage the possible repercussions that have since ensued after the introduction of the tax?
MN: I don’t want to start there. Because I took action, people are now focusing on the action without focusing on what the real problem is. The real problem that the two percent is trying to solve is the fact that we have a double fiscal deficit which is a double digit. So if you take expenditure versus income, we have a double digit figure as a percentage of the Gross Domestic Product.
So the question then is how do you solve it? You solve it by raising revenue and also by containing costs. Also it turns out that the economy is now more informal, so you need a mechanism that can tap the informal sector. So there is a reason why we have the two percent electronic tax and not use VAT or some other mechanism; and the reason is informality. So I want to put it in context. So consultation or no consultation is far from the issue.
LRM: But Minister some critics are saying the negative perception of the two percent tax stems from lack of understanding of the real reasons you have just mentioned and that these perceptions are as a result of lack of wide consultations with key stakeholders.
MN: I think if we start like that we then miss the big picture. Someone must be doing the numbers right now and say how much should have been raised in a year. That is the issue.
LRM: Yes, Minister I understand where you are coming from. I recently had a similar conversation with Eddie Cross (former MDC policy co-ordinator) and he said the tax is likely to raise about $2,6 billion per year. Do you think that figure is feasible?
MN: No, I think that the figure is too high. You see the size of the deficit is huge, just over $3 billion. So if we can raise close to a billion out of this tax, then we will make a lot of progress. Then you also need to understand the impact of this deficit as it continues to exist. What problem is it causing? The problem it is causing is that it’s squeezing out the private sector and yet we want a private sector-led economy. If now I have to issue treasury bills to fund the deficit as has been the practice, then banks will prefer to hold treasury bills, which they are doing by the way, they don’t lend. Why should they lend when there is easy money? So there is another colleague of yours who asked me the same question. I understand why that is newsworthy but I think we will miss the point. But also for the record, I consulted on this issue and there is a retail research paper on it. We tracked the use of mobile money and electronic transactions since 2000 and we can see the curve and we have done our estimates. It’s just that at this stage we can’t release the paper but in a few months we will go public once the tax is in place. But consultation, I consulted.
LRM: Some economists have alluded to the possibility of the two percent tax stifling economic activity. How do you react to such a perception?
MN: No, I don’t think it stifles economic activity. It’s just two percent. How much is VAT? It’s about 17 percent and here we are worrying about two percent. So I think it has been caught up in a narrative. And then we have exemptions and no one is talking about this. We have got so many exemptions for low income groups and even for corporates. So on the contrary, by stabilising the fiscus, it will allow more activity to be created.
LRM: Let’s talk in general about your Transitional Stabilising Programmes and what are the key pillars?
MN: The TSP — Transitional Stabilising Programme, its first task is to diagnose the problem then calls for action. There are internal and external problems. Let me start with external problems. It recognises that Zimbabwe cannot source credit lines easily abroad. Its credit standing has dropped because it is in arrears in terms of payments to the AfDB, World Bank and other creditor nations such as the Paris Club and others. So there is need to clear those arrears and once we do that then the credit lines are open and our credit standing will improve. But why is that a problem? It’s a problem because if we can’t secure credit lines to support our exporters; how do you expect them to grow? How do they create jobs? So that is the problem and the solution is we engage and we pay. In the next 12 months we will clear the AfDB and the World Bank. I am really working hard to clear those arrears and then after that will have conversations for stage 2 with the Paris Club and get the debt restructured.
LRM: How much do we owe AFDB and the World Bank?
MN: African Development Bank is about US$680 million while the World Bank is about US$1,3 billion but of course there is interest which keeps growing every day. The figures keep moving and then the Paris Club is about US$2,8 billion. So by doing the first two, AfDB and World Bank, that alone will unblock and solve that credit lines issue. We are making good progress by the way in developing credit lines but it could be faster if that was done. So that’s the external problem.
The internal problem is a few of them. One is that we have a fiscal challenge. Our revenues are far less than our expenditure. So we have a deficit and that deficit is a double digit and I want to bring it to a single digit. But why is that a problem? It is a problem because it is causing us to issue excessive treasury bills and that is squeezing out the private sector and is starved of essential credit that it needs for investment and creating jobs. It also feeds into the value of the stability of the currency. Both internal value and external. Internal value being inflation. External value being the exchange rate itself. So there is a link and the problem is the fiscus. By the way this is not the first of the last we are to have some tax review or anything like that. But also you must remember that the tax can also be used as an incentive around job creation. We will see, I might have something in the budget on that, we are working on something on tax for jobs.
LRM: In my recent conversations with Eddie Cross and John Robertson they alluded to the budget. They said they were keen in seeing how the budget will look like in order to have a comprehensive understanding of the austerity measures being implemented by the Ministry of Finance. Can you briefly give pointers of how the budget will look like?
MN: I think let me give the principles of the budget without being specific. So the principles are that the budget will stick to the issues of tightening our belts but at the same time have some incentives to stimulate the economy especially on the jobs front. But also, the budget will try to address the issue of devolution where I am supposed to transfer five percent of the budget to the provinces and various districts. So I would say it will be a combination of austerity and incentives, especially incentives around job creation.
LRM: Isn’t this what has been the norm all these years that the national budget’s main focus is job creation and incentives to industry?
MN: No, certainly I don’t think we have been as loud as we are especially on the austerity front otherwise we wouldn’t be in this kind of situation where we have a huge budget deficit. And on the jobs, certainly I have not heard anything on the jobs side for the past two or three budgets. Going back to the two percent, this two percent is coming from the Transitional Stabilisation Programme, it’s not a stand-alone programme. It’s to deal with the revenue side. It is to deal with the revenue side and on the cost containment side, we also make sure that we leave within our means and the President has spoken about this. And we are working on the measures to deal with expenditure and we are busy consulting.
LRM: Hon Minister what exactly is the economic model you are pursuing and how adaptable is it to our Zimbabwean environment?
MN: The economic model is a Zimbabwean model that we have always known but had missed out in the last 15 or so years. It is a model that is private sector led; which is very vibrant and is open for business for both local and foreign business. It’s an environment of stability, people should have confidence, an economy taking place among the best economies in Africa if not the world. If you were around in the 90s it will be wonderful to go back to that period — around 97-98. So we have been there, some of us have been EDITOR, I write to comment on the article published in the Sunday News of 14-20 October 2018 edition entitled; “Chiredzi tops in STIs cases’’. I warn men and women, particularly young girls against engaging in prostitution, which is largely to blame for the spread of the deadly pandemic HIV/ Aids.
What we should appreciate is that the world is yet to find a cure for HIV/Aids. It is therefore, incumbent upon each and every citizen to ensure measures are taken to minimise or completely stop the spread of Aids. The responsibility to fight the spread of HIV/Aids should be shared, the young, the old, women and men should all fight this deadly pandemic that is threatening to wipe out mankind.
It is therefore, a pity to see young women roaming the streets at night for the purposes of prostitution. Prostitution is a recipe for death. It is a shame that despite having witnessed or witnessing daily relatives and friends in some cases parents dying from Aids, we have women and men still engaging in prostitution. These women and men move from one beer outlet to the next looking for sexual partners. Money is certainly not everything. Let’s all live within your means.
Ignorant men and women say, Aids was brought here on earth to maintain the balance of nature. Aids kills, believe me. Knowing your status is of great important, get tested for the betterment of your life. Be alert today and alive tomorrow.
Lawrence “General Chinene” Ndhlovu, P6, Lwendulu, Hwange.