Tax-free threshold widened
FINANCE and Economic Development Minister Professor Mthuli Ncube has reviewed upwards the tax-free threshold by 100 percent from $350 to $700, with immediate effect, in an effort to increase workers’ disposable incomes amid rising inflation.
Presenting a $10,85 billion Supplementary Budget and 2019 Mid-Term National Budget Review Statement yesterday, Minister Ncube said the decision was taken to cushion workers against “bracket creep” (increased tax liability) and stimulate waning demand for goods and services.
This comes as wages and salaries have remained largely unchanged despite the continually rising inflation rate, as prices chase parallel market exchange rates pushed up by a US dollar liquidity crunch.
Themed “Building a Strong Foundation for Future Prosperity”, Minister Ncube’s Mid-Term Fiscal Review Statement provided a frank account of progress towards sustainable macro-economic fundamentals, and carried a number of measures to protect vulnerable groups, drive productivity and consolidate gains from ongoing reforms.
He, however, said despite a firm foundation, growth this year would be negative.
“I propose to review the tax-free threshold from the current $350 to $700, further widen the tax bands to a maximum of $30 000, above which income is taxed at the marginal tax rate of 40 percent, with effect from 1 August, 2019,” he said.
Employees that earn foreign currency shall, however, continue to settle their tax liabilities in foreign currency.
As widely expected, the minister had to adjust upward the tax bands, especially to cover low-income earners, whose salaries and wages have been eroded by rising inflation, as the economy reconfigures.
Zimbabwe’s annual inflation rate, which stood at 5,39 percent in September last year, has continued to rise, reaching a post-dollarisation record of 175,66 percent last month, driven by foreign currency premiums from the black market. “The liberalisation of the exchange
rate, combined with ongoing fiscal consolidation reforms rolled out since October 2018 and a complementary tight monetary policy, have managed to contain excessive money supply growth, which had been the main driver of inflation,” he said.
The Supplementary Budget also contains measures specifically aimed at cushioning Government workers, who previously had $4,1 billion earmarked for their earnings. Developments during the first quarter led to interim cushioning allowance of $63 million being awarded to the employees over and above a cost of living adjustment of $400 million, effective from April. The cost of living adjustment also implied a review of pension and related benefits costing $133 million.
Minister Ncube said the sustained inflationary pressures had also led Government to award a once-off cushioning allowance in July of $143 million.
As such, the minister said the Supplementary Budget proposes to accommodate all the said financial commitment by moving the employment cost budget from $4,1 billion to $5,9 billion.
“The prevailing inflationary environment is also imposing great hardships on vulnerable pensioners. Therefore, proposed adjustments in compensation of (Government) employees will also be cascaded to pensioners,” Minister Ncube said.
In line with the pro-poor thrust, the Treasury chief said his supplementary Budget proposed an additional $437 million for grain inputs (maize, sorghum and pearl millet), which are grown by the vulnerable in rural areas. The scheme will also include sugar and soya bean seed.
The inputs comprise seed, compound D and top dressing fertiliser, targeting an area of 640 000 hectares.
To sustain recovery in cotton production, $213 million has been set aside towards inputs for cotton, which is mostly grown by poor rural farmers, covering a targeted area of 200 000 hectares.
Also, the Supplementary Budget is making an additional provision of $1,03 billion, on top of the $2,8 billion earmarked for maize and soya beans, for loans to farmers not covered under vulnerable group, in light of the drought last season.
He said to strengthen referral health systems, Government is rehabilitating and upgrading health infrastructure as well as constructing rural health posts.
To sustain ongoing efforts in restoring damaged infrastructure and livelihoods for communities affected by Cyclone Idai, an amount of $414,3 million in additional funding has been set aside.
A total of US$641,2 million is also projected to be disbursed by development partners in 2019, in addition to the US$117,8 million disbursed by development partners in the first half of this year.
Government has also identified and scaled up social safety net programmes under health, education and social protection, which will see the initial budget increasing from $267,6 million to $1,135 billion.
The budget for the vulnerable groups is broken down as social protection $811,9 million, health care $250,4 million and education $72,9 million.
Further, Minister Ncube said Government had introduced an urban mass public transport system to cushion the public from increases in transport costs resulting from fuel price adjustments.
In order to increase access and coverage, resources amounting to $104 million have been provided under the Supplementary Budget.
“Going forward, Government is pursuing the establishment of a Mass Rapid Transit System, which is a coordinated public transport network, facilitated through railways and road transport for both urban and rural commuters,” he said.
On social services infrastructure, the minister said construction of 17 rural schools under the First Education Project started in 2013 with co-financing from the OPEC Fund for International Development (OFID) covering construction of buildings, equipping the schools.
In this regard, Minister Ncube yesterday proposed a further $26,6 million for the project, covering electrification costs for targeted schools and Government’s counterpart funding.
Minister Ncube said 2019 had witnessed the implementation of bold and fundamental fiscal and monetary policy measures, popularly known as austerity measures, which were supported by structural and governance reforms.
He said the painful reforms, void of policy reversals and inconsistencies had, as intended, set a solid stabilisation base for triple “S” growth: strong, sustained and shared.
“I am pleased to report that we now have in place a structure and processes that we are confident will, to a large extent, address the legislative and the public’s concerns going forward.”