2021 budget: Fitting a round peg in a square hole
THE 2021 national budget due to be presented this afternoon presents one of the toughest challenges for Finance minister, Mthuli Ncube. He is expected to roll out strategies that will help the economy recover, without hurting it through high taxes and tough policies.
For instance, the mining industry waits anxiously for major tax reforms in respect of foreign currency taxes and retention thresholds. The mining industry has for a while been battling government for timeous gold and chrome payments as well as a review of foreign currency retention thresholds.
Players prefer to keep their entire earnings in foreign currency and utilise their funds as they wish instead of having to queue for allocations at the Reserve Bank of Zimbabwe (RBZ) auction.
Last month RBZ governor, John Mangudya hinted at key tax reforms in respect of foreign currency retention and liquidation of free funds, coupled with maintaining the foreign currency auction system as part of measures to uphold monetary policy stability in the country.
Mangudya said there were deliberations to increase the time exporters can keep their 70% forex portion before liquidation from the current 60 days.
This was said after his presentation at the launch of the State of the Mining Industry of Zimbabwe report by the Chamber of Mines of Zimbabwe.
Although he did not specify how much time was being considered, the move is expected to allow miners and other exporters to utilise their foreign currency earnings and relieve pressure on the auction system.
Furthermore, he said, discussions were also underway for 70% of the miners’ receipts to be taxed in foreign currency and 30% in local currency in line with foreign currency retention thresholds given that 30% of their forex is liquidated on the interbank.
He also said there was need for policy consistency and predictability to sustain the sector.
The central bank chief said some of the measures could be incorporated in the 2021 National Budget. Economic and mining expert Albert Makochekanwa said Zimbabwe risked missing its National Development Strategy targets if key reforms necessary to drive growth in the extractive sector are not implemented.
Makochekanwa, who is a university professor, said the problems in the sector were known and had been raised before.
The problems facing Zimbabwe include a depreciating currency, high inflation, unemployment, huge a housing backlog, water shortages, wage erosion, low consumer spending, company closures and food insecurity.
Last week, government ministries and departments submitted total requests for the 2021 National Budget amounting to $1,1 trillion to tackle these challenges.
Economist, Tony Hawkins asked: “How can the government achieve its expected growth targets? If you look at the numbers and the real situation we are living with, there is a gap.”
He said when looking at the 2020 National Budget, the government did not account for rising inflation which was an indication they would miss their targets.
“We cannot believe any of the numbers they talk about. There is now no point in raising taxes because of inflation. They are in an impossible situation and spend their time creating false narratives. Previous budgets bore very little if any reforms a year later,” he said.
Hawkins added that the only solution for the government was to access external lending which hinged on the government implementing tangible reforms as domestic resource mobilisation would remain challenging.
Another economist, Prosper Chitambara said last week that overall macroeconomic and development performance of a country depended on how well its public resources were managed.
“Ultimately, the problem of underdeveloped is a stewardship problem. The national budget is coming at a time the country has achieved some measure of stability on the foreign exchange markets, as well as on the inflationary front thereby providing an important basis for growing the economy,” he said.
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