The ‘fis­cal shock’ will cat­a­pult Zim out of the quag­mire

Sunday News (Zimbabwe) - - Front Page -

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.

Min­is­ter Mthuli Ncube

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