The Zimbabwe Independent
Tax threshold on salaries, cruelty of highest order
THE prospects of an economic recovery in 2021 are looking gloomy with the surge of Covid-19 cases, policy inconsistency and increase in prices of basic commodities. As the country braces for a new year, deputy group business editor Kudzai Kuwaza (KK) this week spoke to CEO Africa Roundtable chairman Oswell Binha (OB, pictured) on his thoughts on the budget presented by Finance minister Mthuli Ncube, its impact on the country’s economic performance this year and whether the projections put forward by the Treasury boss bear any resemblance to what is obtaining on the ground. Below are excerpts of the interview:
KK: The minister of Finance has been criticised for presenting a budget that burdens citizens. Do you agree with this sentiment?
OB: Taxation models differ from country to country, with those countries in the highly indebted poor category relying on taxation of the poor and vulnerable as a revenue generation option. Zimbabwe has not shown innovation in ensuring the vulnerable in our society escape the negative impact of the tax net particularly the pensioners and the rural folk. It remains an indisputable fact that Zimbabwe is one of the most taxed countries by regional standards with over 30% tax to GDP ratio.
Clearly, in the absence of external budgetary support, the government resorts to taxation and thus expects to extricate itself out of the revenue non-performance conundrum. It is self-defeating. In spite of the obvious broadening of the tax net, to include the traditionally free riding, informal economy, something clearly innovative given the high informalisation of our economy, it is the expenditure side that leaves an aftertaste in the mouths of the taxpayers particularly as the government continues to midwife unbudgeted expenditures, protect pilferage in most public entities, fail to present accounting reports and indeed pursue wrong priorities in utilisation of state resources. So, yes there is an increasing tax burden on the citizenry, and given the humongous challenges we face this year, more resources are needed, and taxation remains the only easiest tool at the disposal of the treasury.
KK: The Finance minister said inflation will be 135% by the end of this year. Is this feasible?
OB: Since time immemorial, Zimbabwe inflation has always been a monetary phenomenon. Containing inflation will largely depend on the discipline by both fiscal and monetary authorities to desist from its seigniorage, a behaviour the state has continuously been culpable of, leading to constant RBZ intervention. Government collectively continues to mislead the markets on inflation targeting. One just needs to study the 2019 stats to arrive at an informed conclusion.
Dual pricing remains prevalent in the market with most, if not all pricing models pegged on the parallel market rate. Questions continue to beg answers on whether Zimbabwe is de-dollarising or re-dollarising. Approximately 75% of all transactions are presently in foreign currency, with cost drivers such as fuel hardly sold in local currency. The obtaining state of affairs reflects a gradual increase in pricing of goods and services. I therefore do not see significant reduction in inflation numbers in 2021.
KK: He has also predicted a growth rate of 7,4% this year. Is this realistic?
OB: We are coming from an estimated negative growth of 4,1% according to the Treasury and 10% if you go by RBZ statistics. It is possible for an economy coming from a ditch to grow by such margins.
More so, if the agriculture sector and mining sector perform as expected, it is most likely that the economy may register a big jump.
However, the traditional complexity in our macroeconomic variables sustains the notion that consumptive budgetary allocations crowd out productivity with all economic enablers on the brink of collapse.
Whilst the treasury continues to celebrate artificial surpluses, I believe more ef
fort must be invested in ensuring genuine ease of doing business, reduction of cost of doing business and ensuring availability of affordable lines of credit itself a key driver of business competitiveness.
Again, 7,4% is an artificial target judging by the extent of reforms needed to create an efficiently performing economy.
KK: The Finance minister put a tax threshold on salaries at ZW$10 000. Is this adequate?
OB: This is cruelty of the highest order. One simply needs to compare obtaining
inflation thresholds against the income levels. As highlighted before, we are highly taxed as a people. It is a tragedy that given the 2% IMTT tax, the same employees are subjected to PAYEE at a level as low as ZW$10 000. It’s sad that the government is taxing the poor of the poorest. This leaves very little as disposable income exacerbating the poverty levels of the already impoverished people.
KK: The minister increased the health vote to 13% of the budget. Is this adequate given the surge in Covid-19 infections?
OB: Not at all. The Abuja Declaration talks of 15%. So, 13% it’s still off. A healthy nation is a productive nation. There is a need to spend more on health following years of disinvestment in this sector. The health delivery system in Zimbabwe is dead. Specialist services are all privately owned, referral centres are ill equipped, skills flight is at its all time high and indeed politicisation of labour issues leaving the vulnerable in the society heavily exposed. The cost of a decent bill of health for an average Zimbabwean is beyond their reach. The minister may be misunderstood to be insensitive to the plight of the poor in our society who are the largest consumers of public health infrastructure and services if inadequate resources are made available to this sector.
KK: The minister said the economy will contract by 4,1% in 2020. Does this in your view tally with the contraction you saw last year?
OB: The integrity of our national statistics run the risk of being questioned let alone rejected. Let me say that the World Bank estimates the contraction to be around 10%. Calculation of GDP growth is a scientific process and requires lots of data, in the absence of which we may dispute figures given unless it's an outright outlier. The disparity between World Bank and Government of Zimbabwe estimations is however a reason to suggest that the economy could have contracted at a different rate. Holding all current variables constant, I would estimate the economy to contract by between 7 and 8,2%. One needs to account for Covid-19 induced macroeconomic complexities, the recalibration of fiscal allocations, productivity and exports to be pessimistic.
KK: The minister anticipates a budget deficit of ZW4,9 billion. Is this feasible.?
OB: Traditionally, Zimbabwe suffered from uncontrolled budget over run and clumsy public debt management. Spending beyond budget, particularly on populist programmes gobbling significant proportions of the budget continues to militate against efforts to crowd in funding to key functional sectors of the economy.
Institutional weaknesses in overseeing the deployment of these scarce resources expose the treasury to suspicion of being complicit in managing the public purse.
So, judging from historical experiences, a $4,9 billion deficit is difficult to achieve.
Any prospects of achieving this require serious fiscal discipline which is one of Zimbabwe’s chief failures.