Budget 2023: A test on fiscal prudence

(Last Updated On: November 24, 2022)

Finance and Economic Development minister Mthuli Ncube today presents the ZWL$3.4 trillion 2023 National Budget amid expectations he will maintain the tight fiscal measures which are the bedrock of fiscal consolidation.

The much-awaited budget comes at a time when the government is cutting its coat according to the size of the cloth as it seeks to contain inflation and spur economic growth.

However, the temptation to be Father Christmas is too high as the budget comes in the run up to the 2023 polls. President Emmerson Mnangagwa in his State of the Nation Address (SONA) yesterday gave a clearest hint that the focus is now on elections by calling for immediate conclusion of the Electoral Amendment Bill.

The election season is now upon the country and the trend of authorities letting go of the reins in the run up to any polls in a bid to curry favour with the electorate is likely to continue.

In such times as these, prudence usually becomes the first casualty as populism takes over.

However, the calls for loosening the reins could be justified as the tight fiscal and monetary measures which are credited with taming the number one enemy inflation, have impacted on aggregate demand.

In years back, October up to December would have been the wet season for retailers. However, tills are not ringing due to low disposable incomes.

While Ncube increased the tax free threshold in the mid-term statement, there is need to review further to boost aggregate demand. More sales by retailers means more that comes into Treasury coffers through taxes.

Submissions made so far by businesses are unanimous on the impact of the 2% intermediated money transfer tax (IMTT) which they say has become a transaction instead of an income tax.

No one is against taxation. They want it done in a way which nurtures businesses today to be able to pay more taxes tomorrow.

They want the IMTT to be tax deductible like all the transaction taxes since it applies to all transactions notwithstanding that some are done by formal businesses that pay taxes.

They say the 4% tax on foreign transactions has hit businesses hard. Banks fear the tax will see money circulating outside the formal system thereby reducing deposits, key to stimulate lending.

They say the tax has reduced deposits which are required to grow the lending to the productive sectors of the economy.

The fiscal regime has not been favourable for the mining sector, Zimbabwe’s biggest foreign currency earning sector, accounting for 83% of the total receipts and 73% to foreign direct investment.

In a state of the mining sector report, executives expect the tax framework top worsen next year, citing the potential introduction of new taxes as well as problematic tax issues to remain unresolved.

Fiscal areas of concern raised by respondents include an increase in royalties for lithium and platinum, high royalty for diamond, beneficiation taxes for PGMs and payment of all taxes in foreign currency, the report said.

“All respondents highlighted that because of the hikes in taxes, the net present values of most of their capital projects have become negative and the projects have become unattractive to financiers and investors. Most executives expect some of the projects to be suspended or even terminated,” the report said.

All these concerns need to be addressed which requires the Treasury chief to strike a balance between raising revenue to run government affairs and the survival of businesses.

The propensity to raise more revenue at the expense of the growth of business will come with disastrous consequences.

As Ncube presents the 2023 National Budget, the nation hopes he borrows from Adam Smith and comes up with a taxation framework that follows four principles—fairness, certainty, convenience and efficiency.

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