Finance Minister, Mthuli Ncube, last week presented a high-sounding ZWL$421.6bn national budget but analysts say it lacked any attempt to meaningfully resolve the country’s current economic crisis.
Several economists and analysts told Business Times that measures by Ncube do not instill hope that the government has capacity to revive the economy and deliver on its pledge to transform the economy.
They have raised concern with the fiscal authorities over the impact of presumptive tax of US$30 a month on small enterprises which was introduced in the budget.
Ncube also did not remove the 2% tax on electronic transactions, introduced in 2018 as part of efforts to reduce the fiscal deficit.
He also refused to significantly reduce the 2% tax, saying he was not ready to do so.
This, they said, reduces companies’ competitiveness.
Apart from that, the tax was further “punishment” for businesses which were already paying a number of other taxes.
“The budget is equivalent to US$4bn, which was presented about 10 years ago. It is petty cash and there are too many cosmetics put on it,” economist Moses Chundu said.
“You only need men and women who believe in miracle multiplication.
We cannot pretend to be holding on to a good purse with this kind of budget. It can only do so much.”
Chundu said citizens have no purchasing power to talk about and infrastructure budget was “petty cash”
“How many kilometres can that do to unlock value in the proposed Beitbridge-Harare-Chirundu road rehabilitation?
A good budget should boost aggregate demand, meaning the ability for normal citizens not the elite to spend.
In our case, wealth is concentrated on the few elites.
That is not growth,” Chundu said.
He said it was a surprise to have remittances growing up by 48% in the year to October 30 as the source market has been dry due to Covid-19.
“How sustainable is this source as markets are getting drier and drier?”
Another economist John Robertson said the “real problems have remained with us”.
“All we hope for now is good rainfall.
“The budget was an opportunity to change things that have been troubling the economy for a long time.
But the minister has not made progress,” Robertson said, adding he does not see investors going to be encouraged by the measures announced in the budget to bring their cash to Zimbabwe for now.
He said problems remain in the financial sector despite the claim by Ncube that the banking sector was in good shape.
“What we have are banks which are no longer functioning properly.
They are making money by transacting not by borrowing to industry.
That explains why the industry is shrinking in Zimbabwe because they can’t access money from the banks.
This is not normal,” Robertson said.
“There is also no creation of jobs.
There is no significant employment to talk about in this country. So, this budget will not cause growth at all.
I think the minister missed the chance to grow the economy.”
Gloria Zvaravanhu, the chief executive of the Institute of Chartered Accountants of Zimbabwe said there was a growing gap in foreign direct investment inflows compared to what other countries were getting, calling for authorities to put policies that attract investors.
“Our view was that the 2% tax on electronic transactions would be removed or significantly reduced to improve business conditions.
We still hope that will be seriously considered.
We are calling for the easing of taxation to the formal sector,” Zvaravanhu said.
He also suggested that the government set up a conflict resolution mechanism to deal with tax disputes.
Ncube said Zvaravanhu’s suggestion was welcome and would be considered but emphasized that removing the 2% tax was a non-starter.
Ncube also introduced presumptive tax on the informal sector.
“The informal sector is a cash backed economy. We will work with the landlords to collect tax. It’s never easy to tax the informal sector but we have decided to do this for now US$30,” Ncube said.
Ncube projects the economy to grow by 7.4% next year.
But, Bankers Association of Zimbabwe president, Ralph Watungwa said the targets are “very stretchy, almost making it impossible to achieve that”.
“It is difficult to grow the economy under the challenges of the Covid-19 pandemic.
However, it’s the best case when we realise we need to put all our efforts into achieving this.
To achieve 7%, it means we need to export more,” Watungwa said.
Watungwa appeared to also criticise the government for not doing enough on re-engagement with the international financiers, saying: “The issue of re-engagements has to come out broadly.
But, we are not getting these guys-the International Monetary Fund and the World Bank- on our side.”
He said Ncube has to move fast on loss making parastatals that continue to drain millions of dollars from the fiscus.
“I sit on one board where this board member whenever there is a meeting, he orders two chicken, one to eat at the meeting and the other to carry home.
This needs to be dealt with,” Watungwa said, adding the government had not done enough on the tax threshold.
“Tax threshold doubled. But inflation is 471%. Is the taxpayer better off?”
Ncube admitted that the tax threshold issue was a delicate one.
“When we set tax, we need to be careful because when you set it you are setting a minimum wage. We need to be very careful on this one.
The inflationary pressure would be less and less of it as we go into 2021,” Ncube said.
Economist, Persistence Gwanyanya, said the fiscal and monetary policies “almost convinced me that all was going on well”.
“The macro side is ok, but quite disturbing is that micro picture which does not look okay.”
Naome Chakanya, a senior researcher at Labour and Economic Development Research Institute of Zimbabwe said while there was some movement in tax sources, development was more about poverty reduction.
“There are serious concerns. When I made my calculations on how much taxation contributes to this budget, it is 84% which is quite high.
We need to address the expenditure side otherwise we are going to see more taxes on already overburdened business and individuals,” Chakanya said.
But Ncube said the government was dealing with expenditure and it was serious about reducing it.
On the presumptive tax, Chakanya said: “I would have thought the minister (of Finance) would take into consideration that the informal sector is on a recovery path. It will be difficult to adhere to this.
“Disposable incomes are key in the development of a nation. There was need to be pro-poor because the informal sector is the one that is producing jobs. If we are not careful, we are going to continue taxing people more. There is a need to address that,” Chakanya said.
Ncube gave miners some cheers after reducing corporate tax for the sector by one percentage point to 24%, a move he believed would enable resources’ companies achieve acceptable returns from their investments, reduce costs and ensure optimal exploitation of minerals.
Chamber of Mines of Zimbabwe chief executive, Isaac Kwesu welcomed the move as it meant that “miners are able to plough back profits and remain with money than before and can spend it on capital expenditure and increase production”.
“There are, however, other issues that need to be refined, including delays in payment for gold. We hope that the government will prioritise the issue since this affects gold production.
Yes, it was in the budget to say that they will reduce the payment turnaround time. A commitment to that is very critical. But, it will be seen if they will walk the talk,” Kwesu said.
Zimbabwe Women’s Microfinance Bank CEO, Mandas Marikanda said there was a need to inject an impetus into micro entrepreneurs.
“They need operating space so that they can move from being able to survive on US$I day to US$10. There is no safety net for income for them in this budget. Working with micro entrepreneurs will drive the economy up,” Marikanda said.
Confederation of Zimbabwe Industry president, Henry Ruzvidzo, acknowledged that the budget has some positives on the supply side and that business required incentives for production.