MOST sub-Saharan African countries’ budgets are donor funded. This is not to say that these countries are poor. The tragedy is what Professor Paul Collier calls the “resource curse”.
The resource curse is occasioned by the failure of governments to benefit from the revenue dividends of their resources or wealth — the failure to plan during economic booms for worst cases in the near future.
In many ways the 2010 National Budget bemoans this resource curse for Zimbabwe.
The Budget statement reveals clearly that Zimbabwe’s revenues have been hamstrung by the mining sector which has not been contributing to the national fiscus.
Imagine all the platinum, gold, chrome, nickel and diamond mines that we are all proud of. Yet to think that no cent is contributed to the treasury is quite shocking.
We need to unlock value from our wealth and increase our fiscal space. Unfortunately, the Budget statement fell short of outlining measures to deal with this situation.
However, what is more instructive is that for the first time the truth has been exposed. Going forward we trust that Chiadzwa Mines will be used to define a new policy which will enable the mining sector to be the anchor of our national revenue. The thrust of the 2010 Budget is a working thrust.
The Budget is underpinned by a steady improvement in the macroeconomic and fiscal space.
A growth of 4,7% in 2009 which is forecast to increase to 7% in 2010 and an average inflation rate of 0,9% gives a good macroeconomic landscape to launch a growth trajectory which the 2010 Budget does.
Given the slow but sure return of banking confidence as shown by total deposits of over US$1 billion in 2009, I think all is set for the growth of the economy in 2010. Hence the 2010 Budget is dubbed: Stabilisation with Equitable Growth and Reconstruction.
Significant allocations have been made to the key enablers of growth which are infrastructure and energy (US$52 million); transport (US$26,3 million); rural electrification (US$5,5 million) and agriculture. However, lip service was paid to export promotion.
In the 2010 Budget poverty eradication has been underlined as another major theme. In this regard, the 2010 budget focuses on pro-poor growth.
As the Finance minister put it, 85% of our population can be classified as the “drowning poor”. This large number of “drowning poor” constitute part of what Paul Collier calls the global “bottom billion”. These people live on less than a dollar a day. It is therefore important to note that the Budget tries to address the plight of millions of Zimbabweans through allocations to the housing guarantee fund, agricultural inputs as well as health and education.
In addition, the newly created vote of US$8 million set aside for constituency development funds will also help leverage development in constituencies. This is a revolutionary initiative.
The 2010 Budget also puts more money into the people’s pockets. Paye has been slashed from 37% to 35% for the highest paid tax bracket. The tax-free threshold has been increased from US$150 to US$160 and the first US$400 of bonus is now exempted from taxation. Corporate tax has been reduced from 30% to 25%.
I think this is a commitment towards reducing the rate of taxation which is one of the highest in the world. These reductions may appear modest but to me they are significant given the narrow revenue base. In 2009, the treasury only managed to collect US$685 million out of a revenue target of over US$700 million.
Duty concessions on small pickup trucks (25%) and small vehicles with engine capacity of less than 1500cc (25%) as well as on basic commodities will also boost SMEs and increase food supply into the country. All these are positive measures.
However, the biggest challenge the US$1,4 billion Budget still faces is how to deal with employment costs which already constitute over 60% of the total budget against a background of subdued earnings. The only solution is to grow the cake — that is increase GDP.
The present revenue structure where corporate tax only accounts for a mere 4% is worrying. This can only tell us that the so-called improvement in capacity utilisation is just nominal and superficial.
As long as Vat constitutes 39%, customs duty 26% and Paye 15% of revenue, it means that the economy is structurally pointing towards consumption. We need to increase domestic savings in order to create investable surplus. Domestic savings are key to growth.
In fact the so-called Asian Miracle was premised on high savings of over 30% of GDP. We also need to restore normal relations with the international community so as to pave way for new investment which is critical for growth.
Finally, we are happy to see that the Special Dra wing Rights, instead of just lying idle are now being channelled towards supporting the real sectors of our economy, notably agriculture.
We hope that ministries will now formulate specific strategies to implement the 2010 budget in a manner which spurs growth and reduces poverty. Overall, I think the Budget brings confidence into the economy.
However, the Ministry of Finance should consult more widely in future, especially parliament.
Mashakada is deputy secretary-general of the MDC-T.