Nhau News Online News that is accurate, reliable, trustworthy!!
‘Needs to be stimulatory, protect populace against rising poverty’
By Collen Jonasi
The presentation of the national budget is a key event on the country’s fiscal calendar every year.
The national budget is the main instrument through which the country’s fiscal policy is administered. A fiscal policy refers to the government’s use of taxation and spending to influence economic activity.
Whilst the government has various sources of revenue, taxes are the key source of revenue. After revenue is collected, the government then expends the funds on provision of various services.
The presentation of the budget is normally an event that is awaited with great expectations across the breath and length of the economy. All the country’s citizens are affected one way or the other with the decisions made by the government in its fiscal policy statement, hence the lofty expectations which await the presentation to be made to parliament today, Thursday 26 November, 2020.
The 2021 budget comes as the country struggles to fight the deadly coronavirus. It comes against a background of a country whose economic activities had been brought to a halt due to the corona virus-induced lockdowns.
As a result of the lockdowns, a lot of people lost their jobs or their traditional sources of livelihoods. Capacity utilisation within all sectors of the economy has been strongly dented, leaving many a company reeling from low production levels. Given this background, the budget is expected to be stimulatory in order to get the economy back into track again, after the recent slowdown.
In order to help revitalise industry and commerce, the budget should provide some incentives to market players so that productivity can be improved. A generous stimulatory package is necessary for the agricultural, manufacturing and the tourism and hospitality sectors.
Whilst the government can intervene with monetary or tax incentives, I strongly believe that the most effective intervention is to create a macroeconomically stable environment that enables businesses to do well.
On the other hand, the general populace also needs to be cushioned against rising poverty levels. Job losses due to Covid-19 coupled with an unstable macroeconomic environment have thrown a lot of people into poverty.
The incessant droughts that have been hitting the country have also contributed to the rising poverty levels.
According to the World Food Programme, an estimated 7.7 million Zimbabweans face a risk of hunger and face severe food insecurity between march 2020 and march 2021 when they expect their next harvest. As a result of this, there is therefore need for the Finance Minister to put in place some strong social safety nets to protect the general citizenry.
Curtailing price rises is another major component the budget is expected to address. Inflation has been problematic in Zimbabwe.
It is extremely important for the government to put in place some measures which will sustain the gains realised in the last few months in as far as arresting inflation is concerned.
The Transitional Stabilisation Programme (TSP) which ran from 2018 to 2020 has achieved that partly as evidenced by the decline in year-on-year (y-o-y) and month-on-month (m-o-m) inflation figures which were released by ZIMSTATS in October.
Key to achieving low rates of inflation is restraining money supply growth and entrenching market determined exchange rates. The current Foreign Exchange system should be strengthened, improved and sustained so that the price and exchange rate stability it has brought so far continue. Other measures may include maintaining a stranglehold on illegal black-market foreign exchange transactions through various interventions.
Debt management has to be clearly outlined. The country has in recent years found itself in high and often unsustainable debt levels, both domestically and internationally. There is need to first and foremost avoid unnecessary borrowing. The “we eat what we kill” principle, especially in recurrent expenditure should apply. This should also extend to the issuance of Treasury Bills (TBs) which should be restrained. Further to that, it is also equally important to come up with a clearly laid out debt clearing plan for both domestic and foreign lenders.
Another important aspect that the budget is expected to address is the issue of taxes. Disposal incomes have been eroded heavily by a lot of factors. There is need to boost consumers’ by increasing the tax-free threshold on incomes and the intermediated money transfer tax (IMTT), commonly called the 2 percent tax.
Tax free thresholds also need to be widened on annual bonuses, though most companies may not manage to pay the 13th cheque this year.
These measures will help improve consumption expenditure, which should lead to a growth in aggregate demand. Whilst still on taxes, there is need to improve revenue collections by ZIMRA through plugging all possible leakages and further extending tax collections to those sections of the economy which are currently dodging tax payments.
In addition, building resilience to external shocks is essential. The budget should, by all means necessary ensure resilience to all possible shocks.
The success of the 2020 budget was premised on the assumption that there was going to be a good agricultural season, which was not the case unfortunately.
The economy is susceptible to shocks such as droughts, climate change, pandemics (Covid-19 of late), to mention but just a few. It will not help to continue blaming these shocks for our failure, rather is in our best interest to build resilience so that we still prosper as country against whatever headwinds.
A significant chunk of the budget should be allocated towards social service provision, especially the heath and education sectors. These two sectors have been hit hard by Covid-19. Our social service delivery system needs to be strengthened through sufficient budgetary allocations.
In addition, infrastructure provision from water, roads etc also requires fair attention as the current infrastructure in most parts of the country is in a deplorable state.
Lastly, the 2021 budget comes soon after the launch of the National Development Strategy (NDS1) by the Head of State and Government, his Excellency President E.D. Mnangagwa. The budget therefore becomes the first fiscal policy to be used as an instrument to achieve the NDS1 outcomes. As a result, we expect the budget to set the path to fiscal and monetary discipline so that the economy can be set on a growth trajectory.
Whatever measures that the Treasury chief shall pronounce today when he presents his Budget at Parliament Building, he should ensure that he speaks to economic growth, price stability, job creation, balance of payments stability and poverty alleviation. A good budget is people-centred and encourages sustainable economic growth.
Collen Jonasi is an Economist. He writes in his own capacity. He can be contacted on +263 773 439 552 or on jonasicol@gmail.com
