eBusiness Weekly
BusinessWeekly Last Word
Business people should be grateful that Finance and Economic Development Minister Professor Mthuli Ncube went for a businesslike and sober National Budget for 2020, largely ignoring many of the passionate pleas he was getting to “Tax everyone else but me”.
The Minister clearly sees his central role, and the central role of any responsible finance minister, is to crate and maintain the fiscal space that everyone else has to operate in. And this means that fiscal discipline has to be maintained, and he made it clear that he intends to tighten up even further with the Auditor General assuming a more important role.
This is correct. Zimbabwe has gone out of its way to wreck its economy three times since independence by assuming the laws of economics do not apply to sovereign states, and in particular to small sovereign states in the middle of Africa. As a result we have lost a generation of growth. Indeed that Vision 2030 of becoming a middle income country in just over a decade could have been achieved by now if only we had simply tied our spending to our tax revenue for a third of a century.
So the Minister is not going to throw away the gains he has pushed through in the past year, gains that have come with a lot of suffering as he peeled away the fairy stories we were telling each other, such as the money we were creating in the RTGS system were real US dollars.
In the end the business world needs a stable business environment maintained by a Government that can add and subtract and is willing to cut its coat according to the cloth.
That said, Prof Ncube did have a little flexibility, because he ahs been running primary budget surpluses.
He was not going to be over-generous in any tax changes, since he is not really out of the woods yet, but that bit of room to manoeuvre did allow him to push needed Government policies.
So most of what he could do he did for production, using fiscal policy, that is Government spending patterns and Government tax laws, to stress his mantra of production, production and production.
Business should want the same goal, since after all most of that production is going to be in the private sector business world.
The Minister cannot dictate to those sectors, but he can make life simpler for them to produce and more profitable for them to do that than to sit around and complain.
The last of the hidden subsidies are now going, ranging from direct payments to the more common and more iniquitous use of multiple exchange rates for imports.
By January there will be only one exchange rate, that set on the interbank market, and every dollar used to buy imports will have to be bought on that market.
Some subsidies will remain, but the minister is, correctly, not wanting to distort markets. Initially basic roller meal, standard bread and bus fares are on the list, and even here he is looking at replacing his food subsidies with vouchers to the seriously poor and vulnerable, the people who need this help, while the rest of us just start paying the real value.
It has always been daft to subsidise fancy birthday cakes in Borrowdale Brooke or the fuel in a brand-new six litre S-Class Benz.
It is well-known economic fact that broad and general subsidies benefit the rich more than the poor simply because the rich cn afford more of the subsidised goods.
This is why so many countries are now moving away from subsidies, both hidden and overt, to things like direct monthly payments to the very poor, or negative income taxes or other systems that direct the budget allocations for social purposes to those who actually need them.
Another point the Minister made by implication, although not overtly, is that he is using inflation figures when he adjusts tax brackets and the like.
He is certainly not using exchange rates or even thinking exchange rates. He is looking at the purchasing power of money in Zimbabwe, not at what people can make by buying and selling foreign exchange.
This is a policy others could follow with advantage. There are businesses out there where the accounts are kept in US dollars with price conversions done at 8am every morning. And those businesses are facing every more serious declines in sales because their customers are looking not at some arbitrary US dollar cost, but at the final RTGS cost of the article as compared to their income.
And if the cost of the article exceeds what the customer thinks is a rational percentage of their income they skip the purchase.
One point with both positive and negative implications is the Government decision to pay full bonuses, with allowances included in the total, to all civil servants this month.
This might just be the exception to Prof Ncube’s determination never to borrow for salaries. But it is a one off and should be a short term. By the end of the year quite a bit of that bonus money will be back in his hands, in the form of tax revenues from the business world where the civil servants spent their money.
The positive factor, of course, is that the business world will be getting most of that bonus money.
It it is meant to help civil servants but they will be spending it on things they really need or want. The business world needs to have the products ready at the right quality and right price. Zimbabweans have learned how to shop around.
Generally, now that the wish lists have been put away and the real world has returned, business needs to think seriously about the messages and policies that the Minister was pushing.
