Minister of Finance and Economic Development Prof Mthuli Ncube yesterday presented a workmanlike supplementary budget with no surprises and in general agreement with the business-like fiscal culture that he has been generating in State circles since he was moved into the top financial post in the country.
Changes in figures largely reflect the inflation we have seen since he presented his 2019 Budget at the end of last year. He has more tax revenue, because almost all his taxes are percentages of income and consumption, and he has allocated this carefully for the increased Government expenditure, much of which has already been promised, such as rises in civil service pay and pensions and cyclone relief, and some of which was expected, such as drought relief.
Quite correctly he needed ethically to tell the entire nation what was happening on the Government’s accounts, and legally he has an obligation to Parliament to seek approval for his income and expenditure changes.
Business people will be perfectly aware of what he did yesterday. Almost every company has had to do exactly the same over the past few months when it became obvious that the estimates of revenue, expenditure, pricing and profit set at the beginning of the year were no longer useful and had to be revised. Business managers will again be pleased that the Minister has continued to be very careful about how he spends.
As with most businesses, where revenues rise while volumes fall, the extra tax revenue falls short of inflation. So the Minister’s extra spending also falls short of inflation. That primary budget surplus, which totalled just over $800 million in the first six months, is being maintained. That means that he has been paying, and will continue paying, all his monthly bills from his revenue. Staff costs dominate these, but he also has all those other regular monthly payments that he needs to maintain, and those come out of his tax money.
He still has a capital budget, and here the private sectors, the State sectors and individuals are allowed to borrow. A business that borrows to pay salaries or taxes, an individual who borrows to buy food, petrol or bus fare will soon run into very serious trouble. But borrowing to open a new factory, or buy a house, is generally considered okay although lenders usually like to see adequate income to support the debt and like to see the borrowers chip in some of their own money. In exactly the same way Prof Ncube has that primary budget surplus that can support capital borrowings and can be used for some of his needed capital spending. He is now what a banker would call a good risk.
In fact he has managed, despite some extra unforeseen spending, been able to tighten up even further and his capital borrowings, just over half his capital budget, are a smaller percentage of the national GDP than he originally proposed. And the extra spending is not on luxury stuff. He needs to buy food to ensure everyone survives the drought; this is not a contentious issue.
There will be some who might doubt his figures. But just like major private companies the Government has brought in the auditors, in this case the country programme of the International Monetary Fund. Sloppy accounts and budgeting are not going to escape adverse IMF reports; and so far the IMF are making it clear that what we hear is what is actually happening.
He is also taking the opportunity to make the State-backed agricultural finance scheme more business-like. Command Agriculture has seen processes tightened and a great deal more attention paid to selecting the right farmers.
These men and women exist in large numbers. Anyone doubting that proposition needs to consider the modern tobacco industry. The private tobacco companies have built up over the past couple of decades lists of farmers, totally tens of thousands, who are competent and honest. That is the people who get support in tobacco, without a dollar of taxpayers’ money being spent, are men and women who know how to farm, who use the inputs they receive as part of their contracts to plant, grow and cure the crop and then they sell to the company that gave then their contract, paying off their debts and taking home their profit. We cannot see why the State cannot build its own lists of competent honest farmers for the rest of the crops, doing the spade work while expecting the private sector companies who need the crops to start playing an ever increasing share.
Again that reform was required. In the absence of serious enthusiasm from too many in the private sector, who seem to think it better to support foreign farmers when buying supplies to process food, the Government had to intervene and has made a lot of progress in basic crops and now wants more progress in the rest. But there is no need not to apply the same standards those excellent tobacco merchants, who have done so much to get Zimbabwe’s exports up, have enforced. Their clients make good incomes without cheating and there is no reason why those on Government contracts cannot do the same.
Prof Cube has been building a reputation of running the Treasury properly, a reputation he enhanced yesterday, and is now probing the programmes to make sure the taxpayers get a double benefit, their money used properly and Zimbabwe’s balance of payments cleaned up.
There were some hoping for tax breaks, although the difficult times made that extremely unlikely. Most taxes are based on percentages. Income taxes take a percentage of income, company taxes a percentage of profits. There will be need in the foreseeable future, as things settle down, to have a serious reform on the bandwidth of tax brackets, but a mid-year review is not the obvious place to start.
Three major consumption taxes – VAT, customs duty and the two percent transfer tax – were already percentages and so were automatically inflation proofed. There was that slight adjustment on the two percent tax, raising the limit slightly on where it does not apply and plugging a loophole being exploited by those feed the black market in currency.
Excise duties were a little different, those on fuel, alcohol and tobacco being fixed in terms of cents per unit volume. The Minister moved fuel duty to the percentage list, so it automatically rises and falls in line with the fuel price. Those on alcohol and tobacco were nudged up to make up some, but not all, the ground eroded by inflation. In any case in these three products the Government would be happy on many grounds to see consumption fall. But in any case taxes that take a percentage of income or consumption are fair taxes, and generally only avoidable by earning nothing and spending nothing. Major tax reform has to wait until production catches up with consumption since present Government spending is pretty well on the basic essentials.
Generally speaking, the Minister has presented a fair and clear assessment of progress in Zimbabwe’s transitional reforms. We now know where we are, with the accurate figures rather than weird speculation and rumour, know what we have achieved, starting with the only nine months that Zimbabwe has shown a primary budget surplus since independence, and serious fiscal management.
Times will remain hard for a while, but at least we are climbing out of our hole, not digging it deeper.