eBusiness Weekly
Clifford Shambare
Every year this time, the national budget creates considerable interest among the populace, and rightly so. So what is a budget? Allow me here to use the Wickipedia definition, which I find fairly simple but comprehensive. It defines a budget as: “A financial plan for a defined period, usually a year. It may also include planned sales volumes and revenues, resource quantities, costs and expenses, assets liabilities and cash flows”. In addition to this definition, there are quite a few pertinent things that we can say about a budget.
To begin with, we can see that a company’s financial report serves as the end of year summary of the original plan in the form of a budget. It details the final result of an organisation’s balance sheet, its operations, as well as the extent of variance of same – whether positive or negative – from that budget. From the relationships and connections between these budget components, it follows that a poorly planned and executed budget will very likely fail to meet the economic/financial objectives of the organisation concerned, and vice versa.
Overall, a budget serves as a benchmark on which to judge the performance of an organisation on an annual basis. This is why it is such a useful tool of both internal, and external auditors.
A nation can be regarded as a giant organisation. In this respect, the performance of its economy can be judged through the way it formulates, compiles and implements its budget. And naturally, the individual on whom this responsibility is vested becomes critical here. In the USA he is referred to as the Secretary of the Treasury; in Britain, the Chancellor of the Exchequer and in Zimbabwe, the Minister of Finance.
That said, there are pertinent differences and similarities between a company and a national budget. One major similarity is that both budgets are based on the organisation’s leader’s vision. In the case of the former, it is referred to as an organisational vision, and in the case of the latter – a national vision.
The visionary in the first case is the leader of the ruling party while in the second, he/she may be the chairman, the CEO or the sole proprietor of the firm or company, as the case may be. As far as this part of the matter is concerned, under progressive circumstances, the nation’s vision should not be the prerogative of the sitting president, or prime minister or chancellor (as in the case of Germany) only, but of all of the leaders from the first right down to the current one. This remains so unless there is a revolution. This state of affairs that engenders continuity to the system, is in itself, a necessity for long term success.
In the USA for example, they emphasise this fact, hence the existence in that country, of a non-partisan budget committee.
Interestingly, in this country we have such a system. However, one may not be certain that in practice, the current committee is behaving in a non partisan manner. This situation is a product of our extremely polarised politics today.
Interestingly, however, the USA is one country in which such budgetary controversies flare up from time to time resulting in the shutdown of the civil service. For example, some of the most significant shutdowns have included the 21 day shutdown of 1995-1996 during the Clinton administration over opposition to major spending cuts; the 16 day shutdown of 2013 under Barak Obama over Obamacare, the 35 day shutdown under Donald Trump over the Mexican wall barrier in 2018-2019.
However, this should not be surprising given the fact that America is a giant federation – a union of 53 states. In a way, this system buffers the individual states from such shutdowns. On the other hand, Zimbabwe is a small and compact state – a state that is too sensitive to absorb such shocks!
That said, in this country, our major funders would want to have a say in these matters. And it is not an exaggeration to suggest that when they cannot directly influence the process, they operate as a third force through the opposition parties.
This assertion is borne out by the perception that the country’s finances were well managed during the time an opposition minister of finance was in charge.
When it comes to the matter of vision, in practice the actual vision of an organisation is never realised, so one normally talks of that organisation’s goal and/or aim.
That said, in order for a visionary to achieve the organisation’s goal (s), he has to find a way to make his subordinates buy into that vision.
Under normal circumstances, this should not be too difficult since in doing so, he can make use of his several sources of power. And in smaller companies, he has direct control of the implementers of the budget while in large corporations that are more spread out, the creation of divisions and branches helps him to delegate this control function.
In comparison to a whole nation, most organisations tend to be more compact than the former.
On the other hand, the story is quite different in the case of a national budget, for a number of reasons. Firstly, apart from state enterprises, most organisations the finance minister and his secretary deal with, are private organisations with their own agenda, visions, goals strategies, and all!
This situation narrows considerably, the latter’s depth and span of control of the process(es) towards the achievement of national goals. This is where some sort of persuasive mechanism becomes necessary.
Be that as it may, this approach does not always produce the desired result, witness our case with the Tripartite Negotiating Forum (NTF) that has been in existence since 1998. The way I see the matter, over the years the TNF has become too politicised and polarised to be effective.
However, today we have a new approach in the Presidential Advisory Committee (PAC) which we pray will produce some positive results in the long, if not in the short run.
At this juncture, let us look closely, into the current budget and see what the stakeholders are saying about it. Its major thrust is to boost the capacity of our manufacturing industries through government’s provision of tax cuts.
It is through this strategy, that the latter expects an economic growth rate of 0.03 percent by the end of the coming fiscal year.
Now, let us consider critically, what such a growth rate implies – whether it is achievable or not. Interestingly, here, some analysts are saying this is a ‘paltry’ growth rate while others are saying it is not achievable under current circumstances. Here I tend to agree with the latter, but why?
You see, there is a bit of algebra involved here. To date our GDP growth rate has been negative at -6 percent. This means to arrive at a positive growth rate of +3 percent the economy has to have grown some 6 percent! However, this in itself, is an impossible feat to achieve under circumstances in which our industrial capacity is currently running at below 50 percent! This situation implies that in order to achieve such a target, we have to somehow, raise that capacity to something close to 100 percent!
This is indeed, a herculean task to achieve in one financial year. And this is where the will to do so appears to be lacking or inadequate, among our industrialists who are citing a number of challenges, among them, lack of foreign currency to purchase spare parts as well as ‘raw materials’.
Here there is the complication that arises from the fact that most of our machinery is now obsolete. Then there are the challenges of energy shortages – mainly electricity and fuel. Regarding the former, currently, our water resources have almost reached a stage of extinction! The Victoria Falls is almost dry! The generators at Whange have ground to a halt due to a crippling shortage of coal. Regarding the latter, fuel is our biggest import so far, and its price is rising all the time.
Then there is this complication with the exchange rate being linked with our energy bill, in the process driving inflation to untenable levels and rubbishing our new currency. Here the adage that ‘it never rains but it pours’ becomes appropriate! At this juncture, let us go to our fox trilogy.
So which factors can we control and which ones can’t we? I am sure you can see already, that there is very little room to maneuvre here, but nevertheless, we should not give up!
In national budget matters, the challenge is always to do with the raising of the needed funds. This is so even though the expenditure component and/ or aspect also presents its own challenges. And this is where the government through the Treasury and the Central Bank come in.
In the current circumstances, we are fortunate to have the Monetary Policy Committee (MPC) that the current minister of finance has created to take care of the monetary and fiscal aspects of the budget. This is the central and critical part of same.
Taxes are the major source of revenue of any government. In this case we have corporate income tax, Paye, sales tax and import duty as the main sources of government revenue.
Now, this is where the matter becomes quite tricky. The inter-linkages among all these sources of revenue are in most cases, delicate and intricate. To illustrate this point, consider that if companies are not performing well, market activity becomes depressed. Consequently, the employment rate falls and public wage earning and purchasing capacity follow suit.
On the other hand, depressed economic activity is in turn, followed by a fall in the capacity of companies to pay taxes, for these are charged on their gross profits. Revenue from sales tax, or vat as it is commonly known, also falls. Under such circumstances, the capacity for companies and the public to import, also falls in the process, depressing government revenues from that direction.
On the other hand, in general terms, the opposite is also true, in that an upward movement in company activity usually results in a general upward trend in the economic performance.
The challenge then, is how to get those companies on their feet and running again. If we were in the first world, we would resort to such strategies as QE. But this is impossible here for obvious reasons – reasons that have to do with our economic fundamentals, the production and productivity of our industries, as well as our capital base.
Faced with such a catch 22 situation, the government has resorted to what I regard as unorthodox and/or contradicting strategies. On the one hand, it is taxing the public through the 2% tax to finance production and expenditure. But this is now an almost impoverished public. This is a strategy that has courted the ire of the public, at the same time being a handy tool of the opposition to attack it!
On the other hand, the companies are exhibiting what I regard as ingratitude, selfishness and shortsightedness! And why do I make such an assertion?
You see, on the one hand, in the current budget, they will be getting a tax break while on the other, they are continuing to raise prices for the public which is indirectly, financing them through the fiscus. Moreover, they have not even tried to raise wages. If they did, the current hardships the public is experiencing would be bearable for them.
However, under such circumstances, some of us may want to argue that such action will fuel inflation. Be that as it may, I want to posit that such an argument is subject to debate!
In spite of their criticism of government for instituting this tax, the private sector most probably realises this fact. I also feel that some of their criticism of this budget is not justified. The powdered milk case is one; why can’t the company concerned integrate backwards? This is an opportunity that they have had all these years but did not care to exploit!
Then we have all those massive controversial and abused charges through eco-cash and bank transfers that are way above the said 2 percent tax! Through these cases, the business fraternity is exhibiting its negative side in a blatant manner.
In conclusion, I wish to point out that budgets in themselves, do not create wealth, but if used and/or implemented in the right manner, they lead to the creation of same!
