On The Budget

As far as statements go-and the budget is a statement- one is hard pressed to call, the 2014 budget speech a bold statement. Which in my view translates into an opportunity lost, but more of that later.

I suppose the phrase "bold statement" does not sit comfortably with politicians. And in saying this I do not blame them, save to note that its probably more as a result of the profession as opposed to the individuals that comprise it. Politicians are the only people whose career longevity depends on pleasing everyone, something that is not only notoriously difficult but is yet to be accomplished in the history of mankind. Even Jesus who had the most benign intentions could not achieve this and not even years of fervent lobbying by his converts after he (Jesus) ascended to heaven, have changed this. Perhaps it is true what they say that politicians live in a world of their own. You have a better chance of making sense out of the Da Vinci code than trying to predict their next move.

As budgets go, this was one of those that tries to please everybody. And as is often the case with such a strategy, you risk ending up pissing off everybody. I do not for one second envy the government's job. The Patriotic Front came into government on a euphoric wave, riding on the highly magnified failings of the previous government, promising radical changes within a short time, the same changes that were meant to impact the lives of ordinary people, be it in their pockets or households. There was genuine optimism; and who would blame us for being optimistic? Its is not everyday someone promises you more money in your pocket within ninety days.

 At the time I was reminded of a Tonga proverb which roughly translates as " promise a poor man a cow and he (the poor man) will not see any sleep". The only problem was thatt this was more than the proverbial cow. We are talking about jobs for everyone, more money in people's pockets all in ninety days.  Of course the ninety days would later be watered down as rhetorical or allegorical whichever you choose but my point is made.

The budget in all of this has stood out as the single most important tool by which these bold pronouncements could and still can be made possible.

The first PF budget jolted even cynics like me out of self imposed indifference with that very significant increase in the PAYE exempt threshold. Did anyone say more money in my pocket?

 I should have known then that the technocrats at Ministry of Finance would find a way of recouping the concession of so much revenue through increasing the exempt threshold. And they duly did, by either standard rating some previously exempt or zero rated goods and services or simply introducing new and ingenious ways of taxing the same pocket. Call it giving with one hand and taking with another.

Coming back to the 2014 budget, its amazing just how little the mines are contributing to the national coffers. All this talk of diversification is well and good, however we must understand that Zambia is a mining country first and foremost. And as rightly noted in various publications, minerals are a wasting asset, which means we ought to milk out of them  as much as we can while we still have them.

For example the minister estimates to raise K2.2 Million from mineral royalties in supporting his K42.7 billion budget. Which is less than half of what he expects to raise from PAYE. In my view, as a mining country we are not putting our minerals to good use. This is a God-given resource and there is no need to be apologetic about it. A certain Doctor Mphande from the University of Zambia's School of Mines (yes we even have a school of mines, more evidence that we are a mining country), was unequivocal if at times vociferously during a fiery post-budget presentation at the Taj Pamodzi hotel organised by the Zambia Institute of Chartered Accountants regarding this topic. The amounts that the country is losing out in terms of revenue from the mines make sad reading. I wonder why he didn't institute radical changes when he was minister of mines at one point.

The much awaited and revered budget

I share his frustrations to a large extent. Countries like Botswana have worked wonders to their economies by demanding more from those that exploit their minerals. Add to all of this the fact that the debate surrounding the Windfall tax seems to have been forgotten, and you begin to question government's bargaining power when it comes to the mines. If you ask me, the mines hold too much bargaining power and I think its time the government showed them who was boss.

Coming back to the issue I alluded to in my first paragraph, the PF need reminding that they are only in the second year of their five year term. If there was ever a time to make bold unpopular decisions, it must be now as the same would have reaped rewards by the time they are up for re-election. The removal of subsidies on maize and fuel falls in this category of bold decisions, however a host of other bold decisions need to be made. Decisions such as overhauling the entire mining tax regime to make it contribute more tellingly to the treasury, the much needed reforms in the remaining parastatals such as ZESCO, FRA and some financial institutions.

As I drive to work every morning it is easy to spot the heavy earth-moving machinery working on one of the roads that are meant to de-congest the congested inroads into the city. And whether these are code-named Link 8000 or L400, the truth is that they will have to be financed. At present it would be unwise to use the Eurobond to finance these projects as those funds are actually a loan that is supposed to be serviced. One would have hoped that revenue collection particularly from the mines is stepped up to at least cushion the borrowing which though still sustainable is threatening to spiral out of control any minute. The point being, if the mines don't develop this country, chances are that nothing else will. All efforts should be directed at milking every benefit from this resource before it finally runs out.

The Minister should be lauded though for increasing the PAYE exempt threshold, although it effectively means everyone whose gross salary is above K5,900 will be taxed as a rich person. In other words consigning the recent salary hikes among civil servants to increased government revenue. Classic. And while we are on government workers, I am surprised that the proposed freeze on civil servant recruitment in 2014 has only generated minimal debate. It remains to be seen how labour unions will react to this.

Let me note however that it is impossible to do everything at the same time, not with such tight purse-strings anyway. Rather than throwing a bit of crumbs at everything, prioritizing one sector over the other in the interim in my view is more likely to have a meaningful impact.

Be that as it may, the gravest challenge facing the budget by far has to do with implementation. Any budget is only as good as its levels of implementation. Intentions are just that (albeit typed, printed and delivered with much aplomb and ceremony), as long as they do not translate into action, they are not even worth the paper they are printed on. We saw to some extent the budget tittering towards collapse in this fiscal year that is coming to an end, muddled and stretched to breaking point with a number of unplanned expenditures. The minister would do well to ensure that this budget is implemented to the letter.

To our advantage, the macro-economic fundamentals have remained strong, although some argue that this is inspite of and not because of government. It is up to the PF to to prove the critics wrong.