Relief for Zimbabwean workers
Many will immediately enjoy their full bonuses following the adjustment of the tax-free bonus threshold by the same margin with effect from November 1.
Monthly salaries for most workers in the low income bracket do not exceed $100 000.
Presenting the 2007 National Budget in Parliament yesterday, Finance Minister Herbert Murerwa said the Government was aware of challenges faced by many Zimbabweans in this hyper-inflationary environment and had, thus, seen it logical to release more funds to the workers despite the growing need for additional revenue on its part.
Although the new figure fell short of the $175 000 suggested by stakeholders during the consultative process, the Government had made a sacrifice that saw it releasing $430 million into taxpayers’ hands.
The thresholds were last reviewed in July and Murerwa said the reviews would now be done on a quarterly basis with effect from next year.
“A major input that came out from the pre-budget consultations across the country was the need for the budget to take account of the effect of the prevailing high inflation on the real value of incomes,” said Murerwa.
Yesterday he announced a budget that sought to reduce the daily burdens faced by most Zimbabweans while also seeking to confront such challenges as inflation and corruption, which have continued to afflict the nation in recent years.
Targeted expenditure for 2007 was put at $4,6 trillion against anticipated revenues of $3 trillion.
This would leave a budget deficit at $1,6 trillion.
To take care of the growing salary gap between shopfloor workers and management, Murerwa revised the tax structure where previously those earning $54 000 per month fell into the same 35 percent tax bracket with those earning $600 000 per month.
Therefore, tax bands were widened to end at $1 million above which income would be taxed at a rate of 35 percent.
Accelerated rates of tax would apply on incomes above $1 million with effect from January 1, 2007.
Other tax measures included an increase of tax credits for the elderly, the blind and physically challenged members of society to $10 000 per month from $1 000.
Furthermore, tax-free portions of the incomes earned by the disadvantaged from rentals and investment were increased to $120 000 per month from $12 000.
Retrenchees would also enjoy a tax reprieve following an increase in the tax-free threshold on their packages.
While admitting that inflation had remained the country’s biggest enemy, eroding workers’ disposable incomes and causing poverty, Murerwa expressed optimism that the situation would improve next year.
An annual inflation target of between 350 percent and 400 percent was set, with a possible slide to under 10 percent by the end of 2008.
He said some of the major drivers of inflation this year included the impact of public sector borrowing requirements for budgetary financing, quasi-fiscal activities funded through the Reserve Bank, high money supply growth, corruption, increase in parallel market activities and foreign exchange shortages.
Under the disinflation programme, Treasury and the Reserve Bank agreed on targets for annual money supply growth consistent with the reduction in inflation.
In dealing with the inflationary effects induced by money supply growth, the minister said the budget would from now on adopt all quasi-fiscal operations.
Due to limited resources within the budget framework since 2004, the central bank had taken on quasi-fiscal responsibilities in a bid to improve infrastructure development while preventing the collapse of parastatals and local authorities, among other systems.
However, Murerwa said apart from the inflationary effects of these operations, there had been other negative effects which included instances where the quasi-fiscal expenditures did not achieve the desired supply response, owing to abuse of availed facilities by some beneficiaries, and the lack of deterrent measures.
“In this regard, combating inflation will require the phasing out of all quasi-fiscal operations and adequately providing resources for prioritised expenditures within the budget. This is also consistent with accountability and transparency over the allocation of public resources.
“Hence, consistent with our Constitution and the Audit and Exchequer Act, beginning in 2007, all such and any other additional public expenditures will be strictly and adequately reflected through the budgetary process.”
Commenting on overall economic activity, the minister said owing to poor agricultural production in the past seasons, the economy was expected to register a decline of 2,5 percent this year but would next year record positive gains of between 0,5 percent and 1 percent.
Sectors that were expected to achieve growth next year included agriculture (9,4 percent), mining (4,9 percent), tourism and transport while the manufacturing sector would not do well due to a variety of reasons, chief among which was the shortage of foreign currency.
The sector was estimated to decline by 7 percent in 2006.
Murerwa said an exchange rate regime which guaranteed the viability of exporters would need to be put in place to reverse the decline in industrial production.
This would be announced by RBZ Governor Gideon Gono when he presents his monetary policy statement next week.
Economic analysts welcomed the 2Budget saying it acknowledged the inflationary pressures facing the country and laid the ground for monetary policy to address critical challenges facing the Zimbabwean economy.
Confederation of Zimbabwe Industries president Calisto Jokonya noted that Murerwa had made a strong and necessary admission that “things were tough”, and had, to a reasonable extent, tried to provide remedies to such economic problems.
He said the raising of the non-taxable income threshold to $100 000 per month made huge sense because it attempted to “address the worries of workers” who had watched helplessly as high inflation continued to destroy purchasing power parity.
“Tax thresholds were expanded to within reasonable levels given Government’s limited earnings capacity,” the industrialist explained. “Quasi-fiscal operations, which had blown Government expenditure levels have also been adequately dealt with.
“Although the minister has delivered quality policies, they were, however, not backed by concrete strategies that lift economic productivity.
“What’s needed are real and practical policies that steer the economy towards sustainable growth, create employment, kill black market and lower inflation amongst other key matters.
“Perhaps this is just one side of the equation, which we all hope would immensely be complemented by the upcoming monetary policy. That should shape the economic way going forward.”
Chamber of Mines president Jack Murehwa showed excitement at the new mining-industry related policies, which he described, as “positive”.
Murerwa indicated the mining industry remained a critical sector in economic growth, releasing $2,1 billion to finance varying mining operations. Harare economist, Muneidi Chikunda further noted:
“Funds advanced to the tourism sector, in particular the Gonarezhou Transfrontier Park will go a long way in increasing tourists’ influx. This complements the anticipated 45 percent growth in tourist arrivals.
“The disinflation programme, will however be an uphill task given rising inflationary pressures.”
CFX Bank economist Blessing Sakupwanya said the 2007 budget showed that inflation is still the economy’s number one enemy which needed to tackled head on.
“It recognises that inflation is still causing harm on every sector of the economy. The budget also brought a good initiative of phasing out quasi-fiscal operations from the Reserve Bank of Zimbabwe to the line ministries,” he said.
“Its important to account for every cent used by parastatals. This helps to control the money supply growth.”
However, Sakupwanya said the budget failed to address problems related to the shortages of basic commodities, fuel and power.
“We didn’t get a bold strategy to solve the fuel crisis and the shortages of basic commodities and power,” he said. “The budget lacked the boldness of solving the main problems facing the country.”
ZABG banking economist David Mupamhadzi hailed the budget for including strategies to control money supply growth.
“It is encouraging that the budget put measures to control money supply growth,” he said.
“By phasing out quasi-fiscal operations, I think the budget has laid the foundation for the monetary policy issues that need to be addressed.”
Independent economist John Robertson hailed the budget for raising the tax free threshold from $20 000 to $100 000 saying it would bring relief to the majority of the workers who are hard pressed.
“It has brought relief to the workers. Workers are going through difficult times and this tax relief will reduce their agony,” he said. ‘ The Herald.