Nam splashes cash on civil service

… but economic growth to remain sluggish

Windhoek – Namibia has cut its corporate tax rate to 32 percent over the next two years from 34 percent for non-mining companies in a bid to woe investment in the narrowly diversified economy and boost economic growth, which has been sluggish over the past few years.
Namibia’s Finance Minister, Saara Kuugongelwa-Amadhila, this past week also slashed personal income tax to 25 percent from 35 percent for those earning R300 000 annually and raised the non-taxable threshold for low income earners to R50 000 from R40 000.
Namibia’s economic growth is projected to slow down to 4.3 percent in 2013 from 4.6 percent in 2012.
Growth will remain flat at 4.4 percent between 2014 and 2015, Kuugongelwa-Amadhila said in Parliament.
Despite the tepid growth, the Finance Minister announced a 19 percent jump in expenditure to R47.6 billion, with a huge chunk going to the civil service.
Over the next three years, government expenditure will average R48.7b, with the bulk of it going to finance government operations and the public service wage bill.
Government expenditure will gobble R37.2b in 2013, a 19.8 percent surge on 2012 expenditure.
By comparison, the government will spend R8.1b on capital expenditure this year, up from R6.7b in 2012.
During 2013, the budget deficit will widen by 2.8 percent to 6.4 percent (R5.8b) of GDP.
“Government intends to finance the deficit through a combination of drawdown on accumulated cash reserves and borrowing mainly from domestic sources,” Kuugongelwa-Amadhila said.
The government debt will rise to R32.4b (30 percent of GDP) in 2013 from R27.5b in 2012.
Debt will rise to R44.5b over the coming three years and analysts doubt if the government will be able to keep it below the target of 35 percent of GDP.
Corporate tax for non-mining companies has been cut to 33 percent from 34 percent and will be further lowered to 32 percent in 2014.
Mining companies are still being taxed at 37.5 percent while the tax rate for diamond miners remains unchanged at 55 percent.
Kuugongelwa-Amadhila increased spending on health and education but warned that slowing growth and chronic income inequality and unemployment is piling pressure on public finances.
To boost revenue, government will strengthen tax administration and close loopholes through which individuals and corporates are evading tax.
A levy on exports of raw material, an environmental levy and carbon dioxide tax on motor vehicles are expected to be passed by Parliament this year, the minister said.
“The fiscal and economic environment has not significantly changed and the risks underpinning economic recovery and the country’s fiscal position have neither subsided nor disappeared.
“We are, however, keenly aware of the persistent challenges of unemployment, poverty, inequality facing our country and our people’s aspirations for a better life,” Kuugongelwa-Amadhila said.
“We have tough decisions to make to ensure additional resources are available in order to accelerate service delivery, stimulate inclusive growth and contribute to the improvement of social welfare,” she added.
Economic analysts are not convinced that government has solid plans to stimulate growth.
They argue that raising operational expenditure (80 percent of GDP) against spending on capital projects will not stimulate growth.
“We are heading north in terms of spending-we have doubled our spending during the past five years,” Daniel Motinga, senior economist at FNB Bank Namibia warned.
“Spending growth has been much faster than nominal GDP and capital spending has been flat,” Motinga added.
Capital expenditure was raised to R8.1b this year from R6.7b in 2012.
The bulk (R37b) of the R47.6b budget tabled in Parliament will go towards the government’s operational expenditure.
“This aggressive spending has not done anything to growth. So far, there has been backlogging of capital projects.
We have been backlogging instead of front-loading,” Motinga said.
Sanlam Investment Management Namibia CEO, Tega Shiimi ya Shiimi, said the expenditure pattern had become a concern.
The fact that 80 percent of total budget is going towards operational expenditure and 20 percent expenditure is expected to create income is not sustainable, he noted.
“There is no multiplier effect. I am bit concerned spending is on the high side ‑ we are not allocating enough resources to infrastructure spending,” Shiimi ya Shiimi told The Southern Times.
An inflated public civil service means the government has become the largest employer and biggest spender in the economy, he said.
“But I am not necessarily convinced that all these people are productive,” Shiimi ya Shiimi said.
He said the private sector expects the government to invest in assets, which boost growth and job creation.
“This spending pattern will become a continuing growing monster,” Shiimi ya Shiimi warned. “It appears government doesn’t have much more scope to deepen the economy.”
The Sanlam CEO advised Treasury to widen the tax collection base and create efficiency in revenue management.
“I don’t believe that everybody who should be paying tax is doing so … government needs to widen the collection of tax and make it much more efficient.”
Shiimi ya Shiimi pointed out that the government could not go it alone and the private sector should complement efforts to grow the economy and boost the skills base.
He warned government against rising debt, which the government is using to finance operational expenditure.
“Unless we channel that expenditure correctly to stimulate the economy, it’s going to be difficult to manage this debt.
“One needs to go back to the drawing board and restructure this entire spending regime. Should we really be throwing all this good money on non-productive assets?” he wondered
The volatility in the Southern Africa Customs Union also means the government’s major source of revenue remains uncertain.
Furthermore, the government needs to tackle the elephant in the room – the issue of non-performing parastatals.
“Government has been throwing good money towards an ailing problem in as far as parastatals are concerned.
Do we have the right people in the right places? We need to be able to ask ourselves the tough questions.
“But it looks like government is shying away from reality and will continue throwing good more money into parastatals. Nobody has really said let’s make the unpopular decisions or at least toying around with the tougher decisions on parastatals,” Shiimi ya Shiimi said.
“State-owned enterprises have to pull up their socks ‑ government should push the bar up as higher as possible.
“Pressure should be put to bear on parastatals to deliver a lot more,” FNB economist and researcher, Namene Kalili, added.
 

March 2013
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