Nam wary on tax increase

By Magreth Nunuhe

WINDHOEK-THE Namibian government recently announced a massive cut of R6 billion in the national budget under its mid-term budget review. This came on the heels of a bleak economic outlook painted by the New York-based credit rating agency, Fitch, which in September warned of a possible credit downgrade due to Namibia’s widening budget deficit.

Is Namibia headed for tough times ahead and a possible economic recession given the deteriorating economic situation in the country? The Southern Times spoke to the Minister of Economic Planning and Director General of the National Planning Commission, Tom Alweendo, to get answers:

The Southern Times (TST): What do you think went wrong with budget planning?

Tom Alweendo (TA): Nothing went wrong, apart from the fact that the key priority for the FY2016/17 Mid-Year Budget Review was to align expenditure to changes in public revenue and as such, place public finances on a sustainable path. Thus, the recent mid-year term review focused on deepening the fiscal consolidation measures and strengthening the macroeconomic stability to ensure market confidence.

TST: Are there concerns on how the budget cuts will impact the Harambee Prosperity Plan? What are those concerns?

TA: In the policy statement by the Minister of Finance, it was stated clearly that the fiscal consolidation measure would not obscure the economic and social development objectives enshrined in V2030, Harambee Prosperity Plan and NDPs (National Development Plans). The cut was directed more towards unproductive expenditure.

On the operational budget, cuts were made on freezing of vacancies, materials and supplies, subsistence and travel allowance, transport, overtime, other services and expenses, operational equipment and machinery; vehicles and office furniture. On the development budget, the consolidation concentrated more on projects that are not yet implemented or those that have a low implementation rate.

TST: Do you foresee tax increases in the future?

TA: Increasing taxes would be ideal for any government to increase revenue, especially during a time of unstable macroeconomic outlook. However, tax increases may negatively affect GDP growth because it would mean that disposable incomes will reduce and so the aggregate consumption.

Thus, for Namibia, the focus now is rather on broadening the tax base and increasing tax efficiency. We have seen from the mid-year budget review policy statement that there are new tax proposals, such as the presumptive tax on small units and eliminating various categories of tax exemptions, among others.

TST: The government’s focus is on eradicating poverty, hence the creation of the Ministry of Poverty Eradication and introduction of social grants, including the increase of pensioners’ monthly payouts, free education and the food bank. Are the social grants not some of the interventions that are draining state financial resources?

TA: Social grants, including old age pension and food banks are government initiatives aimed at reducing poverty in the country just like any other government intervention on reducing poverty and therefore we do not see them draining state resources. They are equally priority areas where government funds are allocated to, because they address objectives spelled out in our national development plans.

TST: Why are all social grants not placed under one umbrella or ministry instead of being concentrated in different government departments? Which social grants take precedence over others and is there a possibility some grants might be scraped?

TA: Discussions are currently on-going to bring all social grants under one roof, hence, the introduction of the Ministry of Poverty Eradication and Social Welfare. It should, however, be noted that this is not an easy process given many administrative processes and/or procedures that need to be followed. With regards to which social grant takes precedence over others, government views all forms of social grants as equal.

TST: Your government was opposed to the Basic Income Grant (BIG), but now it appears that the new social interventions are more costly for the State than expected. Is that the case?

TA: The government did not oppose the idea of introducing a Basic Income Grant. The BIG is one of the activities to be piloted under the implementation plan of the blueprint on wealth redistribution and poverty eradication to be launched by the Ministry of Poverty and Eradication.