LOCAL economist Prosper Chitambara has raised concern over the proposed 2024 National Budget, saying it could jinx the government’s Vision 2030 which seeks to transform Zimbabwe into an upper middle-income economy with job opportunities and a high quality of life for citizens.
REGINA PASIPANODYA
During a presentation of the Zimbabwe Women Resource Centre and Network (ZWRCN) 2024 budget review to the Women’s Parliamentary Caucus on Wednesday, Chitambara said the economic growth that the country has been realising in past years has neither been employment-intensive nor poverty-reducing.
“For the past years, Zimbabwe has been experiencing erratic economic growth which has no stability or sustainability. This year the government is projecting economic growth by 5.5%, which is slightly lower than last. This shows that there is no consistency which can make it difficult to achieve Vision 2030.
“Instead of working toward improving economic growth to about 15% an economic benchmark as stated by the World Bank that shows that the country is capable of achieving an upper middle-income economy,
Zimbabwe is in debt distress with total Public Debt estimated at US$17.7 billion as at the end of September 2023 up by 63.6% from US$10.7 billion as at end of December 2020.
“Therefore, the rising debt burden limits the government’s ability to undertake productivity-enhancing and welfare-improving investments in infrastructure, social protection, education, and public health. Public debt service also consumes a significant part of fiscal revenues crowding away resources from critical productive sectors of the economy,” said Chitambara.
Finance minister Mthuli Ncube on 30 November presented the proposed budget to Parliament.
According to the budget proposal, starting on 1 January 2024, the tax-free threshold has been reviewed upward to ZW$750 000 (about US$100) per month, or ZW$9 000 000 (about US$1 200) per annum from ZW$500 000 per month in August 2023 (a 50% increase).
The tax bands were adjusted to end at ZW$270 million per annum, above which tax will be levied at a rate of 40%, with effect from 1 January 2024. The tax-free bonus threshold has been reviewed from ZW$500 000 to ZW$7 500 000 (about US$1 000), with effect from 1 November 2023.
The corporate income tax rate was reviewed from 24% back to the pre-Covid rate of 25% with effect from 1 January 2024.
This will increase the cost of production and doing business in general. The government is also proposing the following revenue measures:
- The Strategic Reserve Levy is to be reviewed by US$0.03 and US$0.05 per litre of diesel and petrol, respectively, with effect from 1 January 2024;
- Upward review of toll fees from US$2 for light motor vehicles to US$4 on other roads and US$5 on premium roads (Harare-Beitbridge and Plumtree-Mutare).
- Vehicle registration fees reviewed upwards from US$80 to US$100 for vehicles with engine capacity of 1 500cc and US$500 for vehicles with engine capacity above 1 500cc;
- Passport fees were reviewed upwards from US$120 for the ordinary passport to US$200.
- Introduction of a levy of US$0.02 per gramme of sugar contained in beverages, excluding water, with effect from 1 January 2024; and
- Introduction of a Wealth Tax levied at a rate of 1% of market values of residential properties with a minimum value of US$100 000. The tax is payable in every year of assessment.
However, in his presentation, Chitambara highlighted that the above measures will increase the cost of accessing public services, goods and services, transport and logistics, the price of fuel, and the overall cost of doing business in the country.
The net effect will be to reduce disposable incomes while eroding the country’s overall competitiveness. This could also weaken the employment creation capacity of businesses.
“High tax rates have been found to encourage both tax evasion and avoidance and force many small businesses to go/remain, informal. Empirical and case study evidence from many countries suggests that tax compliance rates rise as tax rates fall. Most of the youth and women are employed in the informal economy and this move could result in many youth and women businesses folding, thereby threatening youth livelihoods and making it difficult for them to realise Vision 2030 for the government. This would make Zimbabwe continue to face huge labour market challenges related to the high prevalence of informal and vulnerable employment,” said Chitambara.
According to the 2023 Third Quarter Quarterly Labour Force Survey Report by ZimStat, informal employment constitutes 86.7% of total employment up from up from 75.6% in 2019. Informal employment is characterised by low productivity, low incomes, high poverty, no social protection, and lack of workers’ representation among others.
“The erosion of purchasing power has exacerbated an already difficult situation for the poor and vulnerable. The annual blended inflation rate has declined from 175.8% in June to 21.6% in November while the monthly inflation rate has declined from 74.5% in June to 4.5% in November.
However, ZWRCN economist Esther Mapungwana urged the government to provide more resources to various sectors of the economy to attract formalisation since the country is highly informalised.
