|Finance & National
Planning Minister Situmbeko Musokotwane displays the copper briefcase containing
the budget speech on his arrival at Parliament Buildings in Lusaka
The K20,537.4 billion 2011 budget
appears to be an ambitious budget for an emerging economy like
Yet budgets in Zambia are very simple to read. The minister has
proposed a K15.769 billion Budget from domestic resources, with an additional
K1, 587 billion from Cooperating Partners. The deficit of K3, 180.6 billion he
anticipates would be financed from domestic and external borrowing.
in total brings the Budget to K20,537.4 billion. At the current exchange rate of
about K4,770 per US dollar the budget in US dollar terms is worth about $4.3
billion which is roughly equal to Zambia's copper exports.
The rule of
the thumb is that the budget is usually a tenth of the currency in circulation
being around K2.3 trillion for August 2010 indicating that the Government Budget
should be around K23 trillion.
It is within this configuration and
straitjacket that Government has to offer hope to the Zambian people. If exports
continue to increase, so will Government's Budget and naturally taxes, making
paying tax in the long run an expensive product for Zambians.
the budget appears to be providing Kwacha cover for exporters who have been
given the mandate by the Bank of Zambia to have 100 per cent direct retention of
their foreign exchange income through their exported goods.
is to free itself of this straitjacket and have that value manifest in the
Kwacha economy which drives the micro economy, then foreign exchange retention
regulations have to be altered to allow for only 100 per cent through Kwacha
This would fuse the outstanding US dollar revenues associated
with macroeconomic success of the Zambian economy into the micro economy and
hence the domestic economy.
Looking at the dynamics of the budget, what
is worrying about the budget is that the increase from K15.769 billion to
K20,537.4 billion is about 17.3 per cent being obtained from external
Considering that the economic growth rate of the economy is
about 6.6 percent, and going by the 1964 United Nations Seers Report, the 1967
Brown Report and the 1969 Turner Report, these reports clearly indicated that if
increases in Government expenditure exceeded the economic growth rate, it would
compromise the monetary value of existing jobs and manufacture unemployment in
At the macroeconomic level, economic growth is occurring as
noted by the trade surpluses Zambia has achieved, the bumper harvest,
infrastructure development etc but its impact on the Kwacha's purchasing power
has been negative; while job creation has occurred, the value of those jobs in
terms of wages still remains very low.
Consequently the Budget has tried
to balance, quite partially, the level of investment needed in improving and
developing Zambia's infrastructure so that it becomes a middle income nation by
2030, against the social needs of the nation.
This is the gamble that the
2010 Budget has taken. As observed in 2009 that tax targets were not met, this
may well be a result of a contracting domestic economy as people's Kwacha's
wages experience the "Seers effect" as the micro economy stagnates.
understandable that Government is in a hurry to develop Zambia to create a
middle income nation by 2030, but that also means that Zambian workers must have
middle income salaries to create the necessary domestic consumer demand to
support the local economy and Government revenue.
No such policy seems to be
in the Budget.
The choice here is does Government tax the wage before it
is spent and denies firms from having their products being purchased? Or does
Government collect its taxes after workers use their "middle income wages" to
purchase goods through which Government collects its revenue through company
tax, so as to keep the factors of production operational and preserve
Hence, the measure by the minister to impose a duty on imported
steel to boost local demand and production is a step in the right
If this could be extended to wages, then the K1 million
non-taxable threshold should have been higher through moving the tax band to
company tax or Value Added Tax (VAT), so as to enhance consumer
It is a question of looking at the linkages in the economy as
linkages provide opportunities to create jobs and create savings to increase
Take, for example, the duty placed on plastic bags. It
means shops not supplying plastic bags and the expected duty may well
What would have been perfect was to encourage the processing of
such plastic products hence creating more jobs. This kind of approach is seen in
the minister zero-rating VAT on hammer mills.
It is a question of give
and take. Another example is the increase in motor vehicle licence fees by 50
The question is that if the number of cars on Zambia's road is
increasing, isn't more revenue being collected?
If duty and tax on motor
vehicle imports were reduced, would that increase the level of imports hence the
number of people paying such fees?
Wasn't this kind of argument the case
for the dropping of the International Gate Way fee to increase volumes and rake
in more revenue from the traffic?
The fundamental question here is that
if Zambians are to use the roads that are being built, they need transportation.
They need vehicles to do business. Vehicles have a high maintenance cost, whose
spare parts are also taxed.
Increased volumes of vehicles mean more
repairs, and more spare parts will be needed. This spells more imports hence
more tax going into duty and customs.
In general, the budget has lost out
on boosting Zambia's manufacturing sector, in total the macro economy. It has
kept silent on the issue of "Windfall Tax" on the mines needed to reduce the tax
burden placed on Zambians mainly in the formal sector.
It has instead
given a kind of "Windfall Tax" on banking services which will definitely be
passed onto the consumer. The end result will be people avoiding
Instead of focusing on formalising the informal sector, bringing
the cost structure down, with regards to having the majority of US dollar
receipts and US dollars from exported goods passing through Zambia's commercial
bank system, thereby influencing downwards the exchange rate in favour of the
Kwacha, it is creating a high-cost structured domestic economy.
be noted that Zambia's export revenue in the 1990 was struggling to reach $1
billion and now it is touching over $4 billion, but unfortunately most of that
revenue seems to have eluded the domestic economy where the micro economy
This achievement is commendable, and the government just has to
take one little step further so that that value can be captured by the Kwacha
economy momentarily before it is externalised.
Yes, bold strides have
been made in infrastructure, agricultural production etc but these can easily
turn into white elephant figures as the domestic economy fails to be fused into
the macro economy, as noted recently by the Food Reserve Agency (FRA) being
bailed out of its maize marketing exercise by an international loan.
is within this the Budget can be described basically as a Budget for Government,
with some inclination to benefit Zambians.
Infrastructure development is
good, more clinics and health posts need nurses and doctors, more schools need
more motivated teachers.
Yes, Government's efforts are very noble,
building health centres in rural areas whose populations grow most of Zambia's
maize for practically nothing.
Sadly rural Zambians for a long time have
had to face the worst of the health care system, the most awful education
structures and the lack of teachers, skilled manpower which the government is
desperately trying to correct.
Urban Zambia wants maize cheaply but is
not prepared to pay for it or grow it. They prefer to hold a beer than a plough,
while rural Zambia toils away growing food. But clinics in rural and urban
Zambia need drugs, schools need teachers with proper educational
It is a fine line between quantity and quality.
quality of life in Zambia can only improve if every Zambian is a partner in the
developmental efforts of Government.
This to some extent has been
realised by Government in its agricultural policies as seen in the bumper
But farmers should have been allowed to export their maize
individually rather than wait for the FRA to buy that maize.
year another bumper harvest is due, will the K150 billion given to the FRA
Can Government give incentives for Zambians to turn that maize
into cornflakes that can be exported? Can we learn to process our agricultural
production into contemporary goods?
The Budget should have focused more
on bringing in Zambians as partners in development and looking at incentives to
increase economic activity to enhance its balance sheet.
This was well
illustrated by the Minister increasing the customs clearance threshold from $500
to $2,000. However on the revenue side Customs and Excise Duty is anticipated to
rake in K3,430 billion while Value Added Tax from imports is to bring in
Basically what this spells is that the Minister has
given one incentive to import more, but Custom and Excise Duties still remain
The end result is that this cost is passed on to the