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Calle on the right track to reduce inequality and poverty – Analysts

Home Business Calle on the right track to reduce inequality and poverty – Analysts

Edgar Brandt

Windhoek-First impressions by economists of the N$58.4 billion budget tabled yesterday by Minister of Finance, Calle Schlettwein, are that the right steps are being taken to reduce income inequality and poverty while at the same time stimulating economic activity by increasing the development budget.

The development budget increased from N$5.6 billion in this financial year to N$7.3 billion in the 2018/19 financial year. Schlettwein noted that the total budget for the 2018/19 financial year actually amounts to N$65 billion when off-budget project financing, sourced externally, is included. This budget represents a reduction of 2.3 percent from the FY2017/18 revised budget of N$66.5 billion. During yesterday’s budget speech, Schlettwein noted that the country has reduced the budget deficit by a cumulative three percent, or 1.5 percentage points annually, over the past two years, from 8.2 percent in the 2015/16 financial year to an estimated 5.4 percent in the current financial year. He noted that budget expenditure, as a proportion of Gross Domestic Product (GDP), has reduced from 42.8 percent in the 2015/16 financial year to an estimated 38.7 percent in the current financial year. These ratios, he said, are projected to continue declining over the coming Medium Term Expenditure Framework (MTEF).

“Financing such large budget deficits have led to the rise in debt metrics, from 29.5 percent of GDP in FY2015/16 to an estimated 42.1 percent in FY2017/18. To stall growth in, and eventually reduce public debt, we should bear testimony to consistent implementation of the fiscal consolidation program going forward. To achieve this objective, we must contain growth in non-core spending, raise revenue, effectively manage historical cost drivers and hasten to implement enabling structural reforms. This is particularly in regard to the public wage bill, now standing at 50 percent of total revenue and 16 percent of GDP, perpetual bailouts of some commercial Public Enterprises, escalation in capital project cost prices and the dollar costs of internal inefficiencies in Offices/Ministries and Agencies,” said Schlettwein.

The Finance Minister yesterday proposed re-adjusting the current tax brackets for Individual Income Tax, reducing the lower bracket tax rate from 18 percent to 17 percent and introducing new tax rates of 39 percent and 40 percent for individuals earning over N$1.5 million and N$2.5 million, respectively.

According to Namene Kalili, FNB Namibia’s Senior Manager for Research and Development, yesterday’s proposed budget is a good sign in terms of more taxes on the higher end and providing some relief on the lower end of the income scale. “There is still so much wastage on the expenditure side and to be honest it is a bit confusing in terms of expenditure priorities,” said Kalili. He added that he was concerned about the budget deficit, saying it is growing faster than the country’s GDP.

Commenting on the budget speech, Dr John Steytler, Economic Advisor to the President, said he was impressed by what the Ministry of Finance was able to accomplish under difficult revenue constraints. “The ministry has done the best they could and the fact that they managed to protect social expenditure and provide some tax relief to the lower income segment is good. Also, increasing the Development Budget will result in more robust economic activity,” said Steytler.

Local economist, Klaus Schade, said overall it is a very balanced budget and he applauded the continuous support to social sectors by increasing the old age and disability grants. “Income taxes increased for the higher income segment and being reduced for the lower income earners is a step in the right direction to reduce income inequality and poverty,” said Schade. He also welcomed the increased allocation to the Development Budget, which he said could result in job creation and increased economic activity.