Economists believe that when finance minister Iipumbu Shiimi tables the 2021/22 national budget in parliament tomorrow, it should clearly prioritise allocations to reflect the dire reality on the ground and to promote productivity in order to boost economic growth.
Shiimi is scheduled to table the budget tomorrow for a domestic economy that was already ravaged by recession even before the advent of the Covid-19 pandemic.
Responding to questions from New Era, local economist Klaus Schade pointed out that Namibia’s social fabric is severely threatened by diseases such as Covid-19, Hepatitis E and others while internal insecurity is threatened by sexual and gender-based violence and crime in general. In terms of social infrastructure, Schade said: “We are facing a substantial backlog of social infrastructure that needs to be addressed.
There is a lack of more than 5 000 classrooms, schools are not connected to water, sewerage systems, electricity and internet. Likewise, not all health facilities are connected to water, electricity and the internet. Covid-19 and Hepatitis E have taught us the importance of access to clean water, proper sanitation facilities as well as access to the internet.”
Schade continued that transforming informal settlements into formal settlements with certificates to occupy for the residents so they can start building their homes and annually servicing sufficient land to stop the expansion of informal settlements is crucial.
“Sufficient budgetary allocations to roll out bulk infrastructure in the settlements must be made,” he continued.
Schade applauded decisive changes to the Public Service Medical Aid Scheme (PSEMAS) that replaces the flat rate with a percentage contribution by all public servants and a significantly higher cost-recovery rate.
“Currently, PSEMAS is subsidised by the taxpayers to the tune of N$2.3 billion, amounting to roughly N$22 000 per public servant. A saving of N$1.5 billion would be sufficient to build 1 000 blocks of four classrooms alleviating the backlog of classrooms substantially,” he said.
The local economist also lauded the international relations ministry for taking steps to address fringe benefits that have become unsustainable.
Moreover, Schade proposes a much more targeted approach to address poverty, such as reviewing the zero-rating of value added tax (VAT) for specific food items that benefit mainly the urban and better-off population that has access to these items and can afford them, such as milk and bread.
His reasoning is that the rural poor hardly have access nor can they afford these items.
He also proposes a review of tax-free allowances that benefit those in the highest tax bracket most and those who earn less than N$50 000 per annum not at all although they deserve government support the most.
“Tax-free allowances can be replaced with tax credits of the same amount for each registered taxpayer,” Schade recommended.
In a bid to rake in much-needed additional revenue, Schade suggests the introduction of tax on ‘unhealthy’ food items such as sugary drinks to contribute to a healthier lifestyle and to reduce health expansion.
Also, he feels that the continuation of public auctioning of natural resource utilisation, such as fishing quotas, but also concessions for the tourism industry as well as mining licences, could boost public revenue.
Furthermore, to encourage entrepreneurship and investment, Schade proposes a review of corporate tax rates and suggests considering substantially lower tax rates for start-ups and for micro and small enterprises.
Said Schade: “After the painful decision to liquidate Air Namibia, more decisions are needed regarding loss-making public enterprises that compete with the private sector. RCC is just one example.”
Then, despite the necessary continuation of fiscal consolidation, Schade feels a clear prioritisation of allocation can support economic recovery and address major challenges such as poverty, inequality, poor educational outcome and the lack of social infrastructure.
Also weighing in on tomorrow’s budget, Head of Research at High Economic Intelligence, Salomo Hei, expects Shiimi to be bold and aggressive when tabling the budget. Hei said this year’s budget needs to focus more on increasing economic productivity while trying to increase state revenue.
“There is no need to focus on econometrics and balancing the budget but rather to solve the current economic crisis,” Hei explained.
Meanwhile, Popular Democratic Movement (PDM) member of parliament, Nico Smit, commented that there is a need to separate the operational budget from the capital investment budget, in a very clear, precisely defined way.
“There must be two separate budgets so that we can first bring the operational budget under control and then focus on the capital budget for horizons that exceed the normal 12-month fiscal interval,” explained Smit.
He said it may be argued that the budget is already split into operational and capex components but said it is not nearly separated enough. Smit advised that Namibia should start splitting the two expense categories aggressively and precisely, noting that one aspect is consumption and the other is an investment.