Finance and Public Enterprises Minister Iipumbu Shiimi yesterday shocked friend and foe when he tabled a whopping N$84.6 billion budget, with an increase in
social grants and a tax break for workers. The budget represents an increase of 9.7% from last year.
Aimed at ensuring macroeconomic stability to sustain livelihoods and supporting economic recovery, the budget is pro-sustainability, pro-growth and pro-poor, the finance minister stated. Shiimi’s budget for FY2023/24 is inclusive of N$2 billion in development projects funded outside the State Revenue Fund, and N$10 billion in debt servicing costs.
Revenue-collection is estimated at N$74.7 billion for the 2023/24 financial year, about 16.5% higher than the revised estimates for the previous financial year. Over the medium-term expenditure framework (MTEF), revenue growth is expected to average 7.7% to reach N$79.8 billion by FY2025/26.
“The significant boost to revenues stems from an upward revision in receipts from the Southern African Customs Union (SACU) pool to N$24.3 billion, around N$6.4 billion higher than our previous estimates,” he noted.
On the domestic front, recovery in economic activities, supported by gains from improved tax compliance in line with tax administration reforms, resulted in upward revisions of expected collections on value added tax (VAT) and personal income tax.
The finance minister dedicated this year’s budget to the most vulnerable under the theme of “Economic Revival and Caring for the Poor”. As such, government compiled this budget to balance the need to secure a pattern of fiscal sustainability and sustainable economic growth, while at the same time making the necessary provision for the most vulnerable and marginalised members of the community.
For 2023, domestic growth is projected to moderate to 3.2%, before slowing further to 2.2% in 2024.
“Growth is expected to be anchored by activities in the mining sector and tertiary industries, as well as recovery in most
sectors of the secondary industries. For January 2023, the annual inflation rate stood at 7%, implying persistent price pressures on already constrained businesses and households,” observed Shiimi.
In the FY2023/24 budget, interest payments amount to N$10.2 billion, equivalent to 13.4% of revenues and 4.7% of gross domestic product (GDP). There are moderate signs of stabilisation in the debt servicing metrics, although still above the desired benchmark of 10% of revenues. Therefore, further efforts are still required over the Medium-Term Expenditure Framework (MTEF) to get on a debt reduction path and entrench fiscal sustainability.
The budget deficit is projected to decline to 4.2% of GDP in FY2023/24, well in line with the fiscal policy stance. The deficit of N$9.1 billion in FY2023/24 will be financed through a combination of domestic debt instruments and funding from multilateral organisations.
The public debt stock is estimated to increase to N$150.9 billion or 70.1% of GDP, before peaking in the coming financial year.
“In nominal terms, the debt stock is still growing marginally above the growth in nominal GDP, and we aim to gradually close this gap towards the end of the MTEF,” he said. In the area of tax policy and tax administration reforms, Shiimi said reforms during the MTEF will focus on the implementation of measures to provide some relief to taxpayers in the near to medium-term.
“The ministry has undertaken an assessment of the consideration to provide tax relief to low-income earners. In this regard, we have resolved to introduce tax relief for individuals in the N$50 000 to N$100 000 tax bracket, effectively reducing their tax rate to zero, effective in FY2024/25,” he promised.
Turning to the economic sector, the minister stated that they will receive N$10.6 billion, and a total of N$33.6 billion over the MTEF. The public safety sector takes up the second-largest share of the budget allocations, with a total share of 19.4%. For FY2023/24, an amount of N$14.1 billion is allocated, and about N$43.5 billion over the MTEF.
Reaction
Economic analysts who were expecting ways to tackle the ever-increasing government debt and initiatives to help ordinary Namibians with increasing prices, yesterday shared their thoughts with New Era.
Head of research at High Economic Intelligence (HEI), Salomo Hei, said it is a fair budget and well-anchored within market expectations. “Revenue-collection increased as anticipated, and a bit of fat is being schemed towards the capital budget. The census is finally home, and that will assist with other statistics that are lagging behind,” he stated.
Hei added that with education and health getting the biggest share again, what is missing is the plan around efficiencies.
Economics lecturer Mally Likukela said the budget is broadly aligned to initial expectations.
“The minister remained committed to spending in the economy with an aim to supporting the economy. What shocked us in a positive way is the increase in the social sector,” he added.
Also weighing in was local economist Klaus Schade, who said since the SACU transfers are based on forecasts for the next financial year, there are risks that the South African economy, the dominant economy within SACU, does not perform up to expectations because of continuous power cuts and rail transport challenges, which could result in repayments at a later stage.
“The establishment of NamRA is apparently paying off due to an increase in domestic revenue-collection. However, the reduction in the budget deficit and economic growth (GDP growth) are not strong enough to bring the debt-to-GDP ratio down. It is expected to increase slightly to about 70%. More needs to be done to stimulate economic growth in the country,” said the economist.
Schade opined that the increase in the capital budget provides some support to the domestic economy, although a larger chunk of the additional revenue could have been allocated to the capital budget rather than to the operational budget.
The increase in the monthly amount of N$100 for pension grants, disability grants and the various child grants, he said, will support the vulnerable to cope better with the increase in the cost of living. Simultaneously increasing the coverage of the child grants
by including an additional 30 000 vulnerable children is also appreciated.
“There is a need for a complete review of the individual Income Tax Act to align it more to our main development objectives, namely increase employment, increase income equality and create wealth for all. The budget statement is silent on the ongoing Public Enterprises reform, State ownership and other policies, as well as the process towards creating a holding company for certain commercial public enterprises,” he continued.