Budget ‘A Foundation for New Era’

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By Wezi Tjaronda WINDHOEK A foundation for a new era has been laid with the tabling of the National 2006/7 budget last week, economists say. Being an expansionary budget, analysts can no longer liken it to the steam engine stationed outside Swakopmund, but they have called it “a budget that laid a foundation for a new era”. Rainer Ritter, the new Chief Executive Officer of the Namibia Financial Institutions Supervisory Authority (NAMFISA) told a budget review meeting on Thursday that Namibia needs more money to spend in order to address poverty and the high unemployment rate. Finance Minister Saara Kuugongelwa-Amadhila last week tabled a “pro-poor” N$15.3 billion budget, which has recorded an increase of 18 percent compared to the last financial year. This year’s expenditure priorities include education, especially the Education and Training Sector Improvement Programme (ETSIP), orphans and vulnerable children, social grants for the elderly and a provision for the health ministry to hire nurses from Kenya. Due to increases in expenditure for these sectors, the Medium Term Expenditure Framework (MTEF) will see N$395 million being set aside for old age pensions, N$388 million for education and N$190 million for health. Other priorities include infrastructure and public administration. “It is pleasing to note that critical issues can this year be addressed positively,” he said. Albe Botha, Managing Director of Pricewater-houseCoopers, under whose auspices the budget review was organised, said he hoped the ministry would every year be able to table a pro-poor pro-growth budget as it has done this financial year. With financial assistance for Air Namibia, Agribank, Development Bank, Kudu Gas, the Green Scheme, the Anti Corruption Commission and the National parks and wildlife, Botha said this indicated that the government is serious about creating infrastructure. Twenty percent of the government expenditure of the MTEF will be directed towards the productive and infrastructure sectors. “It is a balanced budget. For the first time in a long time there is major capital budget,” said Botha. Noting that the high returns from the Southern Africa Customs Union (SACU) have also contributed to Namibia’s registering a surplus of 0.3 percent (N$114 million), Botha said the country needs to focus on revenue collection as “SACU will not be there forever”. While for 2004/5 financial year the recorded growth was driven by SACU receipts, the main driver of this year’s growth in revenue is a combination of a substantial increase in receipts from SACU and also increases in tax collection, including the effects of tax audits carried out in the northern region. Last year, the ministry carried out tax audits that have enabled the country to see an increase of N$600 million in VAT collection as at January end. According to the Finance Minister, “This exercise not only had the effect that a few big fish were discovered who had not been paying taxes, but the audits carried a strong signal to companies about the obligation to pay taxes and consequences of not complying with tax laws.” The tax audits discovered that round tripping was a major source of the fraud. These have seen both criminal and disciplinary proceedings on some public officials. However, Botha said the country was losing its competitiveness on a tax point of view, which has brought about benefits for the rich only as “the taxes fit those in the higher income bracket”. In Botswana for instance, a company listed on the stock exchange pays 15 percent tax for 20 years, which acts as an incentive. Given the financial situation, he contended that the government would find it difficult to reduce individual as well as company taxes. Earlier in the week analysts also said although tax relief especially for individuals who have been paying 35 percent was long overdue, this would undermine the government’s drive to achieve a surplus. Finance Permanent Secretary, Calle Schlettwein said the country was not yet in a position where it could cut taxes. Meanwhile, the ministry, in a bid to introduce other taxes such as environmental tax, luxury tax, ring fencing as well as tax on unit trusts, has embarked on a programme that will see these taxes being implemented this year. Giving the Namibian perspective of the global and South African economic overview, an Economic Advisor to PWC, Dr Roelof Botha said high corporate tax rate and poor state of infrastructure are some of the constraints to economic growth, while further taxation relief is a key driver of higher growth.