By Wezi Tjaronda
Unless there is a reduction in spending, Namibia will return to budget deficits equivalent to five percent of GDP, putting the country in a vulnerable situation, an economist has said.
With public spending having remained stable despite fiscal targets, Robin Sherbourne said the Minister of Finance (MoF) has missed an opportunity to create a long-term fiscal sustainability.
Speaking at the annual Budget Analysis convened by the Parliamentary Standing Committee on Economics, Natural Resources and Public Administration yesterday, Sherbourne said spending was on its way up again after a short period of the minister putting a squeeze on spending.
Expenditure, according to the Medium Term Expenditure Framework (MTEF), is expected to decline from 35.2 percent during the current financial year to 29.7 percent in the 2009/10 financial year.
Sherbourne said this was a very steep decline and “I don’t see Government reducing spending by five percent in the next two years”.
As the situation is at present, the economist said the country is pursuing “hope and pray economics and not sustainable fiscal economics”.
He added that without cuts in public spending, Namibia is living dangerously as it depends on revenue that is not sustainable.
“We need longer term fiscal strategies to take into account probable change such as SACU,” he said.
The fact that the ministry was counting on revenue which could not be there in future, Sherbourne maintained, shows that the ministry was “offering jam today and not tomorrow”.
Namibia was again this financial year in a situation where its revenue collection increased significantly due to a windfall from SACU receipts.
MOF Permanent Secretary, Calle Schlettwein, said at the workshop the increase in the budget allocation was due to SACU receipts, domestic taxes and revenue collection efforts. With the appreciation of the Rand against major currencies, there was an increased volume of exports into SACU, which increased the volume of the pool.
“The budget is using the significant windfalls, which we should use in a sensible way to improve the development budget, living standards and debt consolidation to bring it below the target,” said the PS.
Schlettwein said the budget was pro-poor because of the increase in the tax threshold from N$24 000 to N$36 000, the increase in deductibility for pensions from N$30 000 to N$40 000 and also increases in social safety nets, public health and education.
It is pro-growth because the development budget increased by 31 percent, and the MTEF has an additional N$800 million to implement several major infrastructural development projects.
The current budget also has an additional allocation to Nampower’s gas-to-power project for energy security and also private sector development through support to small and medium enterprises.
There is also increased support for the green scheme, aquaculture and assistance to Agribank.
But Sherbourne said the Government could have introduced other poverty reduction measures such as reducing VAT from 15 percent to 10 percent, introducing basic income grants and cutting corporate taxes.
“Consumption taxes are quite high by developing country standards. Its quite high and it affects the poor more than the rich,” said he, adding that cutting the taxes would free up more cash for the poor.
However, according to Schlettwein, companies end up paying much more in South Africa than Namibia because they have other additional taxes, apart from company tax alone. He also said the Government cannot implement BIG because it is unaffordable due to its high administrative costs and the fact that it is a non-productive grant.