‘Revenue Will Overshoot Expenditure’

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By Catherine Sasman

WINDHOEK

Economists expect a significant increase in the total revenue and a budget surplus due to the rise in the Southern African Customs Union (SACU) receipts, than projected for the 2008/9 financial year.

RMB Namibia CEO, Martin Mwinga, said the Government is financially sound, running at a surplus, with a debt to GDP decline of 24 percent last year from close to 40 percent five years ago, and “has the capacity to borrow and enough capacity to repay”.

“The decline in debt to GDP allows the Government to run budget deficits in the future of close to three percent to GDP for the next five years without falling in a debt trap.”

FNB Manager: Market Research and Development, Daniel Motinga, also said that given the expected windfall of about N$3.7 billion from SACU, “all other things being equal, the Government revenue projections should comfortably overshoot expenditure”.

“This will afford the Minister of Finance [Saara Kuugongelwa-Amadhila] sufficient scope to push expenditure such as real wage adjustments for Government employees. After all, 2009 is election year with real contestation in the political space. I would be surprised if the Finance Minister would not be pro-active in this regard.”

Mwinga had previously said that public workers’ salaries have fallen “far below” the cost of living, often resulting in corruption and low productivity.
“However, salary adjustments should be done in view of performance; there can be a general increase, but also reward top performers.”

Motinga agreed that such an increase should be commensurate with increased productivity and efficiency in terms of public service delivery.
“I think a system of pay as you perform, or PAP, should be implemented,” said Motinga.

Public wages account for about 45 percent of the total budget, said NEPRU’s Klaus Schade, expressing his doubt if any such increase would be effected this year following an agreement with the Government and the Public Service Union to have salaries revised towards next year.

Mwinga said the priorities for the 2008/9 national budget, which is expected to be tabled earlier than usual, should include capital expenditure, education, health, social grants, as well as an upward revision for low-income earners.
Mwinga said expenditure would, in all likelihood, increase substantially with the main beneficiaries being the education sector, capital expenditure particularly on energy and infrastructure in the regions.

This sentiment was echoed by Schade, but he said the SACU revenue might be impacted on due to the world and regional economic slowdown, where the SACU revenue have previously totalled about 34 percent of the country’s total income. However, said Schade, the slow economic growth might be offset by increased uranium and diamond production in the country. Asked what the emphasis of the budget should be, Mwinga said the country needs a fiscal stimulus to counteract the downward pressure and those negative forces constraining growth.

Mwinga said given the current economic conditions characterised by high interest rates, high inflation and declining disposable personal income, the Government should meet consumers half-way, and use the budget to undertake major public works to support the aggregate demand in the economy.

“Consumers are facing one of the toughest times since independence. Their salaries or incomes are no longer in line with the cost of living due to factors beyond their control – such as high inflation, interest rate and rising debt levels. Their total spending on the economy – personal consumption accounting for more than 60 percent of GDP – is contracting, and will put a downward pressure on the economy,” Mwinga said.

To counter this, he said, there is a need for a “major tax relief”, which would bring about a reduction in income tax, increase in income/tax threshold to exempt many lower income groups from paying tax.

However, Motinga and Schade were doubtful if there would be any changes in both income and corporate taxes, saying though that Namibia’s corporate taxes are not competitive.

Mwinga went on to say that the Government could use its strong financial position to subsidise things like municipal electricity and water for a defined period “until the consumer gets out of trouble”.

“That is when interest rate, inflation, water/electricity tariffs and oil/petrol prices would have finally come down,” suggested Mwinga.

Regarding public works, he went on to say: “With unemployment and the cost of living skyrocketing in all the 13 regions, and very little private investment going into the regions, the Government needs to embark on public works and projects such as building water reservoirs, canals and dams for water harvesting which will not only create temporary jobs and income, but will also create permanent infrastructure that will boost the productive capacity of the economy.”

Motinga was also of the opinion that the Government should invest in energy projects such as the Kudu gas project.

“We simply do not have sufficient scope in terms of energy supply.

Furthermore, it is time that the minister [Kuugongelwa-Amadhila] should speak concretely on the issue of privatisation or otherwise. The economy is running out of runway in terms of sustainable growth as the private sector share of GDP is not expanding drastically and thus fails to create a momentum for long-term growth,” said Motinga.

The challenge for this financial year, said Mwinga, would be for the Government to meet the rising expenditure from ministries and prioritising between expenditures, ensuring that allocated funds contribute to long-term economic growth.

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