Petronella Sibeene
15 May 2008
Windhoek — Government could scrap taxes on basic consumer goods like sugar and other essential items, in addition to mealie-meal in an effort to provide relief to Namibians who since the beginning of this year have been besieged by a spate of increases on food and fuel prices.
As part of the many options under consideration to aid debt pressed citizens, the Government could exclude consumers from paying Value Added Tax (VAT) on sugar.
In an interview yesterday, Prime Minister Nahas Angula said an ad hoc committee chaired by him is awaiting a survey report from the technical committee on options that the Government should apply in order to relieve Namibians of the high food and fuel prices.
"Government is aware of the plight of the people on the cost of food and we are trying to be pro-active," Angula said.
Food prices have almost doubled and fuel continues to go up affecting all populations regardless of their economic and social status. Just this week, the Minister of Mines and Energy Erkki Nghimtina announced yet another fuel price hike with diesel breaching the N$10 mark today at midnight.
The Premier said there is tax relief already on mahangu and mealie-meal.
Permanent Secretary in the Ministry of Finance, Calle Schdlettwein, confirmed that the tax portion on the two products is 15 percent off the total price.
The Prime Minister also said a need might arise to appoint a commission that will monitor and ensure all the retailers are implementing
tax relief measures on the chosen products.
Other relief measures for consumer added Angula, would be engaging retailers as corporate citizens to come up with prices that are affordable.
The other way would be to go full steam on the green scheme and maybe also encourage the private sector to grow winter wheat, he said.
According to the Prime Minister, the country faces a critical situation especially that the last planting season was drought prone and this year flood prone.
"Ever skyrocketing fuel prices are fuelling inflation that affects food prices so much that the country is faced with a dilemma," Angula said.
Because of that, the Cabinet Committee on Policy and Priorities chaired by President Hifikepunye Pohamba identified the need to develop a response to the situation.
In order to examine the situation before implementing relief measures, an ad hoc committee was created as chaired by Angula.
Local economist and Chief Executive Officer of RMB Asset Management Namibia, Martin Mwinga, says rising fuel prices will no doubt automatically lead to another round of increases in food prices.
He says the purchasing power of consumers is diminishing.
With fuel going up at midnight, Mwinga warns that the poor will bear the heaviest impact because they spend 60 to 80 percent of their income on food.
He said high income-earners that spend 15 to 20 percent of their income on food will also feel the pinch, but their impact will be felt more in their travel expenses.
To worsen the situation, banks have tightened their lending standards resulting in a limited scope for consumers to borrow from the banks.
This trend Mwinga highlights, does not support economic growth and may lead to more consumers losing assets such as homes, furniture repossessions and collapse of friendships and marriages in worst case scenarios.
Mwinga also suggests that one tax measure that the Government could consider is suspension of VAT on most goods, to help reduce prices.
"This is also an opportunity for the Government to start considering an increase in tax threshold to more than N$50000, to exempt more poor people from paying tax and counter the effect of rising prices," he added.
Another remedy to the situation Mwinga says would be for the Government to table a supplementary budget as a matter of urgency.
And another area that cannot be ignored would be for the Government to adjust as soon as possible its workers' salaries.
Fuel, Mwinga emphasised, serves as an input in the production process of especially agricultural and fish products.
Minister of Fisheries and Marine Resources, Dr Abraham Iyambo, expressed concern over the skyrocketing fuel prices adding that prices touch the core of business in the fishing industry.
Commentators say industries heavily dependent on fuel for their operations are likely to slash jobs.
Although there are no hints yet on possible retrenchments, the minister was quick to appeal to players in the fishing industry to contain the situation and not resort to retrenchments.
He added, "We have been through difficult times before and we have sailed through even without any assistance-retrenchment has not been the trend and norm in the sector."
Assistance to the industry cannot be expected from the ministry with Iyambo explaining that fuel is not a direct component of his ministry's mandate.
Similarly, the Minister of Agriculture, Water and Forestry, John Mutorwa, without elaborating said the agricultural sector would be negatively affected since most implements run on diesel.
Mwinga says the local economy can no longer absorb additional fuel prices and thus suggests that the Government should start subsiding additional fuel price increases.
This can be done through issuing a bond in the market to borrow additional funds for this purpose, he suggested.
Regarding food prices, he says the Government must look at the possibility of temporary subsidies on basic necessities and introduce food coupons for the lower income groups for a specified period of time.
A researcher from the Namibian Economic Policy Research Unit (NEPRU), Mona Froystad, shared the same sentiments saying that increase in fuel price has tremendous economic pressure on people.
"The announced increase in fuel will make people worse off than they already are," she said.
She explained disposable income will decrease and the hardest hit are the poor or people with low income. This group is likely to face stagnation in its social status in society, as the chances of moving a step up in the socio-economic strata become limited.
The researcher feels people with higher income have more possibilities to escape the bite.
"They may choose to spend less on things such as leisure. For example, cutting trips to Swakopmund for the weekend or a new TV and instead use that money for fuel," emphasised Froystad.
But for the poor, a high proportion of their income goes to basic foods and the rest to fixed costs such as rent, she says.
Mwinga says, it is currently impossible to forecast how far prices will rise.
"It now seems likely that they will continue to rise until such time as demand falters, possibly as a result of a US - or even global - recession, and short-term fundamentals reassert themselves," he says.
He concluded, amid all the uncertainty, one thing seems to be clear. Even if short-term fundamentals do not warrant oil prices at current elevated levels, demand and supply trends in the energy market have changed and the oil price is unlikely to return to the US$20 levels of the 1990s.
The era of cheap oil has come to an end.
"It is far from clear how high that price will be - hopefully only US$150 but possibly US$200 or beyond, and the beleaguered Namibian consumer may be the first to capitulate," Mwinga says.
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