27 February 2013

Namibia: 'Aggressive' Spending Raises Red Flag Among Economists

FOR every dollar of revenue in the 2013-14 Budget, Government will spend nearly 80 cents on operational expenditure, plunging Namibia deeper into the red and leaving Finance Minister Saara Kuugongelwa-Amadhila no other choice but to increase the country's debt burden to pay for development.

Neither the good news of tax relief, nor the slightly larger monthly pension for the elderly was enough to distract economists from the spike in expenditure last night. To Kuugongelwa-Amadhila her spending plans might be "grounded in fiscal counter-cyclicality", but to analysts it seemed more than an "aggressive" budget expansion in a time where they believe consolidation would have better served Namibia's macro-economic stability.

Although the income tax break will provide a much-needed breather for the man in the street, economists warned that the extra money would probably be spent on consumer goods instead of saving it, fuelling foreign demand and even skewing Namibia's balance of payments.

Independent economist Klaus Schade said the Bank of Namibia (BoN) is already concerned about Namibians' low saving rate and high spending on consumer goods.

Kuugongelwa-Amadhila's new tax brackets will bring between 6% and 9% relief , according to tax expert Cameron Kotzé of Ernst & Young.

Whereas previously the minimum income tax rate was 27%, it will now be 18% - on par with South Africa, Kotzé said. The average tax rate of 34% for high-income earners will drop to an average of 28%, he said. Kotzé said he would have liked to have seen some incentive in the budget to encourage saving and fostering a savings culture.

Although Kuugongelwa-Amadhila increased the threshold of income tax exemption from N$40 000 to N$50 000 a year, Kotzé said Namibia still needs to catch up with South Africa, where the ceiling is R63 000.

He welcomed the minister's move to decrease the tax rate of non-mining companies from 34% to 33% this year, saying it shows that Government wants to boost Namibia's competitiveness in the region. However, the fact that there is no relief for mining companies plus the planned export levy on raw exports might negate the minister's good intentions.

IJG Namibia economist Romé Mostert said Government's ever-growing role in the economy is concerning, a view shared by Kotzé. Government expenditure this year will make up 41% of Namibia's gross domestic product (GDP).

"The economy is becoming increasingly reliant on Government," Mostert said.

Like FNB Namibia economist Daniel Motinga, Mostert described Government's N$47,6-billion budget as "aggressive". Motinga said he was concerned about the nature of the spending - the operational budget represents about 78% of the total budget.

He was also worried about the "worsening" deficit. The N$7,4 million deficit is 6,4% of the GDP, more than double the 2,8% estimated in the 2012-13 Medium Term Expenditure Framework (MTEF).

The economists agreed that, on paper, Government's development budget of N$8,1 billion is aimed at the right projects in line with the Fourth National Development Plan (NDP4), which includes improving railway and harbour infrastructure. However, as always, budget execution will be pivotal to the success of the development budget.

The analysts also called for a more efficient and effective civil service to justify the 8% increase in civil servants' salaries and political office bearers' remuneration packages, which are the main drivers of the 19,8% increase in the operational budget.

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