15 August 2014

Zimbabwe: Figures Do Not Lie, It's Not All Gloomy


Government's finances are in far better shape than its detractors have been suggesting, with figures for the first six months of this year showing that revenue was running at 94 percent of budget expectations despite several economic problems and that expenditure had been largely cut to what was coming in.

Salaries took 63 percent of total revenue, and once again we have people complaining about that percentage, saying it is too high and is cutting investment. This raises a number of questions about just what the Government should spend its money on, who should be investing and where investment funds come from.

In the long debate about "salaries versus services" we have continually pointed out that, for a Government, most services are providing skilled people to do certain duties.

Education, health services and the police are probably the three largest employers in State service. And for all three, the services they offer are putting a qualified teacher in every classroom, having doctors and nurses to attend patients at hospitals and clinics and having police officers patrolling our streets and hunting criminals. In other words the service is the person, and that means the cost is the person's salary. So talking about a conflict between salaries and services is simply mouthing ill-considered platitudes without actually working out what the Government's services actually are.

Some economists love talking about investment. We agree that Zimbabwe needs more investment. But we are very dubious that Government should use our tax money for this investment. Governments are not very efficient investors. Generally speaking investment is far better done by the private sector; we need to remember that the Chinese economic miracle was sparked by a realisation by a socialist Government that the private sector should generate the wealth and the Government then takes its share, through taxes, to provide a wide range of basic services.

The shortage of investment funds in Zimbabwe is not so much the Government not diverting tax revenue to investment as individual Zimbabweans being more eager to spend every cent they earn and then borrow at quite high rates of interest to buy consumer goods. The Asian miracles were largely driven by high saving rates and that requires a cultural change in Zimbabwe. If the Government wants to do something it is not so much a need for higher taxes as a need to limit consumer borrowing and a need to encourage savings.

This does not mean that there is not some scope for tax adjustments, but we suspect that the main result of changes to customs and excise duties, which are reportedly under consideration, will be a switch to more local produce rather than more revenue. It does seem, for example, a trifle daft that a bottle of scotch whiskey costs more in Scotland than in Harare. And changes that are likely to boost local industry need to be thought through carefully as while there is some spare capacity the local sector cannot supply all needs.

The mining sector should, in our view, be contributing more. We have, in recent years, been concentrating on the ownership of mining resources, only to find out that the average mining company seems able to create accounts that make all profits disappear. We are not the first to find this out and in our opinion Zimbabwe should look at what other mining exporters, from Australia to Zambia, have done and see how royalties can be adjusted to maximise tax revenue rather than trying to fight regiments of accountants who make taxable income disappear.

It is also clear from recent activity in zimra that some of our tax collection has been a little lax in recent times. We agree that zimra needs to enforce the law and make everyone pay their dues but, as we have said before, arrears need to be cleared in stages so that our tax paying businesses are not destroyed. Clearly if tax collections had not been allowed to go into arrears the Government would be in a far better position now financially. However, enforcement needs to take into account a need for payment plans for past taxes not paid while ensuring that present taxes are paid.

But generally the accounts show that Zimbabwe is not facing disaster and we all need to keep a balanced view. Economic and taxation policies should be built around the need for economic growth, rather than short term revenue gains that could derail our progress over the last six years.


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