7 November 2017

Namibia: No Tax Increases Planned - Schlettwein

Finance minister Calle Schlettwein says he does not intend to raise tax rates to increase government revenue and cut the country's budget deficit.

Speaking at a discussion of the mid-year budget review that he announced in the National Assembly on Thursday last week, Schlettwein said on Friday an increase in general tax rates while an economic recovery was taking shape was not part of his budget plans.

"The risk is that you tax growth to death," Schlettwein remarked, adding that all potential taxpayers should, however, be brought into the tax net and full tax compliance should be aimed for.

Namibia and the government are finding themselves in a tough economic climate, and it is likely to remain difficult for the next two years or so, with low economic growth rates in both South Africa and Angola placing a squeeze on Namibia's economy, the minister said.

However, Namibia's overall economic fundamentals are stronger now than they were a year ago, and it was his belief that the decisions made in the mid-year budget review were the right ones, Schlettwein said.

Steep budget cuts were necessary last year to align government spending with revenue, but that fiscal consolidation also had an impact on economic growth, with Namibia recording a growth rate of only 1,1% last year, he indicated.

The government aimed to maintain fiscal consolidation, but without stifling economic growth, and would employ a smooth reduction in spending going forward, he said. The mid-year budget adjustment aimed to smooth out the negative impact that last year's budget cuts had on the economy and the delivery of services by government, he indicated.

As it is, two key budget indicators are already showing that progress was being made in putting the state's finances on the right track, according to Schlettwein.

Spending measured as a percentage of the country's gross domestic product was decreasing year-on-year, and so was the budget deficit, also when measured as a percentage of GDP, he said.

However, Schlettwein acknowledged that the national debt has grown to a level at the threshold set by debt rating agencies as being the limit regarded as sustainable for small and medium-sized economies. He said he also had to recognise that the debt level exceeded the limit of 35% of GDP set by the government, which still remained the target in the long term.

Government's initial budget for the 2017/18 financial year envisaged spending totalling N$62,5 billion (37% of GDP), income amounting to N$56,4 billion, and a resulting deficit of N$6,1 billion (3,6% of GDP). The budget adjustments unveiled by Schlettwein on Thursday would result in spending increasing to N$66,1 billion (38% of GDP), revenue totalling N$56,7 billion, and a deficit of N$9,3 billion (5,3% of GDP).

The 2016/17 budget provided for N$62,2 billion in expenditure (38% of GDP) and a deficit of N$11,3 billion (6,9% of GDP).

The budget projections for the 2018/19 financial year at this stage set spending at N$64,5 billion (35% of GDP) and expect a budget shortfall of N$7,8 billion (4,2% of GDP), while expenditure in the year after that is projected to amount to N$65,5 billion (33% of GDP), with a deficit of N$5,7 billion (2,9% of GDP).

As a result of continuing budget deficits, Namibia's national debt is expected to increase from N$62,8 billion (38,3% of GDP) in 2016/17 to N$74,2 billion (42,1% of GDP) during the current financial year, the newly released budget figures show. The government's debt load is projected to rise further, to N$80,2 billion (43,5% of GDP) in 2018/19, N$86,2 billion (44,2% of GDP) in the year after that, and N$89,2 billion (43,1% of GDP) in 2020/21.

The size of Namibia's budget deficit and increase in government debt meant that budget cuts were undoubtedly necessary, Standard Bank Namibia economist Naufiku Hamunime also said at the same event on Friday.

The government's personnel spending remains worrying, though, Hamunime said. She noted that, instead of being cut, the government's wage bill has continued to increase every year since 2011 - also when measured as a percentage of total spending.

Personnel expenditure accounted for 31,8% of government spending in 2011, and rose to 35,7% of total spending in 2012, 36,9% in 2013, 37,5% in 2014, 38,7% in 2015, and 39,7% in 2016, Hamunime said.

In this year's initial budget, personnel expenditure totalling N$28 billion accounted for 44,9% of total spending of N$62,5 billion, she pointed out. The government's wage bill is expected continue to increase as well, making up 45,9% of total spending next year and 46% in 2019, she also said.

Namibia cannot afford a situation where a fifth of its workforce was employed by the state, and that needs to be addressed, Hamunime argued.

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