By Lewis Mwape Zambia Tax Platform Chairman
The Zambia Tax Platform notes that Zambia’s fiscal deficit has expanded from 5.5% of GDP to 8.1% of GDP in 2015 which has caused negative economic effects as seen from the double digit inflation and high interest rates. The need for fiscal consolidation is therefore, paramount. The Zambia Tax Platform further notes that government is already engaging the IMF and has requested for support. The platform would however, like to caution government that while the IMF support is an opportunity to allow for economic recovery government needs to design and negotiate a reform package that will bring positive economic growth in an attempt to achieve macroeconomic stability. ZTP calls on government to immediately institute measures to address the fiscal deficit and some of the measures that can be instituted are as follows:
Revenue Generating Measures:
There is potential to increase local revenue streams that need to be unlocked in the country. Austerity measures tend to focus on regressive taxes for example, consumption taxes such as an upward adjustment of Value Added Tax (VAT) as opposed to progressive taxes. These progressive taxes include taxes on property, luxury goods and corporate income. More effort can be applied to tackle tax avoidance and illicit financial flows which could increase our revenue base. We are therefore urging government to negotiate tax reforms that respond to reducing harmful tax incentives, renegotiating harmful, restrictive tax treaties and minimizing Private Public Partnership programs that maximize the potential for fiscal risks. This is the time to address the corporate tax gaps estimated at $2billion annually to lessen increasing the tax burden on the poor.
Expenditure Cuts:
The highly inflated public wage bill needs to be strategically cut or capped as the government currently has high employment costs of about K1 billion. Zambia can also cut its spending on energy by increasing private investments in the sector and thus increasing tariffs. This can save Zambia up to an estimated $26million a month according to the World Bank putting less pressure on the budget.
In the face of austerity measures the Zambia tax platform recommends creation of fiscal space for public spending to keep our domestic economy running. Expenditure cuts need to happen in a way that will still allow for GDP growth which will consequently, also help reduce the budget deficit. Expenditure cuts should not dramatically shrink domestic demand so as to facilitate continued productivity in the economy. Subsidies meant for consumption should be scrapped off and subsidies meant for production should be maintained.
Therefore, there is need to prioritize protecting fuel subsidies as this will avoid drastic inflationary pressure which would reduce disposable incomes and consequently consumption in the economy contributing to high poverty. This would additionally make us less attractive for investments. Subsidy cuts in other sectors such as the Agriculture sector needs to be well thought through and implementation spread over a reasonable period of time to minimize the negative social impacts of removing subsidies.
ZTP recommends maintaining the use of E voucher which has proven to be effective. Social protection measures need to be considered and to be enhanced but in the face of austerity we would recommend cutting off the Social Cash Transfer programme as it only benefits 10% of the population compared to the 48% living in poverty. Lastly, in terms of expenditure we wish to state that education is a key driver for poverty reduction and economic development and therefore spending should be prioritized in this sector. Government needs to be cautionary when cutting expenditure as it can lead to not only increased poverty but also lower GDP growth and consequently failure to reducing the debt to GDP ratio.
ZTP reiterates calls to cut unnecessary expenditure related to travel, creation of new ministries or districts until such a time when current fiscal challenges are resolved. Finally, ZTP calls on government to openly and honestly engage citizens as these measures will have an impact on all citizens who need to be made aware and to be prepared for any negative impacts of these measures. ZTP also appeals to the Government to ensure involvement of all stakeholders in the formulation process of the IMF programme including civil society, Parliament and the private sector.
Interesting topic….In addition to all the expenditure cuts talked about, we need to zambianize alot of things in our country. through that we are assured of disposable income flight management. On a lighter note..i note with sadness that a topic like this doesn’t have alot of comments. did you want hear what colour of shoes dora wore or how HH drinks tea with dried fish then you comment. We cant all be there but lets give advise and one day it will be taken seriously by people who need it
PF will never take advice from wise and experienced people. Giving advice to PF is like throwing jewels to pigs. They resent it.
“The highly inflated public wage bill needs to be strategically cut or capped as the government currently has high employment costs of about K1 billion. ”
Kabili your clueless President is creating more ministries- his goal is to have 30 ministries as given by the constitution, even though he does not need and cant afford it.
Ba Mwape wesu … spot on! This is how private citizens run this country, great article and really proud of you. You exemplify patriotism among the smart people of the Zambian Enterprise … you are the best!
No Single Zambian Is Qualified For Stupidity, We Are A Smart People … So, Help Us God ~ B R Mumba, Sr (September, 2016)
Thanks a trillion.
What clever sounding crap! PF does not need to negotiate with IMF to increase taxes on beer, cigarettes, vehicles, property etc. These taxes were reduced because PF ministers are big time beneficiaries on property wealth, smuggling of status assets and their consumption. The bottom line is that PF never generated wealth and instead blew the surplus that MMD left behind and then stole the Eurobonds on roads to their homes and properties.
WHO WILL A PF CADRE TALK ABOUT REAL ISSUES WHEN THEY ARE FLOODED WITH INSULTS IN THEIR BRAINS?
THERE ARE A LOT OF ISSUES TO BE LOOKED AT. TO PAY BACK VAT FOR THE MINES WHICH OUR FORMER MINISTER OF FINANCE LEFT SIGNED. HOW MUCH WILL THE LOCAL CONTRIBUTE TO FINISH UP THE SHORT TERM AND LONG TERMS FOR IMF TO FACILITATE WELL?
PF HAS CREATED A VERY BIG HOLE AND IT WILL NEED BRAINS AND SACRIFICE IN ORDER TO REACH THE PICK OF DEVELOPMENT. MY WORRY IS WHERE NW HAS BEEN LEFT AWAY FROM DEVELOPMENT AND WHEN IMF COMES IN FOR SURE THIS PROVINCE WILL BE A PLACE LIKE A DANGION.
WE HAVE NO PEOPLE WITH BRAINS IN THIS GOVERNMENT. FOR SAKE OF AGUEMENT A PF CADRE WILL INSULT. FOR THE SAKE OF DEBATING ON REAL ISSUES PF CADRE WILL TEASE SOMEONE AND INSULT. IF PF IS CONVINCED HE/SHE WILL HATE AND CALL YOU TONGA.
WE KNOW THEM GOD SHALL KNOCK THEM DOWN.
Where are PF supporters? Are you prepared or it will b global
Who told you there is a crisis? Little knowledge in people is shocking. You do not know Zambia’s history and those you think can help. Do you know Kaloba & IMF?
How did we find ourselves in IMF’s hands again? I hate the institution. SAPs and other packages will come with employment freeze. When the Greeks rejected IMF they said we don’t want to be like Zambia. Why mention Zambia and no other country especially in Africa. Ninshi kanshi……
Well spoken, we need such brains to develop this national, IMF should not be accepted in our nation please we know what it demand, job cuts, employment freeze. Removal of subsidies on goods it will affect the majority of us Zambian.