On Friday, 29th September, 2017, the Minister of Finance presented the 2018 fiscal year budget under the theme: “Accelerating fiscal fitness for sustained inclusive growth without leaving anyone behind”. The budget was presented at the time when according to the 2015 Living Conditions Monitoring Survey (LCMS), Zambia’s national poverty levels is at 54.4% and rural poverty at 76.6%. The poverty connotation is associated with citizens lacking access to essentials required for a dignified standard of living such as health, education and a decent standard of living. The cost of living has consistently been increasing in the last two years making it difficult for many households to access basic needs. The budget was also released at the time the economy is trying to fully recover from economic turbulence of 2015 and 2016.
The budget is well premised on a very important theme of fiscal sustainability which has been a perennial problem with the PF government. The 2018 budget also seems to be well aligned to the seventh national development plan. On the Pillar of enhancing human development, the budget seems to have sustained the drive of promoting human development. Allocations as a share of the budget to both key sectors of Education (16.1%) and Health (9.5%) compared to 2017 allocation of 16.5% and 8.9% respectively have remained high reflecting the importance that the budget attaches to human development.
These have been proposed to be spent on various aspects of education and health including construction and rehabilitation of education and health facilities at all levels, equipment and material acquisition, staff recruitment and financing mechanism for tertiary education level. Of concern to the JCTR is that like in previous years, over 50% of the allocation goes to administrative expenses. This pattern which seems to have continued in 2018 will hamper the realization of the aspirations of 2018 budget in the area of human development. Of the total education allocation of K11.56 billion for instance; only K1.8 billion will go to primary and secondary school infrastructure, student loans and scholarships, university and college infrastructure as well as skills development. The pattern is the same in health. Despite the total allocation of K6.78 billion to the health sector, only K1.5 billion has been allocated to health infrastructure development, drugs and medical equipment acquisition. It seems the larger share of the allocation is to administrative expenses which have remote benefit to the patients.
Also, of concern is the allocation in the Water and Sanitation sector. Key on the projects will be the Kafue Bulk Water Supply Improvement Project under the Millennium Challenge Account aimed at increasing water in Lusaka but also unbundling the arrears owed to the contractors and suppliers. Of the total amount allocated of K816.26 million, K564.51 million is meant for water and sanitation. Out of which K239 million (42.3%) is meant for the Lusaka Sanitation Project. This leaves an amount of K325.51million to deal with the problem of water and sanitation in the 9 provinces (109 districts) of our country. This amount is insufficient to help rectify the challenge of clean and safe drinking water by most citizens in the 9 provinces. Zambia’s water problem is bigger than Lusaka water problem.
Poverty and vulnerability reduction pillar has also received fair attention from the 2018 budget. Under the Social Protection Programmes, measures that include implementation of the social cash transfer scheme and food security pack are being proposed. However, of concern to the JCTR is lack of coordination in the implementation of social protection programmes. The issue of wrong targeting where people who are not in real need are given social cash transfer should also be addressed. Social cash transfer should be targeted at the very poor echelon of our society.
Of major concern also is the silence of the 2018 budget on the needs of workers who bear the heavier burden of financing budgets through pay as you earn. The tax free threshold has remained stuck at K3, 300 while the highest tax band has remained at 37.5% and as if this were not enough, the allowable pension contribution of K255 will now be subjected to tax. This is indeed at variance with the budgets spirit of not leaving any one behind. In the light of increased cost of living and minimal salary increment; workers have little to smile about in 2018 but to continue tightening their belts. Government should have given workers some tax relief by reducing allocations to defence and public order and safety. Zambia is one of the most secure and orderly countries to warrant such continued high allocations. This is not to trivialize the work of maintaining safety and security of the country but a country that is not at war cannot justify allocating almost 10% of the budget to defence and safety and security combined.
Government’s chances of realizing its lofty intentions can only be assessed through its measures to raise revenues and pillar five of creating conducive governance environment for a diversified and inclusive economy speaks to that. The share of the budget to be financed from domestic resources of 68.5% still falls below the level of 70% reached during the previous MMD government and it seems the country continues to rely heavily on debt financing. While the projected external financing in the 2018 budget has fallen by almost 50% compared to 2017 budget, JCTR is alarmed at the proposed increased domestic borrowing of almost three times the 2017 level.
A budget that is premised on job creation through the private sector cannot afford to borrow this much as this will crowd out the private sector who is supposed to invest and create jobs. Government increased domestic borrowing is also likely to push up lending interest rates by banks which will increase cost of doing business and ultimately counter the well-intended target of job creation. The JCTR also notes that continued increase in the allocation to loan repayments; both external as well as domestic is indicative of how serious the issue of debt is to the country.
The Centre therefore demands that Government urgently shares its Medium term Debt Management Strategy which the Minister of Finance announced that it was adequate to deal with the issue of public debt with citizens to acquaint themselves with it in order to hold government accountable. JCTR further urges Government to quickly table the loans and guarantees act before Parliament for amendments to allow Parliament have oversight on the country’s borrowing in line with the provision of the amended constitution as announced by the Minister of Finance. This exercise is long overdue. At the rate we are accumulating debt, this exercise is too important to be left to the whims of the Executive who has demonstrated unbridled appetite for borrowing. Above all, JCTR urges government to invest borrowed resources in projects with high economic returns such as roads that open up rural areas and connects them to markets.
The introduced excise duty of K2 on cement also seems contradictory to the budget’s desire of creating jobs and leaving no one behind. The construction sector is one of the sectors that has been growing fast and contributing to the economy. The introduced duty will unnecessarily increase the cost of construction especially to ordinary people who are building houses.
Overall, the proposed revenue measures seem to fall short of the high intentions of reducing poverty, inequality and creating jobs so that no one is left behind. While JCTR acknowledges measures such as removal of tax holiday of five years offered to foreign firms, the total financing measures proposed are inadequate to deliver the good intentions of the 2018 budget.
The budget is almost silent on effectively taxing mining companies. The informal sector is another sector that has been almost let scot free. The challenges facing collection of informal sector taxes go beyond the upward adjustment of informal sector tax such as base tax which the minister announced but administration of the informal sector taxes.
The budget should have also provided more incentives for local industrialization. Other than creation of industrial economic zones and parks, the budget has not offered much on how it will industrialize the economy and create jobs. The budget also has no relief to workers as they continue to bear the burden of generating tax revenues through pay as you earn.