Putting the budget to bed
The government is gunning for growth while keeping a lid on spending, says Capricorn Asset Management's economic analyst, Claudia Boamah.
The Medium-Term Economic Framework's (MTEF) pro-growth, fiscal consolidation agenda remains on the table. Pro-growth suggests realigning public expenditure with development goals, while fiscal consolidation translates into improved quality of spending and resource allocation prioritisation.
The government's responsibility to vulnerable children, building human capital and eradicating poverty remains under public expenditure and featured in the budget as a matter of fulfilling the Harambee Prosperity Plan, National Development Plan 5 and other long-term national plans.
The private sector will be engaged through public-private partnerships on information and communication technology and physical infrastructural development. Minister of finance Calle Schlettwein emphasised that the responsibility for creating a business- and investment-friendly environment was beyond the scope of the budget and would require a collective effort from all government organisations.
Growth of 2.5% is expected in 2017/18 from 1.3% in 2016/17. Factors that support this include: an improved global commodity demand due to the abating global recession; the conclusion of the drought and the restoration of faith in the Namibian economy since October's MTEF.
On the other hand, the recovery of our economy seems to depend on international trade to a large extent. Therefore, the following risks should be kept in mind: South Africa and Angola, two major trading partners, are also experiencing economic strain and growing protectionist sentiments could impede global trade. Revenue growth will be significantly aided by a Southern African Customs Union (SACU) injection of N$19.5 billion. In line with income inequality and poverty reduction, solidarity wealth tax and corporate gains tax will be introduced. As usual, sin taxes on alcohol and tobacco increased. A presumptive tax is still under consideration and will not come into effect in this budget. Unlike South Africa, Namibia will not be introducing a new income-tax bracket; much to the relief of high-income earners the marginal tax rate for income over N$1.5 million is 37%.
Overall personal income-tax brackets remained the same and likewise corporate taxes were unchanged at 32% and 18% for non-manufacturing and manufacturing corporates respectively. The export levy has been capped at a maximum of 2% and the fuel levy remains unchanged, however, it is scheduled to increase in the near future. The last adjustments in September were N$0.25 per litre for petrol and diesel and N$0.55 per litre for kerosene and hydro-carbon solvents.
Going forward revenue collection will be concentrated on two efforts: the retrieval of outstanding tax by proving incentives and preventing revenue loss from the existing tax base. The mostly static tax rates indicate speaks to the pro-growth aspect of the budget's aim.
Expenditure was actually revised upwards by 1.7% to N$62.5 billion, 45% of which will be allocated to personnel expenditure until the 2019/2020 budget year. This is not an encouraging sign for fiscal consolidation as the wage bill maintains a larger portion of public spending relative to productive capital spending.
However, the continued investment in education shows commitment to the enhancement of human capital which is pro-growth and the reduction of the defence budget, for example, illustrates prioritisation of the government's resources.
The expected outcome is that the budget deficit as a percentage of Gross Domestic Product will fall from the current 6.3% to 3.6% by the end of the fiscal year. This is ambitious, but not impossible.
If revenue loopholes are plugged and wasteful spending & mismanagement are suppressed the deficit can be contained and the debt-to-GDP ratio will be within closer reach by 2020.
The minister of finance stuck to the MTEF winning formula that seemed to keep the sub-investment grade rating at bay; it has been sufficient until now. What is required going forward is action.
CLAUDIA BOAMAH
The government's responsibility to vulnerable children, building human capital and eradicating poverty remains under public expenditure and featured in the budget as a matter of fulfilling the Harambee Prosperity Plan, National Development Plan 5 and other long-term national plans.
The private sector will be engaged through public-private partnerships on information and communication technology and physical infrastructural development. Minister of finance Calle Schlettwein emphasised that the responsibility for creating a business- and investment-friendly environment was beyond the scope of the budget and would require a collective effort from all government organisations.
Growth of 2.5% is expected in 2017/18 from 1.3% in 2016/17. Factors that support this include: an improved global commodity demand due to the abating global recession; the conclusion of the drought and the restoration of faith in the Namibian economy since October's MTEF.
On the other hand, the recovery of our economy seems to depend on international trade to a large extent. Therefore, the following risks should be kept in mind: South Africa and Angola, two major trading partners, are also experiencing economic strain and growing protectionist sentiments could impede global trade. Revenue growth will be significantly aided by a Southern African Customs Union (SACU) injection of N$19.5 billion. In line with income inequality and poverty reduction, solidarity wealth tax and corporate gains tax will be introduced. As usual, sin taxes on alcohol and tobacco increased. A presumptive tax is still under consideration and will not come into effect in this budget. Unlike South Africa, Namibia will not be introducing a new income-tax bracket; much to the relief of high-income earners the marginal tax rate for income over N$1.5 million is 37%.
Overall personal income-tax brackets remained the same and likewise corporate taxes were unchanged at 32% and 18% for non-manufacturing and manufacturing corporates respectively. The export levy has been capped at a maximum of 2% and the fuel levy remains unchanged, however, it is scheduled to increase in the near future. The last adjustments in September were N$0.25 per litre for petrol and diesel and N$0.55 per litre for kerosene and hydro-carbon solvents.
Going forward revenue collection will be concentrated on two efforts: the retrieval of outstanding tax by proving incentives and preventing revenue loss from the existing tax base. The mostly static tax rates indicate speaks to the pro-growth aspect of the budget's aim.
Expenditure was actually revised upwards by 1.7% to N$62.5 billion, 45% of which will be allocated to personnel expenditure until the 2019/2020 budget year. This is not an encouraging sign for fiscal consolidation as the wage bill maintains a larger portion of public spending relative to productive capital spending.
However, the continued investment in education shows commitment to the enhancement of human capital which is pro-growth and the reduction of the defence budget, for example, illustrates prioritisation of the government's resources.
The expected outcome is that the budget deficit as a percentage of Gross Domestic Product will fall from the current 6.3% to 3.6% by the end of the fiscal year. This is ambitious, but not impossible.
If revenue loopholes are plugged and wasteful spending & mismanagement are suppressed the deficit can be contained and the debt-to-GDP ratio will be within closer reach by 2020.
The minister of finance stuck to the MTEF winning formula that seemed to keep the sub-investment grade rating at bay; it has been sufficient until now. What is required going forward is action.
CLAUDIA BOAMAH
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