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Economic challenges, seen in company closures and downsizing, low levels of investment and savings, power cuts and lack of liquidity are persisting. These have spawned a negative rate of inflation, job losses, low industrial capacity utilisation, and reduced disposable incomes. Industry is struggling to meet its tax obligations since factories are barely surviving, some shutting down. Revenue inflows to treasury have slowed down as a result. The outlook for this year is discouraging given crop failure in the last agricultural season, which might force the government to spend scarce resources on food imports.
The government is working hard to address the challenges by promoting foreign direct investment, with billion-dollar deals already being implemented by Chinese and Russian investors. Business delegations have also been hosted from Western Europe.
But all these typically produce results on a long-term basis.
In the meantime, and amid unpleasant pressure on the fiscus, the government is looking inward for possible measures to ameliorate the situation. It is introducing austerity measures, one of which was announced on Monday. A robust tax collection strategy is already in place and the government is moving to make the informal sector pay tax as well.
Finance and Economic Development Minister, Cde Patrick Chinamasa said on Monday that the government has suspended annual bonus payments for its workers this and next year to give the fiscus breathing space, thus stimulate economic recovery.
“The situation will be reviewed in 2017 in the event that we are able to build enough capacity,” he said. “We’ll not pay because there is no capacity to do so. The issue of bonuses must never be an entitlement; hence we should begin to talk about performance. It is paradoxical that government continues to pay bonuses when our paymasters, the creators of wealth, industry are actually failing to pay salaries and wages.”
Last year, the government spent $173 million on workers’ bonuses. That means that it will save $346 million in two years if it does not pay them this and next year. The saving is $146 million more than the money needed to revive Arda, an investment that can boost national food security and the agro-processing sector. The saving can go some way in resuscitating basically all irrigation schemes countrywide. Also, it can be invested in new technology, skills and machinery to extract deeper-lying diamonds at Chiadzwa for faster cash to be generated to resuscitate the economy.
There is nothing strange about government not paying its workers an annual bonus as most of their private sector counterparts haven’t had one since dollarisation. Companies are barely managing to pay monthly wages and many are actually failing to, and collapsing. Similarly, the government has had to delay salaries in recent months and staggering bonus payments over six months. This is evidence of incapacity caused by a difficult economic environment. Thus we don’t anticipate civil servants pressing for the 13th cheque regardless. They can see and experience the economic challenges. The government cannot perform abracadabra to create money.
More strategies to revive the economy are being explored such as reducing the civil service wage bill beyond bonus suspension and ensuring the informal sector pays tax, said Cde Chinamasa.
It is illogical, nay disastrous for the government to spend 82 percent of its limited revenue on wages. It sounds hypocritical for the government to order local authorities to reduce their wage bills to a maximum of 30 percent of their budgets when the state itself spends a staggering 82 percent of its budget to pay salaries for its staff.
Yes, unions have warned against salary cuts but they are unlikely to be as vocal if their employer implements job cuts, and does so procedurally. Zimbabweans are developing an entrepreneurial culture. We’re confident many government workers cannot wait to be paid a lump sum of money that they can invest to start their own business. More businesses would mean more tax payers.
The Zimbabwe National Statistics Agency (Zimstat) estimates that approximately 859,060 work in the informal sector. This is a new growth sector that has potential to boost government revenue if it is formalised and starts paying tax. About $7,4 billion circulates in that industry and none of it goes to treasury by way of tax. Government understands that many of the informal businesses are only starting, so forcing all of them to pay tax would punish them to death.
Cde Chinamasa said “champions in that sector would be identified” for nurturing so they become formal and eligible to pay tax. Such a nuanced approach is good. It doesn’t assume that every informal trader is liquid and big enough to pay tax. It recognises that some are still too small to do so immediately.
Austerity measures will hurt. However, they must be taken as a bitter pill that has to be taken to save life. We must bear them to stabilise and grow our economy.
Bongani Moyo
Online Reporter