Minister of Finance, Economic Planning and Development Goodall Gondwe is one politician I have always admired for his honesty. He is a down to earth gentleman who when he grants a journalist an interview, the journalist wonders whether he means what he is saying.
Put simply, Goodall likes to tell it as it is. He just did that again this week when he told The Nation in an interview that his K1.3 trillion 2017/18 National Budget is under pressure due to weakening domestic revenue and high interest rates on loans obtained by State produce trader Agricultural Development and Marketing Corporation (Admarc).
In a nutshell, the budget is so strained that it faces a downward adjustment in the second half of the year as Parliament meets for the Mid-Year Budget Review.
Weakening domestic revenue means that public tax collector, Malawi Revenue Authority (MRA), is not collecting as per set targets. MRA is the major source of domestic revenue and was tasked to collect K980 billion by June 30 2018 when the current budget expires. MRA collected K410 billion by December 31 against a K451 billion target.
MRA is under-collecting because the bulk of its revenue comes from the formal sector which, in the period under review, did not perform to the optimum. Prolonged power outages due to reduced electricity generation capacity negatively impacted on industry.
In the wake of the reduced power generation, most manufacturers scaled down production, in some cases leading to job losses for staff. Thus, the laid off staff could no longer contribute pay as you earn (Paye) tax. Likewise, the companies’ revenues were also affected; hence, could not remit the same amount of taxes they used to six months or a year ago.
Ever since the country’s development partners withdrew their estimated 40 percent contribution to the recurrent budget in October 2013 after being appalled by revelations of Cashgate—the plunder of public funds at Capital Hill—the national budgets have been based on increasing domestic resources mobilisation.
MRA has always been tasked to raise the projected targets against the background of under-collection. It is a tall order for MRA to achieve its targets in a bleeding economy where industry is struggling to produce.
By all means, Treasury should avoid giving MRA unrealistic targets as that only makes the agency bully taxpayers in its quest to meet the set target. This will be counterproductive and may not help the cause to fund the budget.
The envisaged expenditure cuts from the budget should be across the board and, by all means, not at the expense of social spending. From the President and his Cabinet through Principal Secretaries and all, everyone should tighten their belts.
From Goodall’s admission of the pressure largely resulting from under-collection of taxes, the picture one gets is that the economic performance is not as rosy as some politicians paint it.
It also tells us that good economic management goes beyond taming inflation rates to single-digit and having low interest rates for borrowers. There are other critical areas to stimulate the economy to produce, create jobs and export more. But jobs cannot be created where utilities, especially power, is not available. Manufacturers cannot produce and pay desirable taxes where they have no water supply and electricity.
Thank you Goodall for the insights. I am looking forward to the Mid-Year Budget Review Statement next Friday to see how we go forward in terms of revising the budget downwards. Who will be the winners and losers? n