Goodall’s toughest moment

Most of the people who just say Finance, Economic Planning and Development Minister Goodall Gondwe is one of the best economists are wrong. He is more than that.

At his age, pushing 80 I think, one of the octogenarian’s greatest gifts is his ability to successfully marry contemporary economic thinking and that of his days.

He is as comfortable reading Adam Smith and John Maynard Keynes as he is with Milton Friedman or Geoffrey Sachs.

I remember during my time at Treasury, we would scour the web and print the day’s major stories from the Economist, The Wall Street Journal and Bloomberg. He would devour them right after reading Malawi’s two local dailies.

Then we would look for latest data on oil prices, the futures market and global currency movements among other financial news and publications.

The old man did like to keep himself abreast of global economic and financial trends before getting to his work of making fiscal decisions that would affect millions of people across Malawi.

His depth of knowledge always kept his technical team at the then Ministry of Finance on their toes, knowing that the boss would see right through their muddled analyses and projections.

Gondwe is also highly disciplined and hardworking. There were times, especially during the budget preparation phase, when he would say let’s meet at 6am to look at the draft budget statement, for example.

You would arrive at 05:55 hours thinking that you will have five minutes to be comfortable before he arrives only to find his office lights are on. You try to open the door to his office and there he is, behind his desk!

My point is that if there is anyone who can make sense of the mess that is our current fiscal position, it is Gondwe, his age notwithstanding.

But even for him—a man with intricate knowledge of public finance, who commands international gravitas and enjoys a highly regarded political acumen—assembling the 2014/15 National Budget is proving to be a drain.

And it should.

Donor aid is on the ice as bilateral capitals want evidence that loopholes in the public finance management system that brought Cashgate are sealed.

In addition, Gondwe has inherited accumulated unpaid bills owed to the private sector for goods and services amounting to K158.5 billion and a domestic debt overhang of K340 billion.

Of course, these liabilities—which are north of K500 billion—cannot be settled in one financial year.

Thus, the liabilities may have to be restructured in such a way that the repayment is spread or at least turned into long-term debt instruments such as bonds just to give Capital Hill some breathing space.

But we all know that Treasury has been selling the bond product for roughly 10 years, yet the financial market appears not to have an appetite for the paper.

It is a tough situation that can only lead to more pain that taxpayers have to bear at the counter or the till.

With donor aid out of the question amid mounting public debts and pressure to fulfill Democratic Progressive Party (DPP) campaign promises, Gondwe’s biggest challenges are finding sufficient fiscal space for all this and achieving macroeconomic balance under such intense pressure.

In the 2014/15 National Budget, government expects to spend K743 billion (the projected national budget), but the revenue sources—with foreign budget support mostly deleted from the equation—are expected to be punishments to Malawians. Apparently, multilateral donors—the European Union, the World Bank and the African Development Bank—are willing to pump in K43 billion in budgetary support.

But that is only around six percent of the national budget. Compare that to the 40 percent that development partners pour into the fiscal plan and you know that the country is in trouble.

That means Gondwe has to rely on the Malawi Revenue Authority (MRA) to deliver. The tax bull has been tasked to collect a minimum of K492.45 billion, which is around 66 percent of the 2014/15 expenditure needs.

Maybe levies and departmental receipts would bring in something also, but we know that it will be precious little.

So, it is back to taxes. Already, this financial year’s target is K147 billion or 42 percent higher than last fiscal calendar’s K99 billion, which is 25 percent more than what was actually collected in 2013/14.

I appreciate that revenue collection has improved at MRA, but it only grew by 8.61 percent and 14.01 percent for 2012/13 and 2013/14 respectively.

This makes the 2014/15 targets way too much going by the trend. No wonder most people expect that Gondwe will raise major taxes, which include pay as you earn (Paye), value added tax (VAT), import duty and excise tax.

But I do not see Gondwe raising the four taxes because doing so would suffocate the goose that lays the golden eggs—the business community—especially with a still wobbling economy.

But I do see upward tax adjustments in fringe benefits, non-residential, penalties, dividends, turnover and prepayments.

The beauty is that these ‘small’ taxes are largely taxes on the productivity of individuals and profitability of companies.

In other words, it would make sense to keep the Big Four (Paye, VAT, import duty and excise tax) taxes flat so that companies and individuals can make more money that will be taxed anyway while at the same time angling to tax the ‘productivity’ taxes. That way, Gondwe does not have to bury everyone—it’s kind of killing two birds with one stone.