Budget surplus a pipe dream, economists predict

A TIGHT Budget holding little joy for taxpayers. This is the general view among economists ahead of today’s unveiling of the National Budget for 2006-07.

In general, few surprises are expected in Finance Minister Saara Kuugongelwa-Amadhila’s Budget, which will be presented in the National Assembly this afternoon. However, all eyes will be on whether the Minister will deliver on her words of last year and be able to meet her targets: her aim was a projected surplus of around N$511 million – 1,2 per cent of the Gross Domestic Product.TAX CUTS UNLIKELY Kuugongelwa-Amadhila also promised to boost Government revenue to N$13,4 billion.Economists The Namibian spoke to felt that a tight Budget would be most likely, taking into account the lacklustre performance of the economy.All agreed that company and income-tax cuts were unlikely.It was also said that tightening the Budget to reduce debts and deficits should be done in line with fundamentals; and that Namibia otherwise needed an expansionary Budget for the economy to grow.First National Bank economist Martin Mwinga was certain that Kuugongelwa-Amadhila would not reach her target of achieving a surplus through zero per cent growth in expenditure and high revenue.”While revenue might have increased due to better collection, expenditure side cannot increase by zero per cent, it will be much higher and as a result a surplus will not be possible,” he said.”The Minister, however, might be able to produce a balanced Budget with a zero per cent deficit.”Mwinga said Kuugongelwa-Amadhila had challenges to tackle because of the poor performance of the economy caused mainly by an ailing fishing sector, which has resulted in a number of companies shutting down.FISCAL POLICY CHALLENGES The Namibian Economic Policy Research Unit (Nepru) has calculated that the country needs an average of 12 per cent GDP growth per year for the next 24 years to achieve the goals of Vision 2030, which seeks to make Namibia an industrialised nation by then.Mwinga added that there were also challenges on expanding fiscal policy in line with Vision 2030; another was how Government revenue could be increased in a poor economic growth environment.He said it was unlikely that there would be a personal or company tax reduction, which the country needs to attract investors and boost economic growth.The tax partner at Ernst and Young, Cameron Kotzé, was also of the view that Kuugongelwa-Amadhila was not in a position to cut the tax rate, despite peer pressure emanating from such cuts in neighbouring South Africa and Botswana.”I do not believe that the Minister of Finance is in a position to grant significant tax relief to individual taxpayers when her Budget proposals are tabled.”Another economist, Daniel Motinga, who is the Executive Director of the Institute for Public Policy Research (IPPR), was of a similar opinion.He said with the current economic scenario, it was very difficult for the Minister of Finance to meet her deficit and growth targets.”There will be a few surprises, however I am expecting the Minister to address issues of tax evasion and avoidance to feature strongly as in the previous Budget, with no signs for further tax relief,” he said.EXPENDITURE CONCERN He was of the view that the Government had failed to target its expenditure.The Government was expected to curb its spending.Kuugongelwa-Amadhila said the Government would bring down its debt to 30,2 per cent of GDP in 2005-06 so that it would reach a target of 27,6 per cent of GDP by the end of the 2007-08 financial year.Motinga also highlighted challenges that Kuugongelwa-Amadhila faces which include stimulating economic growth, which he said could only be achieved through a well-targeted investment-oriented programme that would be expansionary.He said: “We need a fiscal policy that has a large impact on economic growth and job creation or redistribution to the poor and very poor through targeted transfers.And, of course, growth can only be preceded by an accelerated capital expenditure programme.”The economists said the Namibian Budget could not – on any account – be compared to the South African one tabled recently, which was an expansionary Budget.Simonis Storm Securities researcher Emile van Zyl said the South African Budget was a tough act to follow.Mwinga summed up the matter saying: “We can envy them (South Africans) but we are far from enjoying the fruits of their hard labour.The SA economy is growing, creating jobs and generating enough revenue for the government.Their high revenue comes from a high growing economy and better collection.”What the Namibian economy needs at the moment is an expansionary fiscal policy, not a tight Budget.The obsession with a surplus by the current Minister of Finance, although well intended, will have a detrimental effect on the economy, will lead to poor economic growth and more Budget deficits in the future.”However, all eyes will be on whether the Minister will deliver on her words of last year and be able to meet her targets: her aim was a projected surplus of around N$511 million – 1,2 per cent of the Gross Domestic Product.TAX CUTS UNLIKELY Kuugongelwa-Amadhila also promised to boost Government revenue to N$13,4 billion.Economists The Namibian spoke to felt that a tight Budget would be most likely, taking into account the lacklustre performance of the economy.All agreed that company and income-tax cuts were unlikely.It was also said that tightening the Budget to reduce debts and deficits should be done in line with fundamentals; and that Namibia otherwise needed an expansionary Budget for the economy to grow.First National Bank economist Martin Mwinga was certain that Kuugongelwa-Amadhila would not reach her target of achieving a surplus through zero per cent growth in expenditure and high revenue.”While revenue might have increased due to better collection, expenditure side cannot increase by zero per cent, it will be much higher and as a result a surplus will not be possible,” he said. “The Minister, however, might be able to produce a balanced Budget with a zero per cent deficit.”Mwinga said Kuugongelwa-Amadhila had challenges to tackle because of the poor performance of the economy caused mainly by an ailing fishing sector, which has resulted in a number of companies shutting down.FISCAL POLICY CHALLENGES The Namibian Economic Policy Research Unit (Nepru) has calculated that the country needs an average of 12 per cent GDP growth per year for the next 24 years to achieve the goals of Vision 2030, which seeks to make Namibia an industrialised nation by then.Mwinga added that there were also challenges on expanding fiscal policy in line with Vision 2030; another was how Government revenue could be increased in a poor economic growth environment.He said it was unlikely that there would be a personal or company tax reduction, which the country needs to attract investors and boost economic growth.The tax partner at Ernst and Young, Cameron Kotzé, was also of the view that Kuugongelwa-Amadhila was not in a position to cut the tax rate, despite peer pressure emanating from such cuts in neighbouring South Africa and Botswana.”I do not believe that the Minister of Finance is in a position to grant significant tax relief to individual taxpayers when her Budget proposals are tabled.”Another economist, Daniel Motinga, who is the Executive Director of the Institute for Public Policy Research (IPPR), was of a similar opinion.He said with the current economic scenario, it was very difficult for the Minister of Finance to meet her deficit and growth targets.”There will be a few surprises, however I am expecting the Minister to address issues of tax evasion and avoidance to feature strongly as in the previous Budget, with no signs for further tax relief,” he said.EXPENDITURE CONCERN He was of the view that the Government had failed to target its expenditure.The Government was expected to curb its spending.Kuugongelwa-Amadhila said the Government would bring down its debt to 30,2 per cent of GDP in 2005-06 so that it would reach a target of 27,6 per cent of GDP by the end of the 2007-08 financial year.Motinga also highlighted challenges that Kuugongelwa-Amadhila faces which include stimulating economic growth, which he said could only be achieved through a well-targeted investment-oriented programme that would be expansionary.He said: “We need a fiscal policy that has a large impact on economic growth and job creation or redistribution to the poor and very poor through targeted transfers.And, of course, growth can only be preceded by an accelerated capital expenditure programme.”The economists said the Namibian Budget could not – on any account – be compared to the South African one tabled recently, which was an expansionary Budget.Simonis Storm Securities researcher Emile van Zyl said the South African Budget was a tough act to follow.Mwinga summed up the matter saying: “We can envy them (South Africans) but we are far from enjoying the fruits of their hard labour.The SA economy is growing, creating jobs and generating enough revenue for the government.Their high revenue comes from a high growing economy and better collection.”What the Namibian economy needs at the moment is an expansionary fiscal policy, not a tight Budget.The obsession with a surplus by the current Minister of Finance, although well intended, will have a detrimental effect on the economy, will lead to poor economic growth and more Budget deficits in the future.”