Full text of the 2009 budget revision by Biti

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Full text of the 2009 budget revision statement by Hon Tendai Biti, Minister of Finance, presented to parliament on March 18, 2009:


INTRODUCTION

1.1.1. Mr Speaker Sir, Honourable Members
will recall that on 29 January 2009, the Honourable Acting Minister of
Finance presented the 2009 Budget in this August House.

1.1.2. Debate on the Budget forms part of this Session and I have the honour to open this debate.

1.1.3.
In order to facilitate this debate, I have synchronised the 2009 Budget
to recent political and economic developments, which culminated in the
formation of the Inclusive Government which in turn initiated the
formulation of the Short Term Emergency Recovery Programme (STERP).

1.1.4.
Mr Speaker Sir, at the epicentre of these socio-economic challenges,
have been unprecedented levels of hyperinflation and declining
productive capacity and hence massive de-industrialisation, food
shortages, loss in value of the local currency, corruption,
deteriorating public service delivery particularly education, health,
sanitation as well as public utilities and infrastructure.

1.1.5.
The impact of all the above have been sustained negative effects on
Gross Domestic Product (GDP), resulting in cumulative fall of GDP by
over 40 percent for the past 8 years, giving rise to unprecedented
increase in poverty levels and general despondency.

1.1.6. Given
the aforementioned, the task of turning around the economy, therefore,
becomes the toughest job of the Inclusive Government.

1.1.7.
Notwithstanding this challenging obligation, the new Inclusive
Government is committing itself to putting Zimbabwe people and the
country first by addressing the above challenges, geared towards
turning around the economy and, hence, afford the people of Zimbabwe
better living standards.

1.1.8. Mr Speaker Sir, as I move this
debate in this August House, I propose to revise the 2009 Budget taking
account of the above and inclusive of the

following:-

l
Alignment of tax and other economic measures to the Short Term
Emergency Recovery Programme (STERP), including any new initiatives and
revisions where appropriate.

l Downward revision of the overall
2009 Budget Framework in line with actual developments in January,
February and early March 2009.

l Reconfiguration of the
Estimates of Expenditure (Blue Book) to incorporate additional
Ministries in line with the formation of the Inclusive Government.

REALITY CHECK

2.1.1.
In the four weeks that I have been in the Ministry of Finance, there
are three key lessons that I have learnt very quickly.

2.1.2.
The first being high levels of demand on the fiscus, the second being
huge expectations, and the third being limited capacity to deliver on
the part of the fiscus.

2.1.3. The demands on the Treasury are
high and appear limitless. These range from short-term requests by
ministries for such simple items as furniture for new offices,
transport and subsistence allowances, fuel, vehicle hire and
maintenance, conferencing and air fares, to more pressing demands such
as water purification chemicals for local authorities, as well as
longer-term demands for infrastructural rehabilitation and
reconstruction.

2.1.4. Furthermore, our embassies in foreign
countries require over US$3 million per month. This obligation is
before account is taken of the over US$30 million we have incurred in
arrears as at December 2008.

2.1.5. There are also unbudgeted requests from sports associations such as ZIFA, as well as some individual sports clubs.

2.1.6.
In this context, you have perennial vehicles of fiscal drainage, for
instance, the more than US$1 million weekly requests by Air Zimbabwe
and other unbudgeted parastatal bailouts.

2.1.7. Thus, if one is
not careful, one is reduced to focusing on fire fighting issues in the
allocation of very meager resources. Very easily, one can lose focus on
the bigger developmental role of Fiscal Policy.

2.1.8. Having a reality check, having a plan and having priorities simply becomes imperative.

Modest Revenue Receipts

2.2.1.
The original Budget of 29 January 2009 was predicated on a Budget
assumption of revenues of US$1,7 billion, which averages US$140 million
a month.

2.2.2. Our revenue realisations, however, have been
modest. In February 2009, we collected US$25 million, and as of now, we
have just managed to collect US$30 million which will be hardly enough
for civil service allowances.

2.2.3. The reality, therefore, is
that the only thing that we so far have been able to do on our own has
been to just pay the modest civil service allowance of US$100 a month,
and other modest requirements for Government operations.

Skewed Nature of the Tax Structure

2.3.1.
Historically, the single biggest source of revenue in Zimbabwe has been
Pay As You Earn (PAYE) which in general terms has contributed close to
40 percent of our tax revenue.

2.3.2. The sad scenario in our
current situation is that PAYE in the two months to date has been very
insignificant, and indirect taxes, in particular Value Added Tax (VAT)
have also not fully recovered.

2.3.3. This is a reflection of
the high levels of unemployment, and the fact that many businesses had
gone informal. Furthermore, most employers are not yet able to pay
significant foreign currency salaries.

2.3.4. The Table below
contrasts historical developments against the revenue outturn in the
first two months of the 2009 Budget, that is January and February.

Tax
1996 – 2004 average (%) 2009 Jan – Feb (%) PAYE 38,65 7,47 Corporate
11,04 4,01 Other Direct Taxes 6,19 5,78 Direct Taxes 55,88 17,26 Sales
Tax/VAT 24,03 21,96 Customs Duty 13,15 38,06 Excise Duty 5,09 20,88
Other Indirect Taxes 1,84 1,85 Indirect Taxes 44,12 82,74 Total 100,00
100,00

2.3.5. Quite clearly, the above situation where direct
taxes account for only 17 percent of total revenue if not reversed
during the remainder of

2009 is undesirable. That is why it makes
sense that any economic recovery and rehabilitation programme in
Zimbabwe has to be capacity based.

Engagement of the International Community

3.1.1.
Mr Speaker Sir, given that over and above the initial proposed 2009
Budget provisions of US$1,7 billion we face other emergency financial
requirements to end of the year amounting to over US$2 billion, it is
imperative that we engage the international community for financial
support.

3.1.2. Such support is required to augment items in the
Budget related to the delivery of urgent public services in health,
education, water, sanitation, food security, infrastructure
rehabilitation, among others.

3.1.3. The international community
will also play a critical role in supporting self liquidating lines of
credit required by our industries to restore production levels.

3.1.4.
This way, Mr Speaker Sir, we will take advantage of the peace and
stability we are beginning to experience following the formation of the
Inclusive Government, that way also mitigating scope and opportunity
for social discord which no one wants.

Death of the Zimbabwe Dollar

4.1.1.
Since February this year, the Zimbabwe dollar is no longer a currency
that the public and any trader will accept. Our national currency has,
thus, become moribund. Financial assets denominated in Zimbabwe dollars
have become valueless, thereby wiping out a large portion of national
savings.

4.1.2. The immediate implications of this are devastating:

The level of economic transactions in our economy will be determined by
the amount of foreign money supply. We start out with a small stock of
inflows of South African rands and United States dollar notes in
circulation and minimal foreign currency accounts (FCAs) deposits.
Increasing our access to the required higher foreign currency supply,
critical for GDP growth, requires us to export more than we import and
to maximise whatever remittances from our fellow Zimbabweans abroad,
attract foreign loans and grants through what co-operating partners are
able to provide.

All economic enterprises, from the informal
sector, street vendor, to the largest national corporates listed on the
stock exchange, must henceforth trade and meet their tax obligations in
foreign currency.

In respect of the National Budget, we are
immediately operating on a cash basis. We are only able to spend what
we receive in tax revenues, fees for services and subventions from
development partners.

4.1.3. The net effect of the above,
including lack of Budgetary support, reduced income levels and the
death of the Zimbabwe dollar, must result in us doing the following:

a. Embarking on cash budgeting;

b. Creative ways of raising additional financial resources, including disposal of ‘family silverware’;

c. Dealing with hygiene issues and proper implementation of the letter and spirit of the Global Political Agreement (GPA).

4.1.4. Out of an abundance of caution, I will now expand on the concept of cash budgeting and creative fundraising.

Cash Budgeting: What We Gather is What We Eat

4.2.1. The natural law of cash budgeting is what we gather is what we eat

or We eat what we kill.

4.2.2.
This is the basic economic law of all hunting communities. No ministry
or public agency should expect to eat beyond what we have gathered
through collection of taxes, fees and any other legitimate sources of
revenue.

4.2.3. What we gather is what we eat unambiguously
defines the priority not just in the Ministry of Finance but throughout
all arms of Government.

If we want to continue eating, we must all
focus our minds and energies on maximising the revenues that are needed
first to get those of us in the public sector back to work and then to
implement all of the pressing issues.

4.2.4. As a matter of fundamental economic policy, all sources of public revenue must be directed and remitted to the Treasury.

4.2.5.
Government agencies providing fee-earning services will be allowed to
retain part or all of their earnings. This will be on a case-by-case
arrangement with Treasury, as provided for in Treasury regulations.

4.2.6.
Retention of part of the fee revenue collections, rather than 100
percent remissions to the Treasury, is intended to provide an
additional incentive for diligent collection of due revenues from fees
and charges.

Confidence Building Measures

4.3.1. As I
have already alluded to, without significant external financial
resources it will be difficult to support STERP and other Government
programmes critical for us to overcome cycles of economic decline, and
alleviate poverty.

4.3.2. In this regard, the key Political and
Governance reforms that are emphasised in the Global Political
Agreement and STERP, particularly the issue of a new people driven
Constitution and the process of national healing are as important as
the measures to lay the economic foundations for the resumption of
growth and social development in Zimbabwe.

4.3.3. In short, what
is required is to create confidence and sculpt a construction that
Zimbabwe is on an irreversible paradigm shift.

4.3.4. Over and
above the Sadc initiatives underpinned by South Africa, there should be
serious engagement with all cooperating partners, including the World
Bank, International Monetary Fund, as well as the African Development
Bank, with the objective of restoring the country's status as a
credible recipient of external financial assistance.

4.3.5. As
confidence is restored, private sources of external finance will also
become available to Zimbabwean companies and banks.

4.3.6.
Hence, as part of this strategy should be an aggressive programme of
bilateral engagement with all the key strategic countries.

4.3.7.
Meanwhile, before the above gestates, it is important to consider
disposal or rationalisation of one or two of the country's silverware.

4.3.8.
In addition, we should also consider issues of Public Private
Partnerships, particularly in the field of health and infrastructural
development, issues of external bonds, an Investor Conference, as well
as an aggressive Zimbabwe Road Show Marketing Programme.

KEY PILLARS OF STERP

5.1.1.
Pursuant to the above Reality Check and the overall economic challenges
we face, it became imperative that an emergency stabilisation programme
had to be crafted. Thus, in a matter of days, we set down as a Ministry
and, in consultation with our stakeholders, formulated STERP.

5.1.2.
Mr Speaker Sir, under STERP, cognisance is taken of the fact that an
agenda for economic stabilisation that does not address the issues of
democracy and governance is not sufficient.

5.1.3. Therefore, the key pillars of STERP include:

Democratisation

5.2.1.
The Global Political Agreement recognises that the foundation for a new
Zimbabwe needs to address not only economic issues, but also related
issues such as:

The rule of law;

Crafting of a new people
driven Constitution; Restoration of property rights; Restoration of
political legitimacy; Freedom and liberties; Restoration of
personal measures; Opening up of the media; as well as The
restoration and re-integration of Zimbabwe into the community of
nations.

5.2.2. Furthermore, it is trite that without a well
functioning economy, democracy and human rights are impossible and
equally, without a well functioning democracy, economic development is
impossible.

5.2.3. Mr Speaker Sir, STERP, therefore, recognises
the irreversible commitment of the Inclusive Government to the making
of the new Constitution as defined under Article 6 of the GPA. This
should be commenced as a matter of urgency. The Constitution reform
process will open up debate, and usher in a new society able to
tolerate different views without confrontation and, thus, promoting
national healing.

5.2.4. Also critical to the democratisation
matrix is the imperator of liberalisation of the air waves, freeing the
media, and ensuring that plural voices are heard through both the
electronic and print media.

5.2.5. Over and above this, the GPA
recognises the importance of creating a vibrant and free media as an
important democratic aspect. Therefore, legislation will be passed
cementing the enjoyment of the right of freedom of expression and
freedom of association. Hence, the review of such laws as the POSA,
AIPPA and the Criminal Code will be speeded up.

5.2.6. Indeed,
some of these rights have been recognised under the Constitutional
Amendment Number 19. Therefore, the democratisation agenda should
eventually ensure that there is a democratically elected Government of
Zimbabwe based on the new Constitution.

Values and Aspirations

6.1.1.
The Inclusive Government is founded on certain values that are at the
core and epicenter of STERP. The preamble to the GPA acknowledges that
‘the values of justice, fairness, openness, tolerance, equality, non
discrimination and respect of all persons without regard to race,
class, gender, ethnicity, language, religion, political opinion, place
of origin or birth are the bedrock of our democracy and good
governance’.

6.1.2. In addition, the GPA itself has a vision of
the new Zimbabwean society that is ‘free of violence, fear,
intimidation, hatred, patronage, corruption and founded on justice,
fairness, openness, transparency, dignity and equality’.

6.1.3.
STERP is loyal to the above aspirations and values, which are essential
and critical to get Zimbabwe moving again. In this regard, the issue of
corruption and combating corruption particularly in the public service
is vital to the enforcement of the above values.

6.1.4.
Combating corruption will involve strengthening the Judiciary, the
Attorney General’s Office, the Anti-Corruption Commission and more
importantly ensuring that high standards of accountability and honesty
are maintained in the public service.

6.1.5. Government and parastatals cannot be institutions of handouts and, therefore, all leakages must be plugged.

6.1.6.
In addition, where possible, new Laws will be enacted, while present
Laws such as the Prevention of Corruption Act will be strengthened.

Social Protection Programmes

7.1.1.
The provision of adequate and quality basic social services is a key
area of this Programme. The liberalisation of the foreign exchange
market as well as the removal of price controls will also have
implications on vulnerable groups in our society.

Education

7.2.1.
Mr Speaker Sir, STERP will give priority to the resuscitation of the
education sector, which had almost grounded to a halt after having seen
most schools failing to open at the start of the school’s calendar year
in January.

7.2.2. Priority will centre on improving conditions
of service for the teachers, including providing incentives to attract
those in the diaspora, the marking of 2008 public examinations, as well
as provision of learning material and equipment in schools and other
tertiary institutions.

Health Delivery

7.3.1. The
economic decline has resulted in a sharp decrease in funding for health
in real terms. This has directly contributed towards an unprecedented
deterioration of health infrastructure, loss of experienced health
professionals, drug shortages and a drastic decline in the quality of
public health services.

7.3.2. For example, highly experienced
health professionals left the health sector as evidenced by the high
vacancy levels. There are about 68 percent of vacant posts for doctors.

7.3.3.
Other challenges include serious shortage of functioning essential
medical equipment, high burden of preventable diseases such as malaria,
HIV and Aids, Tuberculosis, diarrhoeal diseases, maternal care.

7.3.4.
Mr Speaker Sir, a major focus of STERP will, therefore, be on
interventions to resolve the above challenges, consistent with the
objectives of achieving the Millennium Development Goals.

7.3.5. This will require both internal and external resources.

Specially Targeted Vulnerable Groups

7.4.1.
Mr Speaker Sir, with regards to vulnerable groups which include the
elderly, orphans and child headed families as well as the physically
challenged, the Programme provides for enhancement of publicly funded
social safety nets, with specific allocations made for vulnerable
groups and those institutions catering for such people.

Humanitarian Assistance

7.5.1.
Food relief would be required for the remaining period to harvest time.
Over and above the food relief, urgent humanitarian assistance is also
required in the area of water and sanitation.

7.5.2. Mr Speaker Sir, such support will empower local authorities under whose mandate water management has reverted back to.

Supply Side Reforms

8.1.1.
Mr Speaker Sir, I have already alluded that the economy has been under
severe stress, with annual real GDP growth suffering declines averaging
5.9 percent since 2000. Cumulatively, output declined by more than 40
percent during that period.

8.1.2. The deepening economic crisis
is reflected in sectoral performances, which followed the same trend.
Since 2006, virtually all sectors recorded declines in output, with
agriculture, manufacturing and mining estimated to have declined by 7,3
percent, 73,3 perent and 53,9 percent, respectively, in 2008.

Agriculture

8.2.1.
Under STERP, the key issues which will be addressed in order to
facilitate productivity in agriculture will also focus on the land
issues.

Mining

8.3.1. Mr Speaker Sir, in the mining
sector, measures are aimed at raising the capacity in mineral
production. Continuous exploration, as well as beneficiation and value
addition of minerals will benefit from joint venture strategic partners
who have the necessary technology and foreign currency back-up.

8.3.2.
A key component of STERP in reviving the mining sector will be to
ensure that international commodity prices are levied and received by
mining houses. In short, the pricing gap in respect of which domestic
prices lagged behind international prices is a thing of the past.

8.3.3.
Mr Speaker Sir, to enhance value, the framework for the marketing of
all minerals. In the case of Gold, the same will remain a strategic
reserve asset whose licensing and marketing will be in line with the
Gold Trade Act.

8.3.4. Taxation and royalty levels will, however, be reviewed in line with international best practices.

Manufacturing

8.4.1.
Mr Speaker Sir, the manufacturing sector will be at the epicentre of
this stabilisation programme. The sector is already beginning to
benefit from the decontrol of prices, and should further benefit from
arrangement of external lines of credit for the importation of raw
materials and retooling, thereby ensuring that the current industrial
capacity utilisation is increased from the current low levels of around
10 percent to over 60 percent in the next six to nine months.

8.4.2.
Mr Speaker Sir, total requirement for lines of credit facilities will
be in excess of US$1 billion, for the short term period to year end.

Tourism

8.5.1.
Mr Speaker Sir, regarding revival of tourism, STERP is prioritising
securing external lines of credit for working capital, rehabilitation
of infrastructure and importation of capital equipment, launching an
aggressive marketing campaign covering regional and international
markets as well as improving access to resorts by allowing more
airlines into the country.

8.5.2. The Nation’s Tourism Strategy
will also be fast tracked to take advantage of the 2010 World Cup to be
hosted by South Africa.

Construction

8.6.1. In order to
resuscitate construction activity in the country, Mr Speaker Sir,
construction companies will also benefit from access to external credit
facilities being organised by Government. This will ensure financing
for retooling and equipping of the industry.

Housing

8.7.1.
The enhancement, evaluation and improvement of the current national
housing policy will be carried out during STERP in order to take
advantage of significant portions of land acquired under the land
reform programme by local authorities for housing, as well as enhancing
the servicing of such land.

Demand Side Reforms

9.1.1. Mr
Speaker Sir, the precondition of any capacity based stabilisation
programme is the implementation and execution of a sound macro-economic
stabilisation programme. Certainty and credibility has to be
established with regards to money supply, interest rates, inflation and
a credible exchange rate management framework.

9.1.2. Also
central to the macro-economic stabilisation is the obligation to ensure
strict fiscal discipline of a carefully managed budget deficit and one
that is not funded by the printing of money.

9.1.3. Mr Speaker
Sir, the macro-economic stabilisation measures I propose below are,
thus, predicated on certain key fundamental principles which are:

Cash budgeting for fiscal discipline;

A positive real interest rate regime;

Raising savings to above 25% of GDP;

A vibrant labour market policy;

A Social Contract, based on respect of the contracting parties; A
market based exchange rate regime; Use of multiple currencies as
legal tender, and The removal of foreign exchange surrender
requirements.

Inflation

9.2.1. To get Zimbabwe moving
again, it is critical that the hyper-inflationary environment be a
thing of the past. Three issues were at the epicentre of hyperinflation
in Zimbabwe.

9.2.2. These are the absence of meaningful
production, which would mean that at any given time, demand exceeded
the supply of the few goods available.

9.2.3. Secondly, has been the budget deficit financed through printing of money.

9.2.4.
Third, has been the engagement in illegal and excessive quasi-fiscal
activities that have been done outside the provision of the
Constitution of Zimbabwe.

9.2.5. Basing this Programme on capacity expansion clearly addresses the first inflation driver.

9.2.6. Furthermore, the use of multiple currencies will also eliminate the habit of printing money.

9.2.7.
More importantly, consistent with the 2009 Budget Statement,
quasi-fiscal activities by the Reserve Bank are to be ceased forthwith.

9.2.8.
Treasury, as overseer of the Reserve Bank Act, the Audit and Exchequer
Act, will ensure that these laws are strictly complied with and more
decisively that the Constitution is complied with fully in so far as
all outlays from the Consolidated Revenue Fund have to be approved by
Parliament.

Utilities, Amenities and Infrastructure

9.3.1.
Mr Speaker Sir, STERP also prioritises the enhancement of efficiency in
delivery of public services, including water reticulation, by our
public enterprises and local authorities.

9.3.2. Reforms for the
public enterprises will focus on re-capitalisation, commercialisation,
privatisation and part, or outright, disposal as well as allowing the
charging of cost reflective tariffs.

9.3.3. Total requirements for the above are estimated at US$740 million, as indicated earlier on.

Energy

9.4.1. Getting Zimbabwe Working Again, requires that the country has adequate and reliable energy supplies at all times.

9.4.2. In power, the following are critical imperators, whose requirement is estimated at over US$1 billion:

Completion of Stage 1 of the Hwange Power Station rehabilitation; The
expansion and increase of capacity at Kariba South Bank; The
rehabilitation of the transmission and distribution infrastructure in
Zimbabwe; Securing long term import lines in respect of the country’s
power deficits.

Infrastructure

9.5.1. Mr Speaker Sir, the
Programme also prioritises provision of public resources for the
rehabilitation of infrastructure, such as railways and roads, among
others.

9.5.2. This will be complemented by private sector participation.

Local Authorities

9.6.1.
Service delivery in housing, health, road maintenance, waste
collection, street lighting, among others, will receive attention and
funding, benefiting from the charging of economic tariffs.

ORIGINAL BUDGET PROPOSALS

10.1.1.
Mr Speaker Sir, the 2009 Budget presented by the Acting Minister of
Finance to Parliament on 29 January 2009, provided for revenues of
US$1,7 billion and expenditures of US$1,9 billion.

10.1.2. The
2009 Budget was premised on a macro-economic framework targeted at
reduction of inflation to double digit levels as well as attain a
positive economic growth rate of about two percent.

10.1.3.
Nominal GDP of US$5,5 billion was projected. Informed by past trends
where revenue collections are normally about 30 percent of nominal GDP,
revenue for 2009 was therefore projected at US$1,7 billion.

10.1.4.
The estimate was premised on the implementation of proposed fundamental
macro and micro economic reforms, as well as legal and institutional
reforms targeted at stimulating positive supply response in the
manufacturing, tourism, mining and agricultural sectors, thereby
increasing economic activity.

Revenue

10.2.1. Mr Speaker
Sir, implementation of some of the revenue measures such as road
tolling fees, which were targeted to raise a substantial amount of
revenue, have however been delayed, pending approval of the Finance
Bill by Parliament.

10.2.2. Furthermore, most companies have
paid subsistence allowances to their employees, and not actual
salaries, resulting in low Pay As You Earn

(PAYE) collections.

10.2.3.
Although customs duty rates have been revised downwards, the volume of
trade has nevertheless declined, hence customs revenue inflows to the
fiscus have not performed as anticipated.

10.2.4. In spite of
improvements in the supply of goods on the local market, VAT
collections have, however, been low owing to low disposable incomes
which resulted in most consumers spending on non-vatable basic
commodities.

10.2.5. Mr Speaker Sir, cumulative revenue
collections in January and February 2009 amounted to US$36,8 million.
This clearly fell short of expenditure demands given that employment
costs alone would have amounted to about US$60 million had payment of
allowances in foreign currency been effected from January 2009.

10.2.6.
The low revenue collections have already forced us to pay public
servants and pensioners only foreign currency denominated allowances
from February and March, respectively.

PROPOSED REVISION OF THE 2009 BUDGET

11.1.1.
Mr Speaker Sir, STERP and the 2009 Budget should consolidate our key
macro-economic policy shifts, most of which are already beginning to
bear fruit.

11.1.2. Therefore, as I move the 2009 Budget debate, I propose to revise the

2009 Budget taking account of the following:-

"
Downward revision of the overall 2009 Budget Framework in line with
actual developments in January, February and early March 2009.

"
Re-configuration of the Estimates of Expenditure to incorporate
additional Ministries in line with the formation of the Inclusive
Government.

Revenues and Other Policy Measures

12.1.1. Mr
Speaker Sir, as a result of developments to date which I outlined
earlier, revenue anticipated for the 2009 fiscal year is accordingly
being reviewed downwards from US$1.7 billion to US$1 billion.

12.1.2.
Following post Budget consultations with some of our stakeholders, I am
proposing to review some of the policy measures that were announced
during the 2009 National Budget.

Multiple Currencies

12.2.1.
Mr Speaker Sir, the 2009 first quarter Monetary Policy Statement
compelled all traders to adopt a dual pricing framework where goods and
services would be quoted in both local and foreign currency.

12.2.2. This requirement was enforced through Statutory Instrument 5 of 2009.

12.2.3.
Dual pricing promotes unintended consequences whereby some traders and
shop owners attempt to avoid meeting their foreign currency tax
obligations by misrepresenting actual transactions as having been
undertaken in Zimbabwe dollars. In reality, at present, no business is
still trading in the local currency.

12.2.4. With immediate
effect, therefore, Statutory Instrument 5 of 2009 has been revoked to
enable the use of multiple currencies in order to facilitate trade and
tax collection in the economy.

12.2.5. The necessary amendments
to the Exchange Control Act allowing for use of multiple currencies as
legal tender will be effected.

Flat Rates of Duty

12.3.1.
For convenience of travellers, a flat 65% rate of duty is charged on
excess goods that are not accommodated in the travellers’ rebate of
US$300 per calendar month.

12.3.2. The flat rate of duty was set
at a time when duties were high, hence, I propose to review downwards
this rate of duty in line with reduced customs duty rates as follows:

Product Current rates of Customs Duty Proposed rates of Customs Duty

Clothing 40 – 60% + US$10 per kg 40% + US$5 per kg Foot wear 40%-60% + US$5 per pair 40% + US$5 per pair Other goods 65% 40%

12.3.3.
This measure will facilitate swift clearance of goods, thereby reducing
long waiting hours endured by travellers at ports of entry, especially
at Beitbridge border post.

Customs Duty Credit facility on Licensed Customs Clearing Agents

12.4.1.
Mr. Speaker Sir, the current Customs and Excise legislation obliges
importers to pay customs duty due upon registering a Bill of Entry.
Since the introduction of payment of duty and VAT in foreign currency,
importers face challenges to effect payments to clear their goods. This
is mainly due to delays in the banking system, whereby transfers take
as long as five days to reflect in the ZIMRA account.

12.4.2. As
a result, cargo remains uncleared for longer periods, thereby causing
congestion at ports of entry. Importers also incur demurrage charges,
which increase the landed cost of goods.

12.4.3. In order to
facilitate prompt movement of goods, I propose to introduce a customs
credit facility, valid up to seven days. This facility will be granted
to selected importers and clearing agencies.

Rummage Sales

12.5.1.
Mr. Speaker Sir, ZIMRA last conducted rummage sales for motor vehicles
and other durable goods in 2007. As a result, there is now congestion
of unclaimed vehicles and other durable goods at border posts.

Furthermore, these goods continue to deteriorate because of exposure to adverse weather conditions.

12.5.2.
ZIMRA, working together with the State Procurement Board, has been
directed to conduct rummage sales immediately. In addition to
decongesting the border posts, rummage sales will also generate
additional revenue for the fiscus.

Accelerated VAT Remittance Period

12.6.1.
VAT payment dates have been brought forward to the third day of the
following month in order to improve cash inflows to the Exchequer
Account.

12.6.2. Mr Speaker Sir, in order to reduce
administrative problems associated with reconciling sales from several
depots, I propose to shift the VAT payment date from the third to the
fifth of the following month.

Tax on Miscellaneous Income Deposits into Individual & Corporate Accounts

12.7.1.
A special tax had been proposed on deemed unproductive income deposited
into individual and corporate accounts for purposes of discouraging
exchange rate related speculative activities.

12.7.2. Given
policy and other market developments, such a tax is no longer relevant
as transactions are now in foreign currencies.

PAYE in Foreign Currency

12.8.1. Mr Speaker Sir, the 2009 Budget proposed a separate PAYE Tax Table with a tax free threshold of US$125 per month.

12.8.2.
Given market developments, I am therefore proposing to increase the tax
free threshold to US$150 per month with effect from 1 April 2009.

Presumptive Tax

12.9.1
Mr. Speaker Sir, presumptive tax was introduced in order to capture the
hard to tax informal businesses that remain outside the tax net. There
has however been minimal progress in terms of revenue generated due to
non-compliance by most informal sector businesses.

12.10.1. In
order to encourage tax compliance by informal businesses, I propose to
empower the Revenue Authority to issue a provisional attachment order,
after which failure to pay tax due would result in the auctioning of
the attached asset.

Foreign Currency Surrender Requirements

12.11.1. Mr Speaker Sir, the Monetary Policy Statement of 2 February 2009 contains the foreign currency surrender regimes.

12.11.2.
Under this regime, all licensed traders were to sell 5% of their gross
sales to the Reserve Bank at the going market exchange rate.

12.11.3.
Similarly, under this surrender framework, all exporters, including
gold producers, were required to sell upfront to the Reserve Bank 7.5%
of their gross export proceeds in their Foreign Currency Accounts
(FCAs).

12.11.4. Mr Speaker Sir, given that all businesses now
transact in foreign currency, any requirement on their part to
surrender a portion of their proceeds is tantamount to imposition of a
tax on business proceeds. Such tax of a presumptive nature on gross
proceeds erodes markup of exporters to an extent whereby some
businesses are rendered unprofitable, thereby, threatening their
viability.

12.11.5. To the extent that surrender requirements
are a tax, it means that the matter becomes a tax issue which is the
domain of Parliamentary Budget approval. In this regard, I have issued
a directive in terms of Section 62 of the Reserve Bank Act advising the
Board to take note of this.

12.11.6. I therefore announce the removal of all foreign currency surrender requirements with immediate effect.

12.11.7.
As a quid pro quo to the above, it is only fair that I review upwardly
business taxes, to our limping business community, once I am sure that
most of them have recovered.

12.11.8. I will, therefore, be announcing new tax measures in due course.

Stock Exchange

12.12.1.
Whilst it is appreciated that fungibility in share trading would be
ideal. This, however, in our case has tended to be used as a conduit
for externalisation and is, therefore, not recommended for the time
being.

12.12.2. I however wish to assure that we will consider this once bulls return to our bowels.

Revised Expenditure Proposals

13.1.1. Mr Speaker Sir, I have proposed revision of revenue projections for

2009
from US$1.7 billion to US$1 billion. Accordingly, pursuant to the
balanced Budget thrust whereby expenditures are to be linked to actual
revenues, I am proposing that the 2009 Expenditure Proposals be revised
downwards from US$1.7 billion to US$1 billion.

13.1.2. The
revised Budget will, to the extent possible, focus on the key areas
identified under STERP, which I have alluded to earlier.

13.1.3. Mr Speaker Sir, I highlight below some of the Revised Budget provisions.

Remuneration of Public Servants including Pensions

13.2.1.
Under the STERP, the payment of civil servants is recognised as the
most pressing issue and, therefore, becomes the first charge on our
revenues.

13.2.2. As I have already indicated, payments to our
public servants in foreign currency could only be made as from February
2009 on the basis of an allowance fixed at US$100 per member while
pensioners’ allowances are only being paid as from March 2009.

13.2.3.
Existing pension regulations provide for payment of pensions
proportionate to payments to serving members. Current revenues dictate
that we maintain payment of pensions in line with these regulations.

13.2.4.
The current US$100 foreign currency monthly allowance paid irrespective
of rank or grade to all civil servants is clearly undesirable.

However,
given that we now project lower foreign currency revenues in the
revised Budget, I have been unable to either increase or differentiate
the quantum of the allowance.

13.2.5. I have therefore set aside
US$299.4 million covering payment of the foreign currency allowance for
staff in the civil service, pensioners, and staff and grant aided
institutions.

Health

13.3.1. The economic decline has
contributed to the deterioration of health delivery, including the
shortage of health professionals, inadequate supply of essential drugs,
equipment and other medical supplies, inadequate provision and
maintenance of equipment, infrastructure, ambulances and service
vehicles. The provision of health facilities is critical in order to
meet increased demand for services.

13.3.2. The above have contributed to an increase in the incidence of preventable diseases.

13.3.3.
In line with STERP, the revised Budget targets redressing the
challenges in this sector. However for maximum impact from the limited
budget provision, it is proposed that to avoid spreading resources
thinly to all the health institutions, a new targeted approach be
adopted.

13.3.4. Under this approach, funding available in any
given period will be directed and concentrated towards critical
requirements for one institution, starting with Harare Central
Hospital, before moving on to the next institution.

13.3.5.
Government funding of US$118 million, which excludes employment costs,
will be augmented by the current interventions and expected
contributions into the sector by our cooperating partners as well as
revenue generated from fees and charges.

Water and Sanitation

13.4.1.
The frequent occurrence of communicable disease outbreaks, such as
cholera, is directly linked to inadequate provision of safe water and
poor sanitation facilities country wide.

13.4.2. Therefore,
responsible authorities for both rural growth points and urban centres
have to be assisted to purchase chemicals, repair sewer and water
conveyancing systems, construct and rehabilitate boreholes and provide
suitable sanitation facilities.

13.4.3. Recognising the huge
level of funding required on an emergency basis, the Revised Budget
provision of US$10.5 million for selected urban local authorities will
need to be complemented by external funding being sourced to support
STERP.

13.4.4. To augment the Budget allocation, part of the
revenue collected through rates, fees and other charges should be set
aside for re-investment in equipment and restoration of the conveyance
system.

Education

13.5.1. It remains critical that we
address the challenges affecting the education sector, in particular,
improving the conditions of service for teachers in order to ensure
that they go back to work.

13.5.2. In addition, the lack of
effective learning and teaching in our schools and institutions of
higher learning is undermining public confidence in our education
system and threatens to reverse the gains made, thus, far.

13.5.3.
The integrity of our public examinations has also recently come under
spotlight following the delays in their setting, conduct and marking.

13.5.4.
To address some of these challenges, Government has allowed schools and
institutions to charge fees which will allow for the procurement of
adequate teaching and learning materials and other requirements.

13.5.5. Mr Speaker Sir, the Ministers of Education have already announced to the Nation the new fee structures in this respect.

13.5.6.
To afford equal opportunity to education by all, especially the
vulnerable, programmes are in place for them to access resources
through the Basic Education Assistance Module (US$9.2 million) and the
National Education Training Fund (US$5 million), including Cadetship.

Specially Targeted Vulnerable Groups

13.6.1.
Under STERP, Government recognises that there will be some adverse
effects on the vulnerable and disadvantaged groups within our society
from the impact of measures that are being put in place, especially
following economic liberalisation.

13.6.2. Therefore, the 2009
Revised Budget includes provision of US$32 million in support of the
specially targeted vulnerable groups under the existing social
protection programmes such as Public Health Assistance, Children in
Difficult Circumstances, Public Assistance etc.

13.6.3. This is
also an area where our cooperating partners may want to contribute by
taking part in availing the much needed support.

Agriculture

13.7.1.
The country stands to benefit from increased agricultural output as it
will reduce on grain importation and also provide stimulus for the
local industry. In addition, it is critical that programmes focusing on
rebuilding the national herd start bearing fruit.

13.7.2. Given
that Government has deregulated the marketing and distribution of
agricultural products, this provides a window for farmers to access
resources from the market.

13.7.3. On its part, the Revised
Budget will focus on strengthening extension services under the
departments of AGRITEX, Tsetse Control, Veterinary Field and Veterinary
Technical Services.

13.7.4. Agricultural production also stands
to improve, if irrigation capacity is increased through rehabilitation
and development of irrigation schemes on underutilised existing water
bodies as well as construction of additional dams. In this regard, an
allocation of US$5.4 million has been set aside for the completion of
Bubi-Lupane and construction of Mutange dams.

13.7.5. With
regard to irrigation development, an allocation of US$18.1 million has
been set aside for targeted schemes already espoused in the 29 January
2009 Budget Statement.

Infrastructure Development

13.8.1.
Infrastructure in various sectors of the economy, especially water,
roads, railways, airports and electricity now pose serious bottlenecks
to the country’s economic recovery and growth prospects.

13.8.2.
The challenge we face in our efforts to rectify the situation arises
from our inability to mobilise sufficient financial, human and material
resources. The Revised Budget proposes to only make provision for the
restoration of priority infrastructure.

Other Operations of Government & Grant Aided Institutions

13.9.1.
As recognised under STERP, the basic economic philosophy of our Budget
is that ‘what we gather is what we eat’. Therefore, the operational
budgets of Government institutions can only be financed subject to
availability of our foreign currency revenue receipts.

13.9.2. It is, therefore, critical that Ministries reduce non productive expenditure.

13.9.3.
However, Budget provisions have to enable Ministries to undertake
monitoring and evaluation of projects and programmes under their
portfolio so as to realise value for money and ensure that resources
reach intended beneficiaries.

13.9.4. Consistent with STERP,
some Government agencies will augment their budgetary allocations
through fee earnings from their services as they will be allowed to
retain part or all of these earnings as an incentive for diligent
collection of revenue.

CONCLUSION

14.1.1. The
presentation herewith seeks to observe actual fiscal developments to
date as well as operationalise relevant elements of STERP.

14.1.2.
Mr Speaker Sir, given the downward revision in the Budget Framework I
have proposed above, it has become necessary that the Budget Estimates
(Blue Book) be amended to reflect revised provisions as well as
incorporate the proposed Votes of new Ministries.

14.1.3. Mr Speaker, I seek the support of Honourable Members in considering and approving the 2009 Budget.

14.1.4.
Government is ready to launch STERP, and I advise that all Members of
Parliament are invited to participate in the launch on Thursday, 19
March

2009 at the Harare International Conference Centre, starting at 10:30 am.

14.1.5.
Mr Speaker Sir, I have made arrangements for this Statement to be
printed in Booklet form, which all Honourable Members will receive at
the end of delivery of this Statement.

14.1.6. Mr Speaker Sir, I
accordingly lay the 2009 Budget Expenditure Estimates on the Table of
this August House, taking account of the new Ministries, as well as the
rationalised envelope of US$1 billion.

14.1.7. I thank you.

SHORT TERM EMERGENCY RECOVERY PROGRAMME
Aid money almost too tight to mention

Post published in: Agriculture

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