Why Biti may ignore us

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I don’t envy Finance minister, Tendai Biti, at all. I will tell you why.
Let’s visualise him waking up early in the morning and dressing up, hours before he presents his budget review statement today.
He has many shoes on his rack: a pair from his party, MDC-T, another couriered by the International Monetary Fund (IMF) and the World Bank from New York and many others from business, civil society and line ministries.
Now, which pair is he supposed to put on?
Rationally, Biti – being the type he is — won’t be pressured into gulping down blood pressure tablets.
Instead he will do what every politician in his position would do — ignore this pile of shoes, most of which are not in good taste anyway, and buy his own, remembering to smile at every potential donor and telling them how nice the shoes are and how he likes them all very much.
Just observe which shoes the minister will be wearing today, whether it’s from a local downtown shop or a designer label from New York.
The business sector wants further tax concessions and import duty on fast-moving consumer goods suspended in May 2008 reinstated to cushion them from external competition, particularly from regional suppliers currently selling to the local market at dumping prices.
This may not be a big problem since the country has managed to reduce its dependence on customs duties for revenue by half since adopting “dollarisation” last year.
But any more tax concessions, particularly a further cut in the corporate tax rate below 25%, would be tricky.
The IMF and World Bank on the other hand want Biti to cut Zimbabwe’s monthly public wage bill back to its January level of $40 million by reducing the size of the civil service — weeding out ghost works and freezing new hiring— and by rationalising wage levels in line with government earnings.
Civil servants would even storm Parliament in the midst of the statement if he dared suggest anything like that.
Wages are simply sticky downwards and Biti is pretty aware of the political consequences.
But while wages will not come down, they will certainly not go up as civil servants expect.
The Treasury doesn’t have the money – and Biti doesn’t know how to explain to them that this is not equal to a wage freeze.
He may want to do a balancing act by increasing the tax-free threshold on individual income slightly upwards above the current $160 to release a few dollars for the low-earners.
Wary of fiddling with the second best contributor to fiscal revenue, he will fight to leave the highest marginal tax rate flat at 35%.
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One of his most challenging tasks is finding money to recapitalise the Reserve Bank of Zimbabwe (RBZ) to build its capacity to perform its core duties, fund retrenchments and retire its growing delinquent debts estimated at over $1 billion.
His only hope is that revenue, which performed above expectation in the first quarter of the year, could surpass the annual target of $1,4 billion and counteract the fiscal shock brought about by donors’ failure to honour their pledges totalling $810 million, paying only 4% of that in the first quarter of the year,
Although this has upset his budget estimates, Biti believes the receipts from direct taxes will be enough to avert a fiscal overrun and cover his expenditure bill of $2,2 billion for the year.
In fact, his statement today will show that Zimra slaughtered more beasts than what the Treasury wanted it to hunt and kill for everyone to eat without skipping a meal.
But just balancing scales isn’t good enough as expenditure pressures have also increased, including external debt servicing costs.
The IMF and World Bank want Tendai to clear outstanding arrears with the multilateral institutions in the order of about $6 billion for the country to qualify for debt relief under the Highly Indebted Poor Countries (HIPC) initiative.
Biti has promised the Bretton Woods institutions that the country was considering resource pledging — a mechanism by which a government acquires or pays for funds on the basis of mineral endowments —to pay for Zimbabwe’s debts.
The Chamber of Mines of Zimbabwe doesn’t want to hear any of this. “Minerals resources under title are an asset of private developers,” Victor Gapare, the Chamber’s president said in an interview. “In such cases we do not see how such privately-held properties can be pledged by the state. It is only those resources owned by the state that government can pledge. These are mineral resources 100%-owned by companies and other state organisations.
To our knowledge these resources are very small.”
After a protracted fight with the government over indigenisation regulations, the association, representing the interests of 114 mining companies, is now pressing for a reduction in royalties and mining title management fees.
But Biti has vowed to increase mining taxes substantially, noting that the industry’s contribution to the fiscus has been minimal over the last few years.
He certainly won’t shift from where he stands because he wants the sector to lay the golden egg.