HomeOpinion & AnalysisColumnistsImplications for 2011 Budget

Implications for 2011 Budget

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On November 25, 2010 Finance Minister Tendai Biti presented a $2,7 billion National Budget under the theme “Shared Economy, Shared Development, Shared Transformation: Creating a Fair Economy”.

Naturally, there were mixed reactions to the 253-page presentation. While some sections of society hailed the Minister’s effort, others dismissed it as a non-event.

The increase in the tax-free threshold for employment income from the current $175 to $225 with effect from January 1, 2011 and the review of the bonus tax-exempt portion to $500 from $400 with effect from November 1, 2010 will only have a marginal positive effect on disposable incomes.

The tax regime remains punitive at 35 percent for the highest income earner. Worse still, the recent wave of price increases across the economy will whittle away any anticipated benefits.

Biti set aside $1,4 billion to meet overall employment costs for the civil service next year – a 100 percent increase on the 2010 allocation. Out of this figure, $1.1 billion will be for salaries with the balance comprising pension, medical aid and social security contributions.

Most civil servants are expected to earn around $300 before tax. The Minister’s offer falls far short of the $500 Poverty Datum Line (PDL)-linked minimum wage demanded by civil servant leaders.

Reports from the independent press and the state media show that civil servants are already mulling industrial action come January 2011.

Private sector collective bargaining is likely to be tense during the first quarter of 2011, with most disagreements likely to be resolved through compulsory arbitration.

As before, workers’ unions in the private sector will use civil service salaries as a launching pad for their own wage demands. Unfortunately, industry will not be able to pay.

The recently released CZI Manufacturing Sector Survey for 2010 shows industry capacity utilisation is still below 50 percent.

The EMCOZ survey of collective bargaining agreements carried out in mid-November put the average wage across the 49 NECs in the country at $183. The PDL-based minimum wage will thus remain a mirage in the short to medium-term.

In line with the 1999 Cabinet decision, the Minister proposed to convert the civil service pension scheme from a defined benefit (DB) to a defined contribution (DC) plan.

This is in sync with the practice the world over where most pension funds have shifted to DC schemes.

A DB scheme is popular with workers – it offers a guaranteed pension and pools risks for all workers.

Little wonder why his proposal quickly courted the ire of the combative Secretary-General of the ZCTU, Wellington Chibhebhe who described it as “scandalous” and “mischievous”.

However, for the employer, the amount of money that will be required to fund a DB pension plan is unpredictable.

Moreso, when investments perform poorly, the employer is required to invest additional funds to ensure the pension will meet its funding requirements.

On the other hand, a DC scheme offers the employer a predictable cost. The risks and rewards associated with variable investment performance are directly borne by the individual employee.

All things being equal, the young, mobile workers of today have less preference for DB pension plans whose formulas favour long-serving employees. Also, unlike DB plans, DC schemes are portable.

If an employee changes employers, the vested employer contributions are transferrable to another pension fund.

We hope there is seriousness in seeing it through this time round. With the proposed harmonisation of labour laws now at an advanced stage, isn’t this the right time to push this project through?

Biti has been vociferous about the inflexibility of our labour laws which he blames for scaring way investors and dampening the global competitiveness of Zimbabwe’s products.

In simple terms, it is an onerous task to terminate anyone’s employment in this country, whether for operational reasons or for misconduct.

This presents serious entry and exit barriers to a potential investor intending to set up shop in Zimbabwe.

He lamented the dysfunctional state of the arbitration system in Zimbabwe. The need to review the role of arbitrators was “unavoidable” and their conduct should be “nipped in the bud”, opined the Minister.

Understandably, there are very few rules guiding the conduct of arbitrators in Zimbabwe, giving them too many discretionary powers.

The fortunes Shabanie Mine have been on a downward spiral of late, driving thousands of workers and their families into prostitution, illegal gold panning and other vices to make ends meet.

Why is this of national interest? The upstream and downstream shocks are already being felt across the economy, more severely in the construction industry.

More intriguing is the question why the lives of workers at Shabanie should continue to be sacrificed on the altar of political expediency.

Surely, reason should prevail over personal, inflated egos. Understandably, Biti called for the rescue of Shabanie Mine from the abyss.

It makes business sense. Morally, it is an obligation. On another positive note, it was refreshing to hear the Minister expressing hope that Bindura Nickel Corporation will re-open next year.

With storm clouds fast gathering over the political arena, which of the Minister’s proposals will see the light of the day? Let’s wait and see.

Isaac Mazanhi is a labour analyst. He writes in his own capacity. He can be contacted on e-mail: imazanhi@gmail.com or cell: 0773 063 653

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