WE knew it was coming. With the Zimbabwe dollar continuing with its downward spiral, the government was forced to introduce a supplementary budget of $929 billion.
That means, in total, the government will have spent $1, 9 trillion by year end which would be a budget of US$4,25 billion at the official exchange rate, which was its average spend before the reintroduction of the Zimbabwe dollar.
While the government increased its expenditure, it only raised the income tax free threshold to $50 000, yet, based on figures released yesterday the annual inflation rate grew to 256,9% this month, from 191,6% in June. This is the highest it has risen since February last year when it reached 321,59%.
The monthly cost of living is $140 874 for a family of six at $24,479 per person. Critics say even the cost of living estimation is laughable because of the rate of price spikes.
And yet Finance minister Mthuli Ncube failed to raise the income tax free threshold to a level that is in line with the cost of living.
The government also made it clear that it is now after foreign currency as it either raised or widened foreign currency tax heads around value-added tax (VAT).
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The taxes include codifying the payment of foreign currency VAT and essentially backdating these payments to February 1, 2019 and a lot of companies will find themselves facing hefty tax bills.
Treasury also widened the Intermediated Money Transfer Tax (IMTT) on foreign currency transactions from US$10 000 to US$20 000 and revised selected mining royalties upwards.
Treasury also expanded the foreign currency VAT for businesses by lowering it from US$60 000 to US$40 000 to widen the government tax base.
Never mind the fact that there is a 4% IMTT on forex transfers or that the central bank retaining 20% on all domestic foreign currency sales.
This ravenous beast called government has become parasitic, intent on sucking the life out of the economy.
We also noted how VAT registered operators will now be subject to pay duties on imported goods in foreign currency, despite the government previously allowing for payment in local currency. The government is leading the rejection of its own currency, and yet tries to maintain a façade that the Zimdollar is still relevant when dealing with public workers.
The government also raised presumptive tax to 30% for cross-border traders without a tax clearance certificate, a rise from 10%. No doubt, the government is seeking to get some of the estimated US$1,5 million generated annually by the sector pre-COVID-19 as borders continue to open up.
So, in short, this budget gave no reprieve to civil servants and private sector workers who are seeing their earnings increasingly being eroded while companies face large tax bills in foreign currency despite forcing them to undersell goods and services in the local currency.
Platinum mines, who were crying for some relief in the form of lower royalties, saw their obligations being doubled to 5%.
It seems from this Mid-term Review and Supplementary Budget that Ncube doesn’t understand that shrinking disposable income means reduced economic activity.
Why? Because, there is no incentive to produce more if demand is shrinking.
Inflation is being driven by the local currency depreciation, which is being caused by money printing with no commensurate growth in the economy.
The budget review also showed the increasing reliance by government on Treasury Bills and Bonds, in particular, as a source of domestic financing.
As long as it continues that practice, inflation will persist and the local currency will continue to depreciate leaving consumers in a far worse position.