Wednesday, August 17, 2005

Taxes, inflation up

Zimbabwe's year on year inflation climbed to 254.8 % in July according to Zimonline. Contrary to assertions by Gideon Gono the central bank govenor that he expected it down around 80% by year's end, inflation has continued on an upward spiral up from 127% in March. Zimbabwe's inflation plateaued at 622% last year. This has prompted the country's beleagured finance minister Herbert Murerwa to tighten the screws on Zimbabwe's economy in a desperate bid stave off total collapse of the economy.

Inflation has come unfettered after months of crippling shortages of fuel, electricity and food. The shortages were compounded by the government's cleanup operation which saw the destruction of the informal trade in Zimbabwe's urban centers.

Off course the chief culprit responsible for inflation is unbridled money supply growth which simply means the government is printing paper with no value and putting it out there as legal tender or money. Why would the government do such a thing? It's called deficit financing. When government's overspend and their creditworth is nil (meaning they can't borrow), they print paper money to pay for their extravagant spending. This is exactly what the Zimbabwean government has been doing hence the inflation.

In a supplementary budget and mid termpolicy review statement issued yesterday, Murerwa announced a string of new measures to compliment Gono's monetary side efforts at stemming money supply growth and speculative activity. While there are no new increases to Pay As You Earn (P.A.Y.E) the government's income tax program, the minister rejected appeals by the public for a real upwards revision of the tax free bracket only granting a token adjustment of ZW$500,000 to set it at ZW$1.5 million up from ZW$1 million. P.A.Y.E funds 45% of the government's revenue inflows which is why he left it untouched.

The bevy of new taxes and fees Zimbabwe's longsuffering public must now cope with include;

  • a 2.5% increase in VAT (Value Added Tax) to 17.5%
  • a new carrying-capacity based taxes on commuter transporters and taxis
  • a presemputive tax of 5% of the gross value of minerals and precious materials on all mining operations
  • a new toll fee (unexplained but Zimbabwe currently has no toll gates)
  • a witholding tax of 10% on marketable securities
  • a ZW$1,500 increase in the stamp duty for check processing

All this boils down to this one thing: life in Zimbabwe is going to be much more expensive than it has been in the past and the public is bearing the brunt of the burden. Naturally, these new measures came with no apology from government for failed policies. This lame article in the Herald casually quips that the new taxes are necessitated, "by the current drought and its attendant challenges." What do they think we are stupid or something? Don't they realize that we've been here through the umpteen policy pronouncements they've made over the last few years?

Token promises of reduced government spending predicated upon postponing all new projects indefinitely. Murerwa announced that ministerial budgetory allocation had been reduced by the tune of 3 trillion Zim dollars, but we all know they overspend by twice that amount come year's end. How about doing something definitive like say reducing the size of cabinet. Zimbabwe's unproportionally large cabinet is bloated and this was brought up months ago;

"The new cabinet – dubbed the ‘Development Cabinet’ – has 31 ministries; eight more than the last cabinet, despite protestations from critics who felt Zimbabwe could not sustain such a large number of portfolios. On top of this figure are the ten governors and resident ministers and 19 deputy ministers.

Budgetary concerns have been behind the criticism of a burgeoning cabinet."
Murerwa also reviewed his GDP growth expectations from around 3.5% to under 2%.

All is not well in Zimbabwe.

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