Good Benefits, But What’s The Cost?
By: JACKSON MWALUNDANGE
THE 2013/14 national budget brought us a lot of relief: N$50 extra for pensioners, salary increases for the civil servants, tax cuts for low-income earners and non-mining companies. The finance minister tried not to divulge details such as the bailout for Air Namibia. The media and commentators focused on and hailed the benefits. But little has been said about the cost of such benefits.
Any budget is well balanced when the expenditure is equal to the income. It is better when the income is higher than the expenditure, then you have a surplus, and worse when the expenditure is greater than the income. In the national budget recently presented, it is the worse case.
For the government to execute all the cited benefits it has to find an extra N$7.5 billion (N$7 500 000 000) from somewhere. To deliver on the promises, the government must borrow. How it will pay back, not even the finance minister or cabinet or parliament would explain. But for a while, the problem is solved.
The N$7.5 billion deficit, according to Minister Saara Kuugongelwa-Amadhila, will bring our total national debt to N$32 billion – about 67% of the total income when the N$7.5 billion is included. That means if all our creditors demand their money at same time the government would be left with N$15 billion for the whole year and would stop functioning! Fortunately, the government was careful. They made sure some of the money is borrowed on long-term basis – not payable till 10 or 20 years later, but pays interest per month or per year.
By the time the debt is to be paid, surely, the current cabinet members would be in retirement, in or outside Namibia. The new cabinet would have to deal with the problem of the old debt, maybe amounting to hundreds of billions, and blaming Pohamba and Geingob for the situation. (Pohamba inherited a national debt of N$11.99b and Geingob will inherit the N$32b)
Government may be forced to borrow more to pay the debt with debt – something economists would never advise. This would be like borrowing from a bank to pay your debt at a retail shop, then your insurance company to pay the bank, and a cash loan to pay the company. This spiral has the potential to cause economic chaos and political crisis, and spark a revolution.
Many countries including Zambia, Zimbabwe and Mozambique did this with the World Bank (WB) and the International Monetary Fund (IMF) as the last lenders. Today these countries are governed under the system called Structural Adjustment Programmes (SAP) or similar repayment dictated by the international finance institutions and have lost their independence. In Namibia, we were more careful to borrow from close friends such as the Chinese. But they may want repayment in costly hidden forms, like land or visas.
The government and society at large, as usual, focused on the distribution side of the budget equation, leaving the production side. In other words, government and the dwindling producers must deliver, deliver, deliver or give, give, give. Namibians expect to receive, receive, and receive. No wonder the proposed budget was hailed by so many as wonderful.
In order to deliver, the government has tried to squeeze the producers, especially the mining companies, to the bone, while already getting the lion’s share. According to the Chamber of Mines News (Sept 2012, p.23), from seven major mines in 2010, shareholders got N$214m (12%) while government benefited N$2,312m (88%) through dividends, loyalties, and taxes. The government wanted more but, as the Chamber of Mines News says, “any new taxes … will kill the incentive to invest in exploration and mine development”.
To increase the income side of our budget we must produce more and widen our tax base. That means we must increase our productivity and the number of producers. Productivity is not yet a common word on Namibian lips! On the other hand, the government, through its local authorities, has a history of chasing away micro producers (kapana, etc) at Windhoek, Rundu, Ongwediva, and Oshakati.
In the mining sector, government has declared almost all major minerals in Namibia as strategic; and all strategic minerals are owned by Epangelo (in other words the government!). Epangelo, being a mining company, is a competitor with the private mining entities, making the government an operator and regulator. That dual duty has the potential to stifle our mining sector and, thus, shrink the income side of our budget equation even further.
With what money will the debt be paid to create a surplus budget?
* Jackson Mwalundange is the head of the Economic Justice Programme at the Forum For The Future and has been engaging grassroots citizens in over 40 towns and villages across Namibia in the analysis of national budget since 2003.