Economists welcome budget but warn of spiralling debt

ALTHOUGH economists have welcomed the expansionary nature of this year’s National Budget, they are concerned about the future financing of the increased deficit.

The deficit has grown to 5,2 per cent of GDP this year and Finance Minister Saara Kuugongelwa-Amadhila projects it to be 5,8 per cent per cent next year. According to various observers, the deficit is likely to be closer to seven per cent of GDP.
This comes after revenue from both the South African Customs Union (Sacu) and Namdeb, two of Government’s biggest money-spinners, has dropped this year.
Especially the 7,1 per cent deficit projected for next year was a key sticking point for speakers at the annual PriceWaterhouseCoopers (PWC) budget analysis dinner, with the theme ‘Weathering the Storm’.
Standard Bank Africa’s Philip Clayton, Senior Manager for Country Risk, saw the N$2 billion drop in revenue from Sacu as an especially turbulent current.
He warned against a possible ‘hangover’ in coming years from this year’s heady spending and called the Ministry’s expected revenues ‘possibly optimistic’.
Spending this year has increased by 13 per cent while revenue is up only 5 per cent.
But Clayton also said that compared to other countries’ budgets in the current economic climate, Namibia’s is quite ‘conservative and anti-cyclical’ and should be able to calm the economic waters.
Clayton was critical of Namibia’s spending on salaries, which make up about 44 per cent of the budget.
He also said that Namibia’s rate of increasing public service at the rate of population growth ‘could be improved’.
Clayton expressed surprise at the lack of increases for pensioners, although he did acknowledge the 20 per cent increase in pensions last year.
But he commended Namibia for keeping its foreign debt relatively low, to only one fifth of borrowing.
Internal borrowing would at least ensure that Namibians would benefit from Government’s increased debt to weather the economic storm.
Albé Botha of PWC welcomed the increase in the lowest amount to be taxed, but he called on Government to reduce this even further in line with for example South Africa, where income up to R80 000 is not taxed.
He also demonstrated that Namibia lags hugely behind its Southern African counterparts in terms of official tax rates.
For example, a Namibian earning N$525 000 a year pays N$16 500 more tax than a South African earning the same amount, and a staggering N$95 000 more than somebody in Botswana.
On the increased transfer tax on property for corporations, trusts and foundations from 8 per cent to 12 per cent, Botha said it might have a very significant negative impact on businesses.
Botha welcomed the VAT exemption on milk, sugar and medical services but questioned whether Government had the administrative capacity to implement these zero ratings.
If this did not happen and businesses therefore left prices unchanged because they could not claim back their VAT, there would be no real saving for the consumer, Botha said.
Botha also approved of the tax exemptions on severance packages (up to N$300 000) and pension lump-sum payouts (up to N$50 000) and the decrease in corporate tax from 35 per cent to 34 per cent.