Saara’s second surplus Finance Minister repeats Budget balancing ‘trick’

GOVERNMENT’S finances will be in the black for the second year running in the coming financial year of 2007-08.

For the second consecutive year – the first time since Namibia’s Independence that this will happen – Namibia’s public finances will not dip into the red ink of deficit spending in the coming financial year, Finance Minister Saara Kuugongelwa-Amadhila announced when she revealed Government’s spending plans for the next year and also the two years after that in the National Assembly yesterday. The Finance Minister was able to pull the rabbit that is a budget surplus out of her financial hat for the second year in a row – not necessarily thanks to reined-in, more disciplined public spending, though.Rather, it is thanks to events on the revenue side of Government’s endeavours at a financial balancing act that did the magic for the Finance Minister and the fiscal planners in her Ministry, and ensured that she could predict an unprecedented repeat budget surplus for Namibia for the coming year.Significantly increased revenue collections and receipts from the Southern African Customs Union (Sacu) income pool that exceeded expectations are the two major factors that contributed to Government’s expected income exceeding its projected spending for the second year running, Kuugongelwa-Amadhila indicated in her Budget speech.These income windfalls are however not expected to be repeated in future years, and it is projected that Government’s finances will again return to the past pattern of budget deficits – although these deficits are projected to be kept well below previously set deficit targets – in the two years after the 2007-08 financial year, the Minister indicated.PRO POOR In a repeat emphasis of a theme from her 2006-07 budget speech a year ago, Kuugongelwa-Amadhila again described this year’s Budget as one that is meant to be “pro-poor” and is aimed at supporting and accelerating economic growth.”The commitment to reduce poverty, create jobs and facilitate equitable opportunities for all remains central to all Government activities,” Kuugongelwa-Amadhila said.”To give effect to this, education, health and social welfare are prioritised in public spending.The productive sectors equally receive significant budgetary allocations mainly for infrastructure development,” she said.”As a responsible Government, we are in for the long haul and our development agenda aims at achieving lasting outcomes.This Budget therefore reiterates priorities of the previous budget; and that is to accelerate economic growth which is pro-poor,” she remarked.She added: “Unfortunately, however, economic growth in Namibia has not generated a commensurate growth in employment.We therefore want to ensure that economic growth translates into improved employment growth.To achieve that, we continue to invest heavily into our human capital.In doing so, we must improve educational outcomes and with that, skills levels and employability.”WINDFALL The surplus that is expected due to increased Government income from international and domestic taxes “is earmarked for scaling up our development programmes to ensure that all our people share in this extraordinary revenue windfall,” Kuugongelwa-Amadhila said.Part of this windfall will also be used to reduce public debt, she said.With the Southern African Development Community Free Trade Area and Customs Union on the horizon by 2008 and 2010 respectively, the Minister cautioned, a significant drop in income from international taxes is foreseen.”This means that the period of revenue windfalls is coming to an end,” she warned.In the 2007-08 financial year, which starts on April 1, Government is projected to earn N$8,08 billion from taxes on international trade.Estimated income from this source stood at N$6,4 billion in the 2006-07 financial year, and at N$3,89 billion in 2005-06.In the next financial year of 2008-09, however, income from this source is projected to decrease to N$5,7 billion, and to N$5,8 billion in the year after that.Government expects to earn a combined N$8,68 billion from taxes on income and profits and domestic taxes on goods and services in 2007-08, according to the newly revealed budget.Income from these sources was estimated at N$7,8 billion in the 2006-07 fiscal year.In the 2008-09 financial year, this income is projected to rise to N$9,1 billion, and to further increase to N$9,4 billion in 2009-10.Total State income of N$18,3 billion in the year 2007-08 is projected to represent an increase of 13,4 per cent on the previous year’s income of N$16,2 billion.FALLING INCOME In the 2008-09 financial year, however, Government’s total income is expected to fall by 9,9 per cent compared to the previous year, to some N$16,5 billion.The year after that, income of N$16,8 billion is projected.The expected total Government income of N$18,3 billion in 2007/08 is set to outstrip total spending of N$17,8 billion, resulting in a budget surplus of N$559,4 million.In 2006/07, a revised budget surplus of N$921 million was projected.In the 2008/09 financial year, the red ink representing deficit spending is expected to start creeping back into Government’s finances, though.In that year, total projected spending of N$17,1 billion is budgeted to eclipse total expected income of N$16,5 billion, with the end result of a N$588,6 million budget deficit.In 2009-10, total spending of N$17,5 billion will again exceed total projected income of N$16,8 billion, resulting in a N$653 million budget deficit that year.At 1,07 per cent of Namibia’s gross domestic product in 2008-09 and 1,11 per cent of GDP the year after that, the projected deficit in those years will however be well below the limit of three percent of GDP that Government has set for the country’s budget deficits.Capital spending – that is, spending on infrastructure – is budgeted to be a major beneficiary of the improved state of Government’s financial position that is expected this year.Compared with capital spending of N$2,7 billion that was budgeted for in 2006/07, capital expenditure is expected to shoot up by 39,6 per cent to a total of N$3,8 billion this year.It is however again budgeted to drop to N$2,2 billion in each of the two years after this.The projected surplus will also have a significant effect on the level of Namibia’s national debt.The State’s debt load is expected to stand at N$13,79 billion – representing 31,3 per cent of GDP – by the end of this month.By the end of the 2007-08 financial year, the debt is projected to have been cut to N$12,5 billion, representing 24,7 per cent of GDP.The debt is expected to again rise to N$13 billion (23,6 per cent of GDP) by the end of the 2008-09 financial year, and to N$14,06 billion (23,8 per cent of GDP) by the end of the 2009-10 fiscal year.Government has previously set a debt ceiling target of 25 per cent of GDP.The Finance Minister was able to pull the rabbit that is a budget surplus out of her financial hat for the second year in a row – not necessarily thanks to reined-in, more disciplined public spending, though.Rather, it is thanks to events on the revenue side of Government’s endeavours at a financial balancing act that did the magic for the Finance Minister and the fiscal planners in her Ministry, and ensured that she could predict an unprecedented repeat budget surplus for Namibia for the coming year.Significantly increased revenue collections and receipts from the Southern African Customs Union (Sacu) income pool that exceeded expectations are the two major factors that contributed to Government’s expected income exceeding its projected spending for the second year running, Kuugongelwa-Amadhila indicated in her Budget speech. These income windfalls are however not expected to be repeated in future years, and it is projected that Government’s finances will again return to the past pattern of budget deficits – although these deficits are projected to be kept well below previously set deficit targets – in the two years after the 2007-08 financial year, the Minister indicated.PRO POOR In a repeat emphasis of a theme from her 2006-07 budget speech a year ago, Kuugongelwa-Amadhila again described this year’s Budget as one that is meant to be “pro-poor” and is aimed at supporting and accelerating economic growth.”The commitment to reduce poverty, create jobs and facilitate equitable opportunities for all remains central to all Government activities,” Kuugongelwa-Amadhila said.”To give effect to this, education, health and social welfare are prioritised in public spending.The productive sectors equally receive significant budgetary allocations mainly for infrastructure development,” she said.”As a responsible Government, we are in for the long haul and our development agenda aims at achieving lasting outcomes.This Budget therefore reiterates priorities of the previous budget; and that is to accelerate economic growth which is pro-poor,” she remarked.She added: “Unfortunately, however, economic growth in Namibia has not generated a commensurate growth in employment.We therefore want to ensure that economic growth translates into improved employment growth.To achieve that, we continue to invest heavily into our human capital.In doing so, we must improve educational outcomes and with that, skills levels and employability.”WINDFALL The surplus that is expected due to increased Government income from international and domestic taxes “is earmarked for scaling up our development programmes to ensure that all our people share in this extraordinary revenue windfall,” Kuugongelwa-Amadhila said.Part of this windfall will also be used to reduce public debt, she said.With the Southern African Development Community Free Trade Area and Customs Union on the horizon by 2008 and 2010 respectively, the Minister cautioned, a significant drop in income from international taxes is foreseen.”This means that the period of revenue windfalls is coming to an end,” she warned.In the 2007-08 financial year, which starts on April 1, Government is projected to earn N$8,08 billion from taxes on international trade.Estimated income from this source stood at N$6,4 billion in the 2006-07 financial year, and at N$3,89 billion in 2005-06.In the next financial year of 2008-09, however, income from this source is projected to decrease to N$5,7 billion, and to N$5,8 billion in the year after that.Government expects to earn a combined N$8,68 billion from taxes on income and profits and domestic taxes on goods and services in 2007-08, according to the newly revealed budget.Income from these sources was estimated at N$7,8 billion in the 2006-07 fiscal year.In the 2008-09 financial year, this income is projected to rise to N$9,1 billion, and to further increase to N$9,4 billion in 2009-10.Total State income of N$18,3 billion in the year 2007-08 is projected to represent an increase of 13,4 per cent on the previous year’s income of N$16,2 billion.FALLING INCOME In the 2008-09 financial year, however, Government’s total income is expected to fall by 9,9 per cent compared to the previous year, to some N$16,5 billion.The year after that, income of N$16,8 billion is projected.The expected total Government income of N$18,3 billion in 2007/08 is set to outstrip total spending of N$17,8 billion, resulting in a budget surplus of N$559,4 million.In 2006/07, a revised budget surplus of N$921 million was projected.In the 2008/09 financial year, the red ink representing deficit spending is expected to start creeping back into Government’s finances, though.In that year, total projected spending of N$17,1 billion is budgeted to eclipse total expected income of N$16,5 billion, with the end result of a N$588,6 million budget deficit.In 2009-10, total spending of N$17,5 billion will again exceed total projected income of N$16,8 billion, resulting in a N$653 million budget deficit that year.At 1,07 per cent of Namibia’s gross domestic product in 2008-09 and 1,11 per cent of GDP the year after that, the projected deficit in those years will however be well below the limit of three percent of GDP that Government has set for the country’s budget deficits.Capital spending – that is, spending on infrastructure – is budgeted to be a major beneficiary of the improved state of Government’s financial position that is expected this year.Compared with capital spending of N$2,7 billion that was budgeted for in 2006/07, capital expenditure is expected to shoot up by 39,6 per cent to a total of N$3,8 billion this year.It is however again budgeted to drop to N$2,2 billion in each of the two years after this.The projected surplus will also have a significant effect on the level of Namibia’s national debt.The State’s debt load is expected to stand at N$13,79 billion – representing 31,3 per cent of GDP – by the end of this month.By the end of the 2007-08 financial year, the debt is projected to have been cut to N$12,5 billion, representing 24,7 per cent of GDP.The debt is expected to again rise to N$13 billion (23,6 per cent of GDP) by the end of the 2008-09 financial year, and to N$14,06 billion (23,8 per cent of GDP) by the end of the 2009-10 fiscal year.Government has previously set a debt ceiling target of 25 per cent of GDP.