Turning dream of a $10bn budget into reality

IT is now 24 days to D-Day - the day of democracy, when we all go to a polling station and at the cost of about $50 each (the cost of an election in Zimbabwe) we are asked to appoint our next batch of 2 500 leaders.

We start with the President, then our local representative in the National Assembly, then our councillor on the local authority.

This is serious business, we have to evaluate each candidate and make a choice.

They are all important to us individually and collectively - the President because he is the captain of the ship and gives us direction and control over the crew.

The Members of Parliament because they oversee the captain and his executive officers, the local authority because they control the basic services that make our daily lives bearable - transport, roads, health, education, water, sanitation, waste collection, housing - this list goes on and on. They are all important and deserve close attention.

Our vote matters - everyone and each one of us has the same say - millionaires and paupers, male and female, black white, pink and brown. It will be a public holiday and I think we should all go out and party - it's "our day" in the sun - make it count!! In my next four letters I am going to dream about the day after the election and what might be possible.

It is a long time since we were able to dream of what things could be -during the dying days of the Smith regime, I thought they would never get together and settle our differences, I thought that they would fight on and destroy the country completely - in fact I knew that Mr Mugabe and Mr Smith wanted to fight to the finish - both thought they could win - I knew it was a zero sum game for all of us. We were rescued from our own stupidity by the international community working together and a brilliant American Secretary of State who knew what had to be done and had the power to do the job.

In November last year, the army stepped into the ring and in a brilliant and swift action, and without firing a shot, forced a 93-year-old who was long past his sell-by date to go into retirement with dignity and replaced him with a leadership that is now trying to put things right.

It a way it parallels what the Red Army did in China when Mao died - they stepped into the ring, maintained stability and installed a leadership that they thought might usher in a new day for China - they were right and look at the result.

Now to dream. In my last letter I summarised the long list of all that has to be done to get Zimbabwe working. It's easy to pontificate on such issues - where are the solutions? The top of my "to do" list was the fiscal deficit. In 2017 it stood at $2,5 billion in a $6billion budget or 40 percent of all State expenditure.

The result is an accumulation of debt behind the walls of the Reserve Bank which now threatens to burst and flood the country with inflation.

Already we are paying 25 percent more for local goods and 100 percent more for imports than we were paying a short while ago. The one thing I recognise is that we cannot raise taxes - Zimbabweans in the formal economy are already among the most taxed community in the world.

Do you know that the American revolt against Britain was over a 5 percent tax on tea, that should make Zimbabweans laugh.

If that is the case, then where do we get the money from? The Speaker of the National Assembly, Jacob Mudenda, said to us in the Finance Committee that we need to dream about a $10 billion budget.

With revenues stuck at $4 billion or less for the past five years - how? On Friday (last week) I drove a colleague to the airport to catch the plane to Johannesburg. It was horrendous - the roads were jammed -it took me over an hour to get home.

There is no doubt in my mind that Zimbabwe has a much bigger economy than the official statistics reflect. The IMF say that we are the second most informalised economy in the world with 62 percent of all activity outside the formal sector.

If that is correct - and my own view is that it might be a conservative figure, then our GDP is $50 billion and not $19 billion. I do not think we can raise, on a sustainable basis, more than 25 percent of the GDP as taxes - right now our taxes combined represent about 35 percent of all formal sector activity. Anyone who thinks that figure is too high must just do the maths - add up all the taxes, NSSA, Aids Levy, etc. etc. It is horrendous and it still does not meet our essential needs as a country.

So what do we do? We change the tax system to widen the net and reduce the rates. My own solution is to tax the electronic transfer system.

In 2017 $100 billion went through all the different forms of electronic payment - cards, EcoCash, RTGS and ATMs. If we imposed a 5 percent tax on every form of electronic transfers, it would raise $5 billion.

It would be easy to collect - on a daily basis every financial institution would collect the tax and remit it to Zimra electronically - no accounts, no paperwork, no penalties (unless an institution tried to buck the system (in which case they would lose their licence to operate and be closed down - immediately).

Concurrently I would reduce formal sector taxes -keep VAT at 15 percent, reduce PAYE by raising the tax-free income to $1 000 a month and moderating taxes above that level - maybe a flat tax of 15 percent.

Then I would reduce corporate taxes on profits to (say) 15 percent as well and eliminate all other levies on salaries - put the Standards Association on a budget funded by the State and clients, NSSA and the NEC charges to be consolidated into a single charge for an industry-related pension scheme, force all existing pension schemes into the same system as a source of additional funds for pensions.

To foster the recovery that is underway in our local industry which is now heavily protected by duties and foreign exchange controls and import licensing, I would slap a 25 percent tax on all imports of finished goods and a 5 percent duty on all raw materials - classified by the end user process. With imports running at $6 billion a year - this simple tax system would yield another billion dollars a year.

In place of the massive duties and levies on fuel I would impose a single tax of 30 cents a litre and make duty free fuel available at ports of entry for transit traffic and at airports for all aircraft landings.

This would yield another $450 million. I would abolish all funds controlled by Ministries of Government and (as required by the Constitution) consolidate all revenues from all Government activity into the Consolidated Revenue Fund - both for control and budgetary purposes. That would yield another $800 million a year. Add all of that up and it comes up at the Mudenda figure of $10 billion a year.

No fiscal deficit - we could double the education budget, double the health budget, start repaying our domestic debt, restore liquidity to all our financial institutions and put our Reserve Bank onto a sound footing.

Is that a dream or what! Zimbabwe would again be creditworthy in international circles - we would be paying our way as a country for the first time. Would any of us notice a 5 cent deduction in every dollar by the Ministry of Finance in every transaction we made? We would certainly feel the benefit of the reduction in formal taxes.

This article was first published on Eddie Cross' blog www.eddiecross.africanherd.com on July 1 2018.