Namibia: 2010 budget a juggling act

05 February 2010, The Namibian
URL: http://www.namibian.com.na/news/full-story/archive/2010/february/article/2010-budget-a-juggling-act/

Windhoek:  The Ministry of Finance is in the final stages of the 2010-11 Budget preparation, trying to juggle a bulging deficit after Government's expected income from the revenue pool of the Southern African Customs Union (Sacu) for the current financial year dropped by more than N$3 billion due to the global recession.

Finance Ministry Permanent Secretary Calle Schlettwein told The Namibian yesterday that the fiscus has only received N$5,17 billion from Sacu, nearly 40 per cent less than the N$8,6 billion Finance Minister Saara Kuugongelwa-Amadhila bargained for in her 2009-10 budget speech last March.  Schlettwein furthermore confirmed that the Ministry "is almost ready to approach Cabinet" with the finished budget for the new financial year. Although it is up to Cabinet to decide when the 2010-11 Budget will be tabled, the Ministry is aiming for early March, he said.

Asked what the impact of the much bigger than anticipated drop in Sacu income will be on the deficit, Schlettwein said it was too early to speculate. The size of the deficit will depend on how much money Government wants to spend. The Ministry is currently brainstorming the expenditure budget, Schlettwein said.  He admitted that Sacu income decreased "significantly".

By last August, Government was still bracing itself for a drop of N$1,3 billion. Instead, revenue from the customs union plummeted by nearly three times as much as the worldwide financial meltdown eroded regional trade.  The impact was so severe that it pushed Sacu into the red - the first time in its 99 years that it recorded a deficit.  In the Minister's original estimation, Sacu income would have accounted for about 40 per cent of Government's expected total income of N$21,8 billion in 2009-10. Now it will barely make up 28 per cent of total income, which will drop to N$18,37 billion, just as a result of Namibia's smaller customs pool share.

The Sacu shortfall alone will also drive up Namibia's estimated deficit for the year, as indicated in the Ministry's Estimates of Revenue and Expenditure, from N$3,6 billion to N$7,1 billion. This translates into about ten per cent of gross domestic product (GDP), nearly double the original percentage.  Based on these figures, the bigger deficit will chase up Namibia's total estimated debt from N$15,13 billion to about N$18,56 billion, or 26,6 per cent of GDP.

Last September, while Kuugongelwa-Amadhila was still under the impression that the Sacu shock will be around N$1,3 billion, she promised that she would raise taxes in the 2010-11 Budget to compensate for the loss.  "You don't want to kill the goose that lays the golden egg," the Minister said at a press conference at the time.

The Minister then said it would be "difficult" to increase taxes, as Government had just implemented income tax breaks, and that Namibians needed the social relief "badly".

The Minister has failed to deliver on most of the N$800 million tax breaks she promised in her budget speech, because her Ministry failed to table draft legislation for most of the relief in the National Assembly.  When she tabled her ‘Weathering the Storm' Budget in March, Kuugongelwa-Amadhila announced the huge tax concession package as part of the Swapo Government's "pro-poor, pro-growth" measures to see Namibians through the recession.

Denying that the 2009-10 Budget was an election budget, the Minister said: "As a people-centred party, our actions are always aimed at improving the lives of our people and, therefore, our budgets interventions are aimed at the bread and butter issues."

Included in her package were income tax relief, scrapping value added tax (VAT) on milk and sugar, higher tax free amounts for retrenchments pay-outs, lower company tax and a range of other tax cuts.  Of these, only the personal income tax relief, valued by economists at around N$60 million, was implemented.

Parliament went into recess two months ahead of schedule last year to campaign for the election, which meant that consumers and companies had to wait until this year for the Minister's promises to realise.  The earliest the necessary amendments could be tabled, is this coming Tuesday, when Parliament is supposed to resume. That will be nearly a year since Kuu-gongelwa-Amadhila threw Namibians her tax lifelines.