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2010 Budget - Bill Watch 42 / 2009
Veritas
December 05, 2009

Highlights of the 2010 Budget: Wednesday 2nd December

Finance Minister Tendai Biti ‘s 2010 Budget theme is Reconstruction with Equitable Growth and Stability. He summed up the budget as “a pro-poor, broad based and inclusive development framework” with “a strong emphasis on the key issues of education, health and social services”.

No Early Reintroduction of Zimbabwe Currency

The budget is in US dollars, and the Minister made it clear that it was the unanimous Government position that a return to the local currency could not be seriously considered until there is evidence of a strong economy, with annual sustainable GDP growth rates of over 6%, high exports and high foreign exchange reserves, plus a balanced budget and institutional credibility. Government has, however, started consultations on an optimum currency regime, which will be followed by democratic debate and public discussions commencing next year.

Minister Biti said he had anchored the budget on the Three Year Macro-Economic Policy and Budget Framework: 2010-2012 [STERP II] which the inclusive government had come up with as the successor to the Short Term Emergency Recovery Programme [STERP].

Estimated Income and Expenditure

Income: The total budget for 2010 is estimated at $2.25 billion, made up of projected amounts from:

• Revenue [taxes, fees, rents etc.] of $1.44 billion [64%]
• International aid grants of $810 million [36%]

Line Ministries, departments and parastatals had submitted estimates for expenditure totalling $12 billion; but these have had to be cut down to fit the $2.25 billion that will be available to spend. [The Revised Estimates for 2009 authorised total expenditure of $1.39 billion.]

Expenditure

• Recurrent expenditure will account for $1.678 billion [117% of projected revenue and 75% of the total budget]. [Note: Employment costs will account for over 60% of projected revenue and 33% of the total budget.]
• Capital expenditure will account for $571.8 million [40% of projected revenue and 25% of the total budget]

How the International Aid Grants Will be Used

The $810 million in international aid grants will be accounted for in the Budget Vote of Credit controlled by the Ministry of Finance and will be used for specific programmes and projects prioritised by Government and allocated as follows: Health 26%; Social Protection 15%; Agriculture 12%; Water and Sanitation 11%; Transport and Communications 7%; Energy and Power 7%; Education 5%; Other 17%. [Note: Under “Other” the Ministry of Constitutional and Parliamentary Affairs is allocated $43.7 million for the constitution-making process, and $28.7 million for “governance and human rights”.]

Allocations to Ministries and Departments

There are 36 Ministries in all – a few are listed below and each allocation is shown as a percentage of the total budget:

• Health and Child Welfare: $358 081 186 [16%]
• Ministry of Education, Sport, Arts and Culture: $312 720 700 [14%]
• Higher and Tertiary Education: $70 264 000 [3%]
• Labour and Social Services: $147 000 896 [6.5 %]
• National Housing: 5 786 000 [0.25%]
• Ministry of Defence [including Army and Air Force]: $98 293 00 [4.3 %]
• Ministry of Home Affairs [including Police]: $103 613 000 [4.6 %]
• Office of the President and Cabinet: $50 568 000 [2%]
• Office of the Prime Minister: $6 078 000 [0.27%]

Note: allocations to Service Delivery Ministries [e.g. the first four in the above list] are made up of funds derived from revenue and from international aid grants [see above]. The revenue funds will be allocated directly to the Ministry, but the funds from international aid grants are controlled by Treasury through the Vote of Credit.

Other Noteworthy Allocations

• Procurement of seeds and fertilisers: $84.5 million
• Procurement of text books for primary schools: $28.15 million
• National Land Audit: $31 million
• Constitution-making process: $43 million
• Human Rights and Governance: $28.7 million
• Procurement of drugs and medical supplies, medical equipment and health infrastructure rehabilitation: $285.4 million.
• Social protection programmes [including $25 million for the BEAM scheme for supporting school students, support for the elderly, chronically ill and other vulnerable groups]: $119 million
• Crop input packs for vulnerable rural households: $98 million
• Water and Sanitation Programme: $109 million
• Rehabilitation of roads, bridges, railways, airports: $58.5 million
• Energy and power development: $57.6 million

All these allocations will come from international aid grants administered through the Treasury Vote of Credit.

Innovative Constituency Development Fund

The Ministry of Constitutional and Parliamentary Affairs will administer a new Constituency Development Fund of $8 million, to be divided equally among the country’s 214 House of Assembly constituencies [approximately $38 000 per constituency]. The money will be used for construction of boreholes, repair of schools and clinics, purchase of generators, etc., in accordance with an annual development plan drawn up by a committee of elected councillors chaired by the local MP. There will be strict accountability, with the Ministry paying suppliers and service providers direct.

Upliftment of Women

The emphasis on education, health and social services and social safely nets will help the majority of women in the country who are the poorest of the poor. Help given to vulnerable rural households and communal land farmers will benefit women. Rural communities will be capacitated through training and provision of start-up capital for income-generating projects. $23 million will go to supporting micro, small and medium enterprises and co-operatives, youth projects, mining loans for small miners and rural electrification. Under each scheme 60% of funds for on-lending will be earmarked for women, as lobbied for by stakeholders.

Taxation Proposals [most changes to be effective 1st January 2010]

• Corporate tax will be reduced from 30% to 25%.
• For individuals the tax free threshold will be increased from $150 to $160 and the highest tax rate will be reduced from 37.5% to 35%.
• Tax-free thresholds for annual bonuses and retrenchment packages will be increased to $400 [effective 1st November 2009] and $15 000, respectively.
• Excise duty on spirits will be doubled, from 20% to 40%.
• Customs duty on half-tonne trucks and motor vehicles of engine capacity below 1500 cc, will be reduced from 40% to 25%.
• Presumptive tax [$300 per quarter] will be imposed on restaurants, bottle stores and cottage industries not already covered by informal sector presumptive taxes.
• Presumptive tax on commuter omnibus operators will be reduced slightly.
• Rates of interest on unpaid taxes will be aligned with rates being charged by banks to borrowers [this means an increase].
• VAT will be rationalised, resulting in some presently exempt or zero-rated commodities becoming subject to VAT.

Mining Fees and Royalties

Implementing the use it or lose it principle, unworked claims will attract a fee to discourage the holding of claims for speculative purposes.

Royalties on precious metals will be increased from 3% to 3.5%

Diamond producers will have to reserve 10% of production for the local cutting and polishing industry.

Looking Ahead – in the Longer Term

New Income Tax Act being prepared

A committee of experts from the Ministry, ZIMRA and the private sector has been working on the preparation of a new Income Tax in simplified language easily comprehensible by tax-payers. This will replace the present Act, which is more than forty years old and has lagged behind modern trends in tax law and international best practices. Aspects being studied include: changing the basis for income tax from source of income to residence [meaning that all income accruing to a resident of a country is subject to tax in that country, regardless of income source]; a flatter tax regime; and provisions to incorporate standard transfer pricing guidelines based on international best practice.

Public Service Pension Reform

The current Defined Benefit Pension Scheme will be replaced by a Defined Contribution Pension Scheme which will entail the establishment of a Civil Service Pension Fund in 2011. Changes to present legislation will be needed.

Getting the Budget Package Through Parliament

Portfolio Committees have been conducting Post-Budget Analysis meetings since Thursday 3rd December. These meetings will continue on Monday 7th December.

Commencing on Tuesday 8th December the House of Assembly will:

• debate the Minister’s Budget presentation, and if it is approved, the Minister will table a Finance Bill to give effect to his taxation proposals.
• consider the Estimates of Expenditure. This is done in a special committee of the whole House called the Committee of Supply. If the Estimates are approved, the Minister will then introduced the Appropriation (2009) Bill which will authorise expenditure in accordance with the approved Estimates.

Once passed, the Bills will be transmitted to the Senate for consideration. As both are “Money Bills”, the Senate cannot amend them, but may recommend amendments to be made by the House of Assembly. If amendments are recommended, the House must consider them but is not obliged to accept them, and the Bill may be presented to the President for assent in the form passed by the House, with the amendments, if any, made by the House on the Senate’s recommendation.

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