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2011 Budget - Bill Watch 50/2010
Veritas
December 05, 2010

Presentation of 2011 Budget: Thursday 25th November

At the start of his Budget presentation last Thursday, Finance Minister Tendai Biti cited Article 22 of the African Charter on Human and People’s Rights and declared that the Budget’s foundation stone is “the obligation to pursue the right to development, within the context of all other broad social and democratic rights” defined in the Charter. And, referring to input from thousands of Zimbabweans during the countrywide consultations carried out by the Ministry of Finance in preparing for the Budget, the Minister asserted that the majority of Zimbabweans share the “Vision to build a Stable, Modern, Dynamic, Democratic and Developmental State”. So the theme of his 2011 Budget is “ Shared Economy, Shared Development, Shared Transformation – Creating the Fair Economy”.

Multiple-Currency Regime to Continue

Once again, the budget is in US dollars. The Minister assured stakeholders who had expressed anxiety about the future currency regime that Government will pursue the multi-currency regime, supported by cash budgeting in the short to medium term as indicated in STERP II. Debate on the future appropriate currency regime would be guided by the SADC/COMESA regional integration agenda and the respective framework for the planned Monetary Union.

Foreign Aid to go Direct to Projects, not through Budget Framework

Unlike the Estimates of Expenditure for 2010 the Estimates for 2011 do not include a Vote of Credit giving details of expenditure to be funded by foreign aid. The Minister explained that some $500 million expected from “co-operating partners” during 2011 would be channelled directly to projects, not through the Budget framework. [Note: The original Estimates for 2010 contained a Vote of Credit of $810 million representing expected foreign aid; this was scaled down to $500 million in the Revised Estimates in mid-2010. The Minister told the House of Assembly that as at October co-operating partners had provided about $360 million.]

Estimated Income and Expenditure: $2.7 billion

The 2011 Estimates of Expenditure tabled by the Minister envisage expenditures of $2.7 billion which is equal to the total projected domestic Budget revenues for the year. So this is another cash budget, with no provision for borrowing. Of this total $2.2 billion [80%] will go towards recurrent expenditure and $550 million [20%] towards capital expenditure.

What Ministries wanted: Ministries had put in bids totalling $11.3 billion [$3.8 billion for recurrent expenditure and $7.5 billion for capital expenditure] – so the Minister had to prune severely, mainly on capital expenditure proposals, to bring the total down to fit the available resources of $2.7 billion. For example, bids totalling $308 million for purchase of vehicles were scaled down to $17.5 million, and bids totalling $316 million for furniture were reduced to $27 million.

Results Based Budgeting – Ministry Profiles and Projected Outputs

A noteworthy new feature of this year’s Estimates of Expenditure is that every Ministry vote begins with a short statement headed Ministry Profile and Outputs. This is because section 28 of the Public Finance Management Act requires each vote to include “a statement of the classes of outputs expected to be provided from that vote during the year and the performance criteria to be met in providing those outputs”. The Minister said this would make it easier for the public and Parliamentary portfolio committees to call Ministers and accounting officers [Permanent Secretaries] to account for the use of public resources under their control and enhance transparency and accountability.

Allocations to Ministries and Departments

There are 38 separate “votes” – allocations to Ministries and institutions. Some are listed below, with each allocation shown as a percentage of the total budget:

• Ministry of Education, Sport, Arts and Culture: $ 469 million [17.4%]
• Higher and Tertiary Education: $156 million [5.8% ]
• Health and Child Welfare: $256 million [9.8%]
• Ministry of Defence [including Army and Air Force]: $194 million [7.2%] $98 293 00 [3.6 %]
• Ministry of Home Affairs [including Police]: $189 million [7%] $103 613 000 [3.9%]
• Ministry of Justice and Legal Affairs [including Prison Service]: $80 million [3%]
• Office of the President and Cabinet: $101 607 000 [3.7%]
• Office of the Prime Minister: $14 065 000 [0.5%]

Other Noteworthy Allocations

• Overall employment costs: $1.4 billion [these include the Government wage bill, pension, medical aid and social security contributions].
• Government wage bill: $1.1 billion [which could translate into a 100% wage increase for most public servants in 2011. The Minister commented that, although public servants are not paid well, the public service wage bill is not sustainable relative to the national wealth – and must therefore be reduced to a smaller percentage of the total budget and GDP, the medium term target being 30% of total Budget and 10% of GDP.]
• Zimbabwe National Army wage bill: $110 million [4%]
• Air Force of Zimbabwe wage bill: $13 million [0.5%]
• Zimbabwe Republic Police wage bill: $121 million [4.5%]
• Zimbabwe Prison Service wage bill: $27 million [1%]
• Teachers wage bill: $404 million [15%]
• Construction of new University halls of residence : $30 [ 1.1%]
• Rehabilitation of University halls of residence: $48.6 million [1.8%]
• Political Parties finance: $6 million [0.2%] shared between the three GPA parties [up from $4 million for 2010]
• Constituency Development Funds: $8 million [0.3 %] [the same figure as for 2010]
• COPAC: $1 million [0.03%] under the vote for the Ministry of Constitutional and Parliamentary Affairs
• Presidential Scholarship Scheme: $3 million [0.1%]

Zero Allocation for Referendum and Elections

No allocations are made for the Referendum on the new Constitution and next election. The Minister has, however, said that $50 million in an unallocated reserve controlled by his Ministry could be used for these purposes.

Taxation Proposals

[most changes to be effective 1st January 2010]

PAYE tax-free threshold to be increased from $175 to $225 per month and the highest tax rate will continue at 35%.

Annual Bonuses tax-free threshold to be increased from $400 to $500 [effective 1st November 2010].

Duty on basic commodities [rice, maize meal, flour coking oil and salt] – suspension to be extended to 30th June 2011.

Presumptive tax on small-scale gold producers to be reduced from 5% to 2%, to encourage them to sell through licensed gold buyers.

VAT remittance period to be extended from the 15th to the 20th of the month following taxable transactions.

Royalties on gold and platinum to be increased to 4.5% and 5% respectively.

Looking Ahead

New Income Tax Act: The Minister reported progress on the drafting of the new Income Tax Act and said it would be introduced into Parliament in the second half of 2011.

New Exchange Control Regulations: There will be new Exchange Control regulations to bring the law into line with the multiple currency system.

Getting the Budget Package Through Parliament

Portfolio Committees have been conducting Post-Budget Analysis meetings since Monday 29th November. These meetings will continue until Tuesday 7th December.

When it resumes on 7th December the House of Assembly will:

• debate the Minister’s Budget presentation, and if it is approved, the Minister will present the 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 introduce the Appropriation Bill which will authorise expenditure in accordance with the approved Estimates.

Fast-tracking: The House has already approved motions permitting the fast-tracking of all Budget business, and of the four other Bills already before the House. This means the suspension of the usual rules about taking different stages of Bills on different days, and also permits late-night and Friday sittings. There is a need to wrap up work not later than Friday 10th December, because sittings the following week are ruled out by the holding of the ZANU-PF congress from 15th to 18th December.

Possible Resistance from MPs? Immediately after the Budget Statement the House debated and passed a bi-partisan motion calling on the Minister of Finance to allocate more money to address the financial plight of Parliamentarians and civil servants. The motion was introduced by ZANU-PF MP Bhasikiti and seconded by MDC-T MP Lucia Matibenga. Contributors to the debate said MPs should not merely rubber-stamp Government proposals. As the Minister did not take part in the debate on this motion, it remains to be seen whether he will be able to mollify disgruntled MPs during next week’s proceedings. According to Standing Orders MPs cannot vote to increase allocations proposed by the Minister, but they are allowed to show their disapproval by reducing or omitting allocations for purposes not acceptable to them. Or they could refuse to approve the two Bills, thereby forcing a re-think of the Budget – but that would be an extremely drastic course.

Role of the Senate: If passed by the House, the Bills will be transmitted to the Senate, which has been recalled to sit from the 7th to the 17th December to deal with these Bills and any other Bills passed by the House of Assembly next week. According to the Constitution, as both the Budget Bills are “Money Bills”, the Senate cannot amend them, but may recommend amendments to 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.

What if there is further disruption in the Senate? It is not yet known whether MDC-T Senators will continue disrupting business over the reappointed provincial governors appearing in the Senate – but it may be that they will drop their protest now that the Prime Minister has passed the question to the courts by launching High Court proceedings challenging the reappointments. If the Senate fails to pass the two Budget Bills within 8 sitting days after they are transmitted from the House of Assembly, the House can then resolve that the Bills be sent to the President for assent and gazetting as law without Senate participation [Constitution, Schedule 4, paragraph 6].

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