VAT is an indirect tax levied on the supply of goods and services and is paid by the end consumer. In the 2010-2011 national budget, Finance and Development Planning Minister Kenneth Matambo said yesterday that the VAT increase, effective April this year, is one of the many measures that government has taken to get total estimated revenues as mineral income is not expected to reach normal levels until the 2012-2013 financial year.
Among other measures of raising or conserving cash, several fees and levies are also expected to be increased in the next few months. Civil servants have been denied a salary increase for the second year running.
Matambo, who was presenting his maiden budget speech having taken over last year from Baledzi Gaolathe, said despite the lower revenues, the 2010 budget is guided by the National Development Plan (NDP10) as government is going ahead with its six year master development programme. Largely due to NDP 10, Matambo proposed a P12.12 billion budget deficit, which is 12.2 percent of the forecast 2010-2011 GDP of P99.7 billion, a trend that is seen continuing for the next two years with a balanced budget only expected in the 2012-2013 financial year.
Total revenues and grants for the financial year 2010-2011 are forecast at P27. 077 billion, whilst total expenditure and net lending are forecast at P39. 194 billion. This means government will continue to spend more than it collects for the next two years, with a medium term goal of restoring sustainability in the public finances as it seeks to maintain credibility with domestic and international lenders.
"The deficit shall be financed by a combination of drawing down on government cash balances, which were accumulated in the surplus years, and by borrowing, largely from the domestic capital market. To accomplish a balanced budget in the next two years, government will require a substantial reduction of expenditure in the next two financial years, while revenues recover over those two years, to the point that we achieve a balanced budget by 2012/13," Matambo said.
Last year government posted a 15.1 percent budget deficit which was largely financed by a $1.5 billion loan from African Development Bank and drawing down on foreign exchange reserves. This reduced the foreign exchange import cover from 30 to 20 months. However Matambo, whose budget theme was 'Transforming Our Economy after the Crisis: 2010 and beyond' said that the swelled deficit will ease as the economy is expected to achieve a zero percent growth in the current financial year, and then five percent in 2010-2011. The minister said a gradual recovery in world diamond sales would help support the economy but warned that mining output would remain subdued for another two years. "The partial recovery of the minerals sector in the second and third quarters of 2009 reflect developments in the world economy and the consequent positive impact of these on the mining sector, particularly the diamond sector," he said.
"However, due to uncertainties in the global economic prospects it is expected that output for this industry will remain below the long term trend potential for another year or two," he said. For the 2010-2011 financial year, Matambo said that from the P27 billion estimated revenue, 24 percent will be from the non-mineral income tax, while the second largest contributor is mineral revenue at 23.9 percent. Customs and Excise revenue is third at 18.9 percent.
Non-mineral income taxes are expected to grow. This is in part due to the sustained real growth in the non-mineral sectors of the economy.
"The customs revenue for 2010/11 will be significantly less than in recent years because of the decline in the Southern African Customs Union revenue pool, arising from a significant drop in high duty imports.
"The reduction for 2010/11 is compounded by the fact that distributions from the SACU revenue pool did not anticipate as sharp a decline in the pool, resulting in overpayments to member states, which must be repaid to the pool in the coming financial year," Matambo said.
On expenditure, P27.143 billion has been dedicated towards the recurrent budget while P12.18 billion is for development budget.
The Ministry of Education and Skills Development takes the largest share of the recurrent budget at P8.3 billion, followed by Local Government (P3.9 billion), Defence, Justice and Security (P3.3 billion) and Health (P2.2 billion).
In the development budget, the Ministry of Minerals, Energy and Water Resources with a budget of approximately P3.5 billion, takes the highest share at 28.7 percent. Five projects, namely, Morupule 'B' Power Station at P1.4 billion, Water Planning and Development at P1.05 billion, Emergency Power at P610 million, Major Village Water Supply at P219 million and North South Carrier at P250 million account for 99 percent of the ministry's budget.
The second largest recommended allocation goes to the Ministry of Transport and Communications at P2.1 billion, mainly accounted for by Air Transport Infrastructure project at P693 million, Bitumen and Trunk Road project at P707million, Botswana Telecommunications Corporation finances at P389 million. The three projects, account for 85 percent of the Ministry of Transport and Communications budget. The ministry with the third largest budget allocation is Local Government at P1.65 billion. Six projects, namely, Village Infrastructure (P562 million), District and Urban Roads (P338 million), Ipelegeng (P200 million), Primary Schools (P178 million), Village Water Supply (P159 million) and Urban Land Servicing (P70million), account for 91 percent of the total budget of the ministry.