The Finance Ministry is proposing some tough measures to get the country’s budget back on track, as the latest forecasts show that the last three years of NDP 11 will suffer a cumulative deficit of P11.1 billion, while the fiscal reserves government has previously relied on for support may not be able to help.
The proposals, as contained in the draft mid-term review of the NDP 11 circulated yesterday, are due to go before Cabinet before being laid out before parliamentarians next year.
The revised forecasts in the draft indicate that the cumulative deficits in the six years of NDP 11, which ends in March 2023, will amount to P18.8 billion.
While the previous deficits were funded mostly by government drawing down on its reserves and borrowing domestically, the Finance Ministry says this may no longer be possible looking at the forecasts.
The reserves are held in the Government Investment Account (GIA), which the central bank manages together with the Pula Fund, the country’s sovereign wealth fund.
The situation, fiscal authorities say, will come down to increasing revenues and lowering expenditure. To achieve this, some of the proposals in the mid-term draft include increasing various taxes, reducing tax exemptions, rationalising the civil service and tightening public finance management, including the crackdown on corruption.
“We have to squeeze out all types of waste including in the management of projects,” new finance minister, Thapelo Matsheka told a conference on the draft yesterday.
“We have to reduce the size of government and allow the private sector to deliver these projects. This is one thing on the agenda.”
The draft goes into detail on the proposed tax increases.
“Botswana firms and individuals are under-taxed relative to the value of the public service and benefits they receive,” the draft plan reads.
“Botswana has one of the lowest rates of VAT in the world and this may not be sustainable.
“Taxes on land and property are also low by international standards and yet these present an easily-taxable asset class that would mainly raise revenue from those that can afford to pay more.
“The tax base can be extended through more effective taxation of informal or cash based activities, improving the efficiency of revenue collection, consideration of new taxes, increasing tax rates or reducing exemptions.”
The tax proposals will rile many businesses and individuals, particularly as the draft plan also indicates that part of the budgetary pressure came from the civil service raises granted before the elections.
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While critics of the new administration say the increases were made with the elections in mind, finance ministry officials in the draft describe the adjustment as a ‘necessary gesture’ adding that “wages and salaries had been stagnant for some time and such increases are expected to enhance domestic demand”.
Other factors pushing deficits up include lower mineral revenues due to the commitment government has made to co-finance major projects at Jwaneng and Orapa. Speaking yesterday at the conference, Finance Ministry deputy secretary for macroeconomic policy, Kelapile Ndubano said there were few alternatives to restoring fiscal stability.
“We need new sources of revenue and if it means increasing our tax rates, let it be so. Even in terms of the ranges, we are the lowest in the income tax and VAT.
“There’s scope for us to look at that but advice will be welcome,” he said.
Other sources of pressure in the rest of NDP 11 come from higher grants and subventions to local authorities, parastatals and students.
The net effect is that the development budget in the rest of NDP 11 will be restrained to accommodate the higher spending and lower revenues. According to the draft, the development budget under NDP 11 has been cut from P101.4 billion to a forecast P81.9 billion or by 19%.
A finance ministry document produced last month also proposed a moratorium on new parastatals, refraining from building new offices, privatising parastatals, and freezing recruitment from 2020-2021.
“The fiscus has been dented. We have to ensure sustainability of the economy and restore our fiscal buffers,” Ndubano said.
The latest forecasts and proposals will be a tough sell for President Mokgweetsi Masisi’s administration, which is under pressure to deliver electoral promises, despite the darker economic climate.
It is expected that Masisi will ride out the current and next fiscal years’ deficits through the GIA and higher domestic borrowing, before gradually considering the tougher measures being proposed by finance ministry experts