No more blood to squeeze from these stones
Mbongeni Mguni | Monday January 31, 2022 06:00
Thanks to the increases in various administered prices last April, inflation, or the rate of increase in the prices of goods and services, has been trending at nine-year highs, effectively slapping many commodities out of the hands of citizens.
Administered prices which went up last April include:
*Value Added Tax rising to 14 percent from 12 percent
*Fuel levy increasing by P1.00
*Introduction of a new sugar tax
*Botswana Housing Corporation rentals
*Botswana Power Corporation tariffs by three percent
*Water Utilities Corporation tariff increase in June
*Taxi and combi fares
*Various local government service fees
On top of these, fuel pump prices were raised five times in 2021, including the “shock” increase of as much as P1.75 for certain fuels effected towards the end of the year.
The situation has meant that ordinary Batswana have run out of the ability to accommodate any further “administered price” increases.
By the time COVID-19 and its financial impact hit the budget in March 2020, fiscal authorities had already been talking about “domestic resource mobilisation,” an innocent sounding phrase that basically means supporting the budget by raising more revenues inside the country.
As early as November 2019, the phrase appeared in the draft of the Mid-Term Review of National Development Plan 11 and for the first time, ordinary Batswana had an idea of the weight they would be asked to carry.
“Botswana firms and individuals are under-taxed relative to the value of the public service and benefits they receive,” a draft budget plan based on the November 2019 review said.
“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 costs of responding to COVID-19 in 2020 were mainly met through dipping into the Government Investment Account (GIA), which represents the country’s national savings. These reserves started 2020 at about P20.5 billion and ended the year at P3.4 billion, leaving government with no option but to introduce the dreaded “domestic resource mobilisation” at the beginning of the next financial year, in April 2021.
The tax and levy increases were also envisaged to support the Economic Recovery and Transformation Plan (ERTP), the P14.5 billion strategy approved by Parliament in September 2020 to lift the economy out of COVID-induced distress and place it on a path to transformation.
The tax and levy increases from last April have rippled across the economy, raising the cost of living for citizens already battling shrinking of disposable incomes due to the pandemic’s impact on businesses and livelihoods.
For instance, Statistics Botswana’s December 2021 report on inflation indicates that the prices of cooking oil and other fats rose by 28 percent during the year, while meat prices rose by nearly eight percent. Food and non-alcoholic beverage prices rose by 7.2 percent in total, while a category called “operation of personal transport” which covers fuel prices, rose by 28 percent.
There was no room to “drown sorrows” either as the prices of alcoholic beverages rose by 10 percent during the year. Rentals paid by tenants rose eight percent, a conservative figure based on nationwide statistics that do not accurately reflect the incidence of rising rentals demanded by landlords in areas such as Gaborone.
Snap-surveys by Mmegi late last year revealed consumers’ frustration with spiralling inflation, which spent half of 2021 at nine-year highs.
“The whole nation is concerned because of these price increases and it’s very painful to see this happening more especially in this difficult time of COVID-19 and job losses,” said Olebogeng Patle.
“It brings so much pain to us because we also have children who expect us to buy them stuff almost every day.
“Our cooking patterns have also changed as we no longer prepare meals as we used to do.
“Now we have to try and save food so that it can last for a month to avoid spending too much.”
For Moeti Morulane, the escalating price of cooking oil was particularly painful.
“Imagine the price of a cooking oil going up like that! I mean this shows that the government or whoever is responsible for those new prices don’t even care about Batswana at large.
“They want to destroy our families we are going to die of hunger; that’s what they want I believe.
“We are going to see the crime rate going up because already most people have lost their jobs and where are they going to get money to buy food and other important things?
“This is madness! Those who are working also don’t get salary increases yet the food prices have gone up and they also have other things to spend money on like transport.
“I used to buy combos and I could spend only P200 but now things have changed and I have to spend more on food only.”
As Finance and Economic Development minister, Peggy Serame, prepares to present her Budget Speech on Monday, it is not expected that she will attempt to squeeze more blood from the stones that are ordinary Batswana.
The hints provided by pre-budget briefs indicate the only new tax may be the one planned to tap resources in the digital economy.
However, “domestic resource mobilisation” also includes restraining the level of government subsidies and support for public services. The Budget Speech is expected to contain a reduction of subventions to parastatals by as much as P600 million, while more cost-recovery may be introduced for public services such as health and education.
While the lower parastatal support will help government trim its budget deficit, these state-owned entities will also press for tariff increases meaning the already over-burdened consumer carries the weight at the end of the day.
Already, the Botswana Power Corporation has requested a five percent increase in its tariffs for 2022 – 2023, while the Water Utilities Corporation has revealed that it is struggling with its finances after posting a pretax loss of P243 million for the year ended March 2021.
BotswanaPost, whose running losses widened in the year ended March 2021, has said its status as a “going concern” continues in a precarious state.
“This stems from our weak balance sheet position, adverse liquidity and high gearing,” CEO Cornelius Ramatlhakwane said in the parastatal’s recently released annual report.
“Unless we receive the help we need from our shareholder, these are the type of factors which will adversely affect our value creation and sustainability agenda at BotswanaPost.”
BotswanaPost’s postal tariffs were increased in late 2020.
The Botswana Housing Corporation will also implement the second increment in its rentals this year, as part of a phased approach to bring the rates closer to market levels.
It would appear that while the slew of direct tax increases seen in April 2021 will not be repeated this year, ordinary citizens will still have to brace for other blows from public service providers this year.
Other experts such as those at the World Bank have suggested that rather than a wholesale reduction of subsidies and support, government could sharpen its efforts and ensure that for services such as power, electricity, education and healthcare, those who are able to pay. At the moment, the country’s richest also enjoy subsidised electricity and water and while they opt not to, they could conceivably utilise public healthcare and education as well.
A one-size fits all approach to reducing subsidies would increase inequality and worsen education, health and general economic outcomes for the people who need these the most.
Serame will also be under pressure to show how efficiently the funds raised from last April’s “domestic resource mobilisation” efforts have been spent. Batswana have increasingly been demanding to know how efficiently the higher taxes they are being asked to pay are being utilised.
The BURS has also previously acknowledged the existence of a “social contract” between the State and its citizens, where money is paid for services and development.
Former acting Commissioner General, Segolo Lekau said all over the world, citizens were questioning the wisdom of paying taxes when governments were not living up to their side of the contract.
“In developed countries, some citizens are saying they won’t pay because there’s no return on their investment and that’s a political issue,” he told a media briefing before the April 2021 tax increases.
“If taxes are not used for what they should be, then we are making Batswana poor.”
Serame will also be expected to clearly explain the path the fiscus will take to return to stability, having spent the whole of NDP 11 in deficits.
In her explanations, Batswana will not want to hear more talk of them bearing the burden.
Rather, having suffered a torturous two years since the pandemic hit, in which 70,000 jobs or livelihoods were lost in 2020 lone according to Statistics Botswana, many want to hear how government intends to reduce its weight on the ordinary citizen’s pockets.