VAT raised, sugar tax launched as deficit balloons
Mbongeni Mguni | Monday February 1, 2021 18:09
According to his budget speech delivered to a virtual parliament, the 2020/21 financial year which ends on March 31 is expected to reflect a deficit of P21 billion, the highest in history according to available statistics.
“This is an extremely serious deterioration of our fiscal position and it has resulted in a rapid depletion of our reserves in the Government Investment Account,” Matsheka said.
“It has also resulted in an increase in borrowings through the government bond programme.
“This is not sustainable and it has to be reversed in the 2021/22 financial year.”
The deficit position for 2020 comes are running shortfalls for the budget since 2017/18, with COVID-19 worsening the situation by restricting key exports, while expanding spending on healthcare, community support and other business support initiatives occasioned by the lockdown and other measures.
In the upcoming financial year, Matsheka expects the deficit to decline to P6 billion, helped by recovery in diamond exports. The minister said the deficit in the coming year would be entirely financed from domestic and external debt, as the reserves, housed in the Government Investment Account, were depleted.
“The smaller deficit proposed for 2021/22 is consistent with fiscal recovery, but it’s dependent on strong recovery in diamonds.
“If this does not happen and another deficit appears likely, it may be necessary to introduce adjustments such as cutting spending during the financial year and withdrawing warrants.”
To restore fiscal stability, Matsheka said greater domestic resource mobilisation was required, which would include raising VAT to 14%, Withholding Tax to 10% from 7.5%, the fuel levy to P1 per litre and introducing a sugar levy of two thebe per gram of sugar above four grams per 100 millilitres.
Government is also considering how to introduce a tax on second hand vehicles, which Matsheka said would help shore up public revenues while also helping the environment.
The new taxes were reported by Mmegi in July last year and are based on recommendations in the Economic Recovery and Transformation Plan approved by Parliament.
“Restoring fiscal stability remains our major challenge,” Matsheka said.
Matsheka said government would also make redundant 50% of the vacant positions in the civil service, while the director of the Directorate of Public Service Management had been directed to review the public service with a view to “downsizing and right sizing it”. The exercise is due to be complete before March 31.
A comprehensive review of parastatals has also been completed with a view to weeding out duplication of mandates, overlapping roles and “bad apples” that have made losses over the years.
“Some will be privatised, others merged and others closed,” Matsheka said.
“This will reduce government spending on these entities.
“We cannot continue to bail out these companies from our scarce resources.”
Decisions on merging, privatising and liquidating will be taken in the first half of this year, the minister said.