Finance and Economic Development minister, Thapelo Matsheka says the 'shocks' contained in his budget speech on Monday were the necessary culmination of long delayed interventions required to stabilise the country's financial position.
The budget speech jarred many Batswana with an increase in Value Added Tax, Withholding Tax, the introduction of a sugar tax, an increase in the fuel levy, reviews of subsidies as well as plans to merge and liquidate some parastatals while reducing the civil service wage bill.
On Monday, Matsheka said the interventions were critical to restoring fiscal stability, given the record P21 billion deficit due in the 2020-2021 financial year and the forecast P6 billion shortfall for the upcoming 2021-2022 financial year. Government’s reserves in the Government Investment Account are running dry at P5.6 billion and forecast revenues for 2021-2022 are highly precarious, being dependent largely on a recovery in diamond mining.
On Tuesday, Matsheka told the First National Bank Botswana (FNBB) budget review that the tough changes were unavoidable. The annual FNBB review, now in its 27th year, involves top economists, analysts and business leaders discussing the budget speech a day after its delivery.
“I came before the nation to deliver the budget speech, and there had been much anticipation, especially during these difficult times.
“I must admit that the measures we have put in place came as a shock to many people, but in our assessment, they are vital to implement.
“There’s a lot that we should have done over the years that we had delayed in doing.
“In fact, all the things in the budget speech are issues that had been with us for many years and COVID-19 has given us that wake-up call to do them as a nation,” he said. Matsheka added it was necessary to adjust the budget and the economy to ensure that there is no permanent deterioration of livelihoods.
“There are many reasons why business as usual is no longer an option,” the minister said.
“Government spending is too high to be sustainable as seen in the deficit for this financial year. “Our balance of payments situation needs more sources of export revenue and we cannot continue to rely on diamonds.
“COVID-19 has exposed our
“We went into the COVID-19 crisis with low levels of debt, but we expect to raise even more from both the domestic and external markets.” Reactions to the budget interventions have largely been negative, with many Batswana complaining that while necessary, the tax increases were untimely as many households are suffering from the effects of the coronavirus (COVID-19) on disposable incomes.
Grant Thornton Botswana managing partner, Kalyanaraman Vijay told BusinessWeek that as an Africa-wide institution, the tax changes were largely understandable.
“As an institution that is part of Africa, we should acknowledge that these taxes are amongst the lowest on the continent and the lowest in SADC,” he said.
“We had been expecting the VAT increase for about three years now and this shows that the government’s plan is not to keep on increasing, but that they had held on as long as they could. This also goes for Withholding Tax. “It is also encouraging that tax thresholds have been increased to support the lowest earning segments of workers.
“In addition, the tax amnesty announced will help bring more people into the tax net, while the sugar tax will help with public health.”
Vijay said the fuel levy was quite significant, while the plans around taxing imported used vehicles would hit many people hard as new vehicles are still highly priced in the market.
“Overall, I believe that Botswana is and always will be the diamond of Africa,” he said.
“The intention behind the budget is 100% and the challenge is now implementation.
“We should keep in mind that Vision 2036 is getting closer and we don’t have a lot of time. COVID-19 has already stolen three years away from us and we must keep our eyes on the results. “Also, as the private sector, we should not keep saying the government must give us this and that. The private sector must look at the opportunities government has provided and take the lead.”