Saturday, January 26, 2008

Magandenomics 101 – How far does $3.6 Billion go!

As the wheels of the global economy, grind growth to a near halt under the weight of a slump triggered by the US sub prime mortgage crisis and high oil prices, there is debate among economists on how to jump start economic activity. Whether to implement trickle down policies that give tax breaks/other incentives to the wealthy with the hope that their quest for more wealth, will motivate them to invest more; or the trickle up policies that give monetary incentives such as tax refunds, grants, food stamps etc to the poor and middle class with the expectation that their propensity to spend will create more demand leading to more productivity in the economy.

Given the size and rigidity of the Zambian economy, this year’s national budget of 13.76 trillion kwacha reflects Mr. Magande’s attempt at making the most of both the trickle down and trickle up approach to unlock Resources for Economic Empowerment and Wealth Creation.
Reducing VAT by 1.5% may have the effect of giving some relief to both the consumers and producers putting 21.6 billion at their disposal but does this go far enough?

On the other hand, new tax measures for the mining sector which include corporate tax at 30 per cent, mineral royalty at three per cent and a variable profit of up to 15 per cent on taxable income will increase government revenue.
However might government’s continued borrowing of 1.2% of the national budget from BOZ possibly keep interest rates at uneconomic rate and erode gains from reduced VAT.

The revised Pay As You Earn (PAYE) increases the non-taxable monthly threshold income from K500, 000 to K600, 000 while those getting over K4 million per month will be paying 35 per cent instead of the previous 30 per cent effective April 1, 2008. This is another attempt at trickle up and ZK100, 000 or $26 may go some distance but is it enough to achieve a significant impact on increasing productivity in the economy.
In other aspects of the national budget Mr. Magande promised ZK 120 billion for a Citizens' Economic Empowerment Fund, however do these measures go far enough to uplift the majority of Zambians who have had no real opportunity for economic empowerment?

With unemployment over 70%, the only real relief/empowerment for these people in this year’s budget maybe the VAT reduction and this economic empowerment fund. Mr. Magande needs to do more to create jobs and more private enterprise.

Indeed, ZK 13.76 trillion or $3.6 billion maybe a small piece of cloth for our ever bloated national suit, this is essentially why am glad, Mr. Magande is learning to cut with a little bit more precision and care.

1 comment:

thepicturemonger said...

Quite an interesting blog. Go on.