On Monday last week, Minister of Finance, Economic Planning and Development Joseph Mwanamvekha presented the 2019/20 fiscal plan, whose nominal value in terms of total expenditure has been pegged at K1.7 trillion, representing 27.6 percent of gross domestic product (GDP).
The budget, which he said is anchored on ensuring debt sustainability, inclusive growth as well as economic empowerment, has increased by 20.1 percent from the 2018/19 budget which was pegged at K1.4 trillion.
In the proposed budget, domestic revenues are projected at K1.425 trillion or 22.7 percent of GDP, comprising K1.369 trillion tax revenue and K55.8 billion non-tax . The budget has an overall deficit estimated at K155.9 billion or 2.5 percent of GDP, which is 51.3 percent reduction from the 2018/19 actual budget deficit outturn of K320.2 billion.
The fiscal plan has been formulated on assumption that the economy will grow by five percent and seven percent in 2019 and 2020, respectively; an average inflation rate of eight percent during the fiscal year, a stable exchange rate of about K750 against dollar and policy rate of 13.5 percent.
In the 2019/20 National Budget, the education sector got the lion’s share of K172.8 billion followed by agriculture at K167 billion, health K101 billion), transport K88.3 billion and energy K40 billion.
As consumer rights activist John Kapito observes, consumers are happy that government has prioritised key sectors of the economy, but are looking forward to see implementation that will bring change.
“We hope that since the budget is just a written statement, the authorities will live up to its implementation and ensure matters of abject poverty are addressed.
“I hope Malawians this time around will hold government accountable to ensure every detail on reforms under this budget is implemented,” he said.
Kapito observes that notable positives in the fiscal plan is government’s move to adjust upwards the pay as you earn (Paye) tax-free bracket by K10 000 from K35 000 to K45 000 and increase the minimum wage from K25 000 per month to K35 000.
While the adjustment is far below what consumers had anticipated, Kapito notes that this is a step in the right direction.
He says: “As you aware, we have a campaign towards the increase of the minimum wage and we are at least happy to see that the budget has addressed the problem. Our demand is K75 000, but having a raise of this size has also given us hope that government has been listening to our lobbying.
“We have also noted that the tax band has been increased. This will give some relief to the low income earners. We were aware that we will not get everything we had asked for at once, but at least the low paid worker will have a smile on his or her face.”
Kapito, however, bemoans the K1.6 billion allocation towards the construction of stadia for Be Forward Wanderers and Nyasa Big Bullets.
“I believe that is misplacing resources from important sectors such as education and health. Malawian children are still learning under trees, going to clinics with poor infrastructure. Do we have a luxury to build stadiums for private teams.
Businesses not amused
Malawi Confederation of Chambers of Commerce and Industry (MCCCI) says it is unrealistic to assume a rosy picture for the 2019/20 National Budget in a year when the business environment has become more hostile.
This, it says, has been partly manifested by lower than anticipated reported profits of major (and some listed) taxpayers coupled with the effect of civil disobedience which could impact productivity of all sectors of the economy.
While urging government to tread cautiosly with matters of state resource management, MCCCI says their interest are the measures that have direct and indirect impact on improving competitiveness of its members and the cost of doing business.
For instance, MCCCI chief executive officer Chancellor Kaferapanjira observes that the reduction of excise tax on malt beer from 90 percent to 65 percent has given the impression that the beer industry may be saved from becoming extinct.
He says it is estimated that if the base of taxation changes, the producers will be paying 20 percent to 25 percent more taxes using the new tax rate.
Says Kaferapanjira: “The confederation is actually concerned that government tends to act after some damage has taken place, instead of having listening ears and be proactive. This is said in the context of retrenchment of staff that has already taken place.
“In an economy where virtually no new jobs are being created, government should do everything to save existing jobs and not see the bleeding before reacting.”
He argues that in the confederation’s view, the instituted policy must have a sunset close.
“Tariff relief is always temporary; it is industry competitiveness that lasts,” he says.
Business worried with income tax
Kaferapanjira observes that while the increase in minimum wage from K962 per day to K1 346.15 per day is a positive move for workers who fall in this category, it is an additional tax on businesses imposed at a time when many businesses, especially those who employ labourers are struggling to survive.
Just as the chamber hails government for increasing the tax-free bracket from K35 000 per month to K45,000 per month, Kaferapanjira observes that Treasury has overlooked correcting another anomaly introduced two budget years ago where a portion of an employee’s monthly salary in excess of K3 million per month is taxed at 35 percent and not 30 percent in line with tax rates on other incomes such as corporation tax.
He also faults Treasury for increasing user fees and charges, which he says raises operating costs of businesses and increases the cost of doing business in Malawi regardless of whether the business is making any profits or not.
Alignment with SDGs, MGDS III aspirations
Member States of the United Nations committed to a universal call to end poverty, protect the planet and ensure that all people enjoy peace and prosperity by adopting the 2030 Agenda for Sustainable Development, including the Sustainable Development Goals (SDGs).
The 2030 Agenda comprises 17 SDGs which are accompanied by 169 targets and 230 indicators. The commitment by member States entails domestication of the SDGs in national short, medium and long-term development plans.
Malawi, as one of the member states, ratified and adopted the 2030 Agenda for implementation.
While adequate budget allocations are a necessary condition for achieving the SDGs, the quality of budget content and execution as measured by the government’s ability to accurately hit its own revenue and expenditure targets and enable the macroeconomic environment remains crucial.
Sectoral budget allocations are, therefore, key in establishing spending levels and financing gaps, as guided by the Malawi Growth and Development Strategy (MGDS III) priority areas in line with the SDGs.
Minister of Finance, Economic Planning and Development Joseph Mwanamvekha says the proposed budget allocations are in line with the priorities of the country’s national blueprint MGDS III.
He says the budget is intended to leverage on the macroeconomic stability that has been achieved during the past two fiscal budgets to tackle four key issues of economic growth, job creation, economic empowerment, sustainable debt management and infrastructure development.
The budget has been developed under the theme Inclusive Growth and Economic Empowerment: The Future We Want.