Minister of Finance Felix Mlusu is under the spotlight again as he presents his and the Tonse Alliance administration’s second financial plan, the 2021/22 National Budget in Parliament tomorrow.
National budgets or expenditure plans play a critical role in fostering economic prosperity and eradicating or reducing poverty. Through the national budgets, governments implement their development plans; hence, the more reason budgets should be realistic and informed by economic realities.
This is not the best moment for the Minister of Finance to undertake such a task, one would say. I do not envy him either, especially considering the factors at play which include the impact of the Covid-19 pandemic.
But then, life must still go on with or without the pandemic; hence, good ol’ Mlusu will still have to go down the aisle into Parliament chamber in Lilongwe to deliver the fiscal plan that will define whether the Tonse administration is still taking Malawians to the Promised Land of Canaan or indeed the destination has changed.
It is through the budget statement that we will know whether Malawians should have hope as Moses gave the Israelites in Exodus 14:13 that “stand firm and you will see the deliverance the Lord will bring you today. The Egyptians you see today you will never see again”.
The maiden Tonse Alliance budget was more consumptive with the Affordable Inputs Programme (AIP), an agricultural inputs subsidy initiative to boost food security, getting a lion’s share of the allocations for a single initiative at a whopping K160 billion.
Taxes were another mixed bag in the 2020/21 National Budget expiring on June 30 this year. While some, especially low-income earners, celebrated the expansion of the zero-rated tax bracket from the first K45 000 to the first K100 000, high-income earners paid dearly.
Tax measures in the current budget, including the raise in minimum wage, have already put out of employment lower-end labourers such as domestic security guards, house helpers and gardeners.
From the Malawi Confederation of Chambers of Commerce and Industry (MCCCI) perspective, the taxes are still hurting businesses and individuals alike, especially with the Covid-19 pandemic still lurking. Thus, if wishes were horses the business community would love to have a relief on taxes by way of a reduction. But that is a mere dream as taxes are Treasury’s main source of financing the budget in the absence of direct budget support from donors frozen in 2013 amid concerns of financial mismanagement.
In the face of the reality that the Minister of Finance, under the circumstances, cannot afford to offer any tax relief, the best compromise will be rolling out of policies that will stimulate private sector recovery and growth after the Covid-19 debacle.
In making the annual financial plan, it is important that Mlusu and his budget team accept the reality that direct budget support is critical in budget implementation; hence, the need to re-engage the donors. The 30 percent-plus the donors pumped into the recurrent budget and the over 80 percent in the development budget eased pressure.
It is also worth acknowledging that in recent years Malawi Revenue Authority (MRA) has struggled to meet its targets as economic activity has slowed down with businesses folding or scaling down.
The low revenue collections forced Treasury to borrow heavily both from the external market and the expensive domestic market where, at the end of the day, businesses were crowded out, thereby further strangling them. The borrowing was to finance the highest budget deficit in history at K800 billion.
If truth be told, it is not easy to balance government budgets, but at the same time it is possible to live within means. Budget deficits are said to be “perfectly possible” where the percentage increases in debt are smaller than the percentage growth of the gross domestic product (GDP) as the debt/GDP ratio will decline at the same time.
In his State of the Nation Address (Sona) at the opening of the 49th Session of Parliament on May 12, President Lazarus Chakwera outlined ambitious infrastructure projects to be implemented and unlock the country’s economic potential. This will need financial resources.
In the next budget to roll out on July 1, it will be critical that the minister focuses on economic growth, job creation (one million jobs or ‘jabs’? as people in the street put it), economic empowerment and, again, social protection in the face of the Covid-19 pandemic.
If ‘Canaan’ remains the destination, there should be hard choices, trade-offs,credible revenue projections and sustainable expenditure.