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Home Columns Business Unpacked

Mixed bag budget, but implementation key

by Aubrey Mchulu
03/06/2021
in Business Unpacked
4 min read
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Finally, Minister of Finance Felix Mlusu last Friday let the cat out of the bag when he unveiled in Parliament the estimated K1.9 trillion 2021/22 National Budget.

Having indicated in my pre-budget piece titled “Budget will tell if destination remains ‘Canaan’” that the framing of the new fiscal plan will be critical in terms of delivery of the Tonse Alliance administration’s election campaign promises, my instant reaction to the proposed budget is that it is a mixed bag.

I say mixed bag because there are some contradictions in the desperate attempts to be populist or, as our sister newspaper Weekend Nation put it a ‘Voters’ Budget’, while at the same time depriving some critical sectors that can help revitalise the economy.

In the proposed budget to cover nine months to facilitate the transition to the new financial year cycle to start next April 1 instead of July 1, the Minister of Finance has projected expenditure at K1.9 trillion, revenues at K1.1 trillion, grants at K70.3 billion and the budget gap or deficit at K718.3 billion.

The campaign promises incorporated in the budget include the duty-free week on imported items worth a maximum of $3 000 (about K2.4 million), scrapping of connection fees for water and electricity not forgetting the maintaining of the Affordable Inputs Programme (AIP). On the duty-free week, I hope practical checks will be put in place to avoid abuse.

High income earners will now pay tax of up to 40 percent while a majority of Malawians in the K100 001 to K1 million bracket will be taxed at a quarter of their pay (25 percent). From the horse’s mouth, Mlusu said the tax measures, especially the introduction of two new income tax brackets of 25 percent and 40 percent is meant to promote distribution of wealth and increase disposable income for low income earners. But then, how many people earn more than K6 million a month in this country? I doubt they exceed 500.

Taxes on beer have also been reduced while printed books and ethanol will now be zero-rated.

In a nutshell, the proposed budget appears to back up President Lazarus Chakwera’s medium term priorities of wealth creation, job creation and food security.

Besides, the allocation to the development budget at K570.8 billion or 5.6 percent of the K8.1 trillion rebased gross domestic product (GDP) makes it pass the ‘development budget test’ because it exceeds the 25 percent threshold. Precisely, the allocation accounts for 28.6 percent of the whole budget.

On the other hand, I see the budget deficit at K718.3 billion as the downside despite it being lower than the K811 trillion in the current fiscal year budget expiring this June 30. The deficit means more borrowing on the part of the Malawi Government.

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.

Despite the shortcomings, my take is that given the realities on the ground amid the Covid-19 pandemic and its economic impact globally, Mlusu has made bold attempts to walk the tight rope and balance all competing needs. But still, he could have done better by working out a radical budget to heal the economic wound.

The incorporation of some populist campaign promises may give a flicker of hope that despite the turbulence, the destination ‘remains’ the Promised Land of Canaan. However, the real test of the budget will be how policies will translate into job creation, yes, the real “one million jobs”, not “jabs” as people on the street put it.

In this regard, it may be too early to celebrate because it is one thing to lay out a financial plan and a different ball game altogether to implement it. In fact, budgets, even at household level, are not cast in stone; hence, they are adjusted now and then to match the available resources. This is where the problem arises!

In recent years, we have seen some promising budgets which, unfortunately, did not translate to benefits on the ground as social services faced substantial cuts in funding, rendering them useless. Plunder of public resources, estimated to drain 30 percent of funds approved by Parliament, is yet another pressure point. This calls for full implementation of public finance management measures to seal the loopholes.

At the end of the day, it is implementation that will define the success of the budget. Best practices in implementation demand that financial resources be extended as allocated. This ensures that the objectives articulated on paper trickle down to the ground.

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