Does government ‘buy’ votes?

Elections and budgets have a complex two-way relationship: in principle, good budgets can lead to good election results, while good election results can provide a mandate to execute good budgets, says the Institute of Public Policy Research (IPPR).Since Independence, Namibia has had presidential and national assembly elections every five years. The nation is heading to the polls for the seventh time at the end of this year.Does government indulge in election budgets? The IPPR examined this issue in a special feature in its latest quarterly economic review.According to the IPPR, “no particular pattern” emerged from the seven ‘election budgets’ it scrutinised.“Admittedly, the concept of an electoral bribe is a nebulous one and it is not always easy to distinguish between an outright bribe and a sensible fiscal measure. And what is the difference between electoral bribes and responding to democratic pressure?” the local think tank comments in its analysis.It also notes that a strong political mandate can lessen the need to offer electoral sweeteners prior to elections.1994/95The 1994/95 budget speech was tabled by finance minister Gert Hanekom, who mentioned the forthcoming elections – independent Namibia’s first – and recalling that the previous year’s budget had not been a popular one.Hanekom expressed the hope that the 1994/95 budget was to be “less unpopular” than the last, as the economy was expected to recover after several years of stagnation.Namibia's public debt was projected to reach 24.6% of the gross domestic product (GDP), though still relatively low compared to other African nations. Civil service salaries accounted for 49.6% of total spending, reflecting the policy of retaining existing employees for racial balance. Cabinet set four goals for the budget: ensuring financial stability, bolstering reserves, fostering growth, and addressing social disparities. Emphasis was placed on cultivating an investor-friendly atmosphere.The budget introduced new individual income tax scales and raised the tax threshold to N$10 000. Additionally, it extended tax incentives for manufacturing exports, except for fish or meat products, exempting 80% of profits from taxation.“All in all, there was little in the budget to suggest it was designed in any obvious way to win an election rather than help meet government’s longt-erm objectives,” the IPPR says.1999/2000Finance minister Nangolo Mbumba, currently the president of Namibia, tabled the budget without mentioning the upcoming elections at all.However, he did say that the approved employment of about 9 000 ex-combatants in the civil service, known as the Peace Project, would boost real value added by government considerably. Civil service salaries were temporarily frozen due to the project.Mbumba acknowledged challenges in implementing wage recommendations and proposed revisiting policies for downsizing the civil service. He discussed public enterprise reform, considering the creation of a State Enterprise Management Board and privatisation of entities like NamPower and Telecom. Poverty alleviation efforts included employment programmes, social pensions for older war veterans and initiatives like the Poverty Reduction Strategy. Public service employment was expected to rise, and capital expenditure projected a 22% increase compared to the previous year's decrease.Mbumba addressed tax system improvements, announcing plans for value-added tax (VAT) introduction after elections and appointing a tax advisory committee for comprehensive review. VAT would feature a dual-rate system and zero-rating to assist the poor. Previous tax increases were reversed, with corporate income tax lowered to 35% for non-mining firms and 5% for non-diamond mining companies. Individual tax reforms included raising the income threshold to N$20 000, reducing tax bands and adjusting marginal rates. Cabinet approved fuel levy increases to support tax reforms.2005/05Finance minister Saara Kuugongelwa-Amadhila, now prime minister of Namibia, presented the 2004/05 budget, noting a global economic recovery amidst domestic economic challenges. She didn’t mention the upcoming elections, which were to be the first in which Founding President Sam Nujoma was not Swapo’s presidential candidate.“Perhaps unsurprisingly given the technocratic background of the new minister, her first budget speech was a remarkably technocratic affair focusing on budgeting and financial sector issues and highlighting the creation of the Development Bank of Namibia, the new Central Governance Agency, the restructuring of Air Namibia, the establishment of a new Sacu Secretariat, the introduction of the land tax and a sovereign debt management strategy,” the IPPR says.Kuugongelwa-Amadhila anticipated that the debt would escalate to 32% of GDP by the fiscal year's end, surpassing the government's self-imposed target of 25%. The budget did not introduce any fresh tax initiatives. Notably, the social pension saw an increase from N$250 to N$300 monthly, an arguably electorally striking measure.“The minister’s austere and technocratic approach resulted in Namibia achieving its first budget surpluses a few years later, something that has never been repeated,” the IPPR points out.2009/10Kuugongelwa-Amadhila tabled the budget in the midst of the global financial crisis.According to the IPPR: “For the first time, a Namibian minister of finance addressed the issue of election budgets by stating that ‘some local analysts have been suggesting that this budget will be an election budget’ but that ‘we in Swapo Party are always responsive to the needs of our people, not only during election years’.”Over the past four years, the minister significantly boosted revenue, achieved three consecutive balanced budgets, and reduced public debt levels. Though not explicitly stated, this positioned Namibia well to withstand the global crisis, aided by reduced interest rates. Under the strategy "Weathering the Storm," measures were taken to manage the financial crisis, increasing public debt to GDP ratio from 21.7% to 29%. Tax changes included adjustments to gratuities, pensions and a raised personal tax threshold to N$40 000. Corporate tax for non-mining firms decreased to 34%, while transfer duties on commercial farms were modified. An environmental levy was introduced on disposable goods, and certain essential items were zero-rated for VAT.2014/15Kuugongelwa-Amadhila tabled her last budget amid a backdrop of a gradually stabilising global economy following years of volatility. Namibia's economy demonstrated robust growth post-global crisis, with decreasing inflation and interest rates. Additionally, the country's sovereign credit ratings with Moody's and Fitch were reaffirmed, alongside the successful issuance of its inaugural Eurobond.The budget stressed the success of the Targeted Intervention Programme for Employment and Economic Growth (Tipeeg), with N$14.5 billion allocated over three years, resulting in the creation of 83 315 jobs. The development budget was set to increase by 17.6% compared to the previous year. Debt was projected to rise to 27.2% of GDP. Notable tax adjustments included a reduction in the corporate income tax rate from 35% to 34% and an increase in the VAT threshold from N$200 000 to N$500 000. Grants for orphans and vulnerable children were raised to N$250 per month, while the social pension remained unchanged following increases in the preceding two years.2019/20Finance minister Calle Schlettwein, now the minister of agriculture, water and land reform, tabled the budget in a period late president Hage Geingob called the “Year of Accountability”.According to the IPPR: “Growth had flatlined since 2016 and it was far from clear who was going to be held accountable. Public expenditure and borrowing had gotten out of control necessitating a period of fiscal consolidation, something the minister himself recognised, stating that ‘at 49.2% of GPD, total debt will not allow for further aggressive debt financing as this is not a sustainable option’.”Schlettwein argued that the budget aimed to stimulate growth, reduce the budget deficit and implement structural policy reforms effectively. He outlined extensive tax reforms, including the elimination of Export Processing Zone (EPZ) incentives, implementing a 10% dividend tax for residents, as well as modifying taxation for trusts, charitable institutions and retirement fund contributions. VAT changes were proposed for asset managers and share sales, while zero-rating on sugar was abolished. Royalty deductibility for non-diamond mining entities was also discontinued.Additionally, new environmental levies were introduced, along with adjustments to tax administration. The social pension saw an increase of N$50 to N$1 250 per month.2024/25Finance and public enterprises minister Iipumbu Shiimi tabled the budget in the wake of the death of Namibia’s third president, Dr Hage Geingob.Since the previous election, Namibia had been hit by the Covid-19 pandemic and the rise in global inflation brought about by Russia’s full-scale invasion of Ukraine in February 2022.“Since the onset of Covid, the minister’s main macroeconomic fiscal objective had been to stabilise levels of public debt which had threatened to exceed 70% of GDP. By the time of the budget the global economy was ‘showing resilience in the fact of significant adverse risks that prevailed since the onset of the global pandemic’ and the domestic economy was in the process of a full recovery although inflation and interest rates were still higher than they had been for some time,” the IPPR says.Shiimi announced a 5% wage increase for civil servants and introduced significant tax adjustments. These included raising the personal income tax threshold from N$50 000 to N$100 000, and confirmed reductions in corporate income tax rates to 31% from January 2024, 30% from January 2025, and 28% by 2026/27. Corporate tax within Special Economic Zones would be set at 20%.The VAT threshold would rise from N$500 000 to N$1 million, benefitting approximately 23 000 SMEs. An Internship Tax Incentive Programme was proposed alongside changes to building deductions and transfer and stamp duties.‘Nothing peculiar’Noting that “no peculiar pattern” is observed in budgets in election years, the IPPR says “most revenue and expenditure measures form part of legitimate longer-term economic objectives set within a resource envelope defined by global and domestic economic conditions over which ministers of finance have little control”. “It is hard for Namibian governments to engineer economic booms, especially when public debt levels are high, which has been the case for most of the period after Independence (although the term ‘high’ itself has changed over time),” the think tank adds.The IPPR continues: “One may suspect that there are specific actions that the government may employ in election years to sweeten the electorate, for example raising the state pension (older people may be more likely to vote which is the case in many other countries) or increasing the pay of civil servants. But then again raising pensions and public sector pay are government objectives which people understand it will pursue when circumstances permit.” The IPPR says it is possible that the development or capital budgets contain “electoral bribes” targeted on particular locations. The Northern Railway Line Extension or the Neckartal Dam may be examples of this. “They may not make much of a direct electoral impact but they do allow government to say they are addressing the needs of particular parts of the country whatever their usefulness might be.”While drought, HIV/Aids, the Covid-19 pandemic and other situation-specific measures have given rise to action, “these are surely completely legitimate and simply come about as a democratic government responds to the needs of the population”, the IPPR maintains. ‘Peace Project’Perhaps the most political issue government has had to deal with over the years has been addressing the plight of ex-combatants in the 1990s, the think tank says.“It took political competition for government to finally grasp this nettle a decade after Independence, which surely required action. The ‘Peace Project’ kept the peace at an affordable price to the fiscus.”The IPPR says it is remarkable that a finance minister was able to tighten the fiscal reins in the way Kuugongelwa-Amadhila managed to do in the mid-2000s: “Perhaps a reflection of what could be done while Swapo was at the height of its electoral powers and the economy was growing. This enabled government to respond to the downturn brought about by the global financial crisis.”The IPPR concludes: “It seems that technocratic ministers of finance like Kuugongelwa-Amadhila and Shiimi are allowed to do what they believe to be right without undue interference from other cabinet colleagues, provided they do not undertake radical reform of Namibia’s two holy cows: the public service or the public enterprise sector.”

Does government ‘buy’ votes?

Comments

Namibian Sun 2024-12-26

Please login to leave a comment

Does government ‘buy’ votes?

Comments

Namibian Sun 2024-12-26

Please login to leave a comment

Login