‘Mellow’ budget spending, no more drastic cuts

Jo-Maré Duddy – Government will maintain a “more mellow” consolidation stance until 2022 to protect macro-economic stability rather than the approach of drastic spending cuts it has followed since 2015.

This is to ensure that basic public services in especially the social sectors like education and health are not interrupted, finance minister Calle Schlettwein said yesterday.

Speaking at a mid-year budget review breakfast hosted by PwC Namibia, Standard Bank Namibia, Liberty Namibia and Namibia Media Holdings (NMH), Schlettwein said the prolonged period of consolidation of recent years contributed to a decline in economic growth. Namibia has so far recorded nine consecutive quarters of negative growth.

“We have a situation where we’ve enjoyed too much of the good and we are now suffering a hangover and that’s painful,” he said.

“We couldn’t maintain the high level of spending with debt take-up. And that growth loss then unfortunately also translated into job losses and in declining consumption, which then perpetuated the contraction of economic growth,” Schlettwein said. This is a trade-off the country had to take, he added.

At around 45% of gross domestic product (GDP), government’s debt levels are high, but not as high as the global figure of 82%, Schlettwein said. Poverty alleviation and equalisation measures tend to be crowded out by debt servicing obligations in situations like this. Government needs to avoid this, he said.

With revenue from the Southern African Customs Union (SACU) under pressure, government needs to find a replacement just to maintain spending levels, let alone increase them, the minister said.

Tax

“To tax an economy that is in a downturn is a tricky matter,” Schlettwein said.

Government, however, believes certain principles in a tax system must be maintained.

In a skewed economy with wealth distribution as its base, a progressive tax system needs to be implemented to attack inequality, he said. In addition, all taxable income – regardless by which sector or institutions generates it – need to be taxed equally.

Schlettwein said these two principles will give government “some room to improve the revenue base”. “But not in an aggressive way that it would kill the economy,” he added.

The minister reiterated that consultations with all stakeholders on the proposed tax reforms will continue until “all of us are able to buy in”.

Commenting on the proposed new brackets for personal income tax, Schlettwein said government is aware that individuals bear a bigger tax burden than the corporate sector. “We believe that a progressive individual tax basis is not a wrong principle, but we have looked at it and saw to what extend it may harm individuals. We will discuss it,” he said.

He is “looking forward” to receiving revised tax proposals that will flow from a working group forum created with the private sector stakeholders.

“The intend of our tax proposals must remain to improve and stabilise our revenue base, while at the same time ensuring that the Namibian economy remains an attractive and competitive investment home.

“A tax system that is killing or dampening business is not a good tax system, so we have to avoid that and that is why we are consulting,” Schlettwein said.