Mthuli unveiled balanced approach budget

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It is a win-win budget that gives a shift towards industrial growth on the one hand while addressing the needs of the poor on the other hand.

By Misheck Ugaro

In typical practical economics definition of allocating limited resources to unlimited ends, the Finance, Economic Development and Investment Promotion Minister, Professor Mthuli Ncube, needed to begin to transform the economy into a sustained industrial growth pattern. Calls had been made by both the social and business sectors to provide job creation capacity to industry while improving the quality of life of the people at the same time.

The 2025 National Budget statement shows a commendable effort designed at meeting both ends with Primary and Secondary Education receiving the highest vote of ZiG46 billion, followed by Health and Child Welfare at ZiG28 billion, Lands and Agriculture at ZiG22 billion, Defense at ZiG18 billion and Public Service and Social Welfare at ZiG10 billion.  These five critical areas account for 45 percent of the budget allocations and they are the critical lines through which to share with everyone the benefits of economic growth in line with the rallying call to “leave no one and no place behind”.

It is, however, notably disappointing though to see in the statements that the Public Service and Social Welfare line had the lowest utilisation rate of just 18 percent on the January to December 2024 out turn showing a need to review the drawdown processes to enable the end beneficiaries to access. It is also further notable that while one of the three main assumptions formulating the 2025 budget is that of a stable energy supply, the line ministry has only been allocated ZiG289 million although the tax incentives also proposed are an incentive for private investment in the sector.

The budget was crafted taking into account the actual performance for the nine months period January to September 2024, where actual revenue collections stood at ZiG62,40 billion, comprised of tax revenue of ZiG58,40 billion (93,6 percent of total revenue), and non-tax revenue of ZiG4 billion (6,4 percent) of total revenue against expenditures of ZiG66.54 billion, with MDAs’ utilisation of 76 percent of the provisions comprising of recurrent expenditures of ZiG49,58 billion and capital expenditure of ZiG16,96 billion.  This shows a budget deficit of ZiG4 billion.

The revenue make up shows that VAT contributes the biggest revenue line for the treasury at 26 percent followed by personal income tax at 21 percent and corporate tax at 9,4 percent. The controversial IMTT contributed 5 percent to revenue collections and business had called for an abolition of this stream in order to improve the ease of doing business going forward. It was anticipated that the downside risk to revenues from this action would be offset by both improved profits and rising corporate tax revenues as well as that coming from widening the tax base through innovative presumptive tax measures on the informal sector.

The minister, however, has introduced a 10 percent withholding tax in the betting industry which was untaxed hitherto. He has also introduced a 20 percent plastic tax on the sale price of the same.

The minister presented the forecast total revenue collections to year end 2024 at ZiG110,7 billion, against forecast expenditures of ZiG119,97 billion showing a budget deficit of 1,4 percent of GDP.

The above scenario results in a projected GDP growth of 2 percent largely impacted by the agriculture sector which declined by 15 percent albeit an improved position compared to the originally forecasted decline of 21 percent. This is a result of the El Nino induced drought experienced by the country.

Given the background above, the Minister has made a commendable effort towards meeting the expectations of the market in this ZiG276 billion budget with targeted revenues of ZiG270 billion resulting in a budget deficit of 1,4 percent. Total bids had been at ZiG700 billion representing a figure more than three times the available resources. As indicated earlier, calls from partners on the social dialogue platform of the Tripartite Negotiating forum (TNF) were for a pro employment budget that would focus on job creation through promotion of industrial growth.

The proposed 2025 budget contains several measures that are designed to promote investment in particular in the vehicle manufacturing industry, the ICT sector and the energy sector through the extension of the VAT deferment facility and is based on the following key assumptions:

1. The GDP growth of 6 percent in 2025 is based on recovery of the agriculture sector
2. Improvements in electricity generation, and
3. Expected stability in commodity prices in the mining sector.

In balancing the need for protecting the social sector, the minister has reviewed the income tax bands and in nominal terms look to offset the recent inflationary pressures experienced from August to October. Further, there has been a reduction on beverages Sugar Content Tax Beverages’ Sugar Content on cordials from US$0,001/gramme to US$0.0005/gramme. This will provide much relief to the consumer market which will also enjoy the removal of VAT on liquid petroleum (Gas) thereby alleviating pressure on gas prices which many households use for domestic needs.

On the need to promote industrial growth and move the country up the value chain, the minister has commendably proposed an extension of VAT Deferment in the Energy Sector, which supports one of the critical assumptions above of a stable energy sector. In line with global technology developments, Mthuli has proposed:

1. A reduction of Customs Duty on Electric Motor Vehicles
2. Extend rebate of duty on equipment used for setting up Electrical Vehicle Solar Powered Charging Stations.
3. Suspension of Duty on Inputs into Production of Motor Vehicles in order to support the local assembly of motor vehicles.

These measures should promote a shift in investment towards these modern environmentally friendly sectors and create job opportunities. As the country moves towards the end of the NDS1 implementation period, this budget can usher in the beginning of NDS2 which should completely shift the structure of the economy towards a manufacturing base buttressed by robust agriculture and mining sectors going forward in 2026.

Misheck Ugaro is the past vice president of the Zimbabwe Economic Society. He is a financial economist with an investment banking background. He is reachable on mugaro69@gmail.com and 0777052004.