The National Budget and the crisis of inequality-Towards a pro-poor 2023 National Budget in Zimbabwe

By Angellah Mandoreba

The National Budget is not only an instrument to provide revenue estimates and allocating resources to various ministries, departments, and agencies (MDAs) but is an important fiscal policy which when formulated and implemented efficiently and effectively can significantly contribute towards poverty and inequality reduction. The budget has a direct impact on citizens’ lives and therefore must respond to their needs and aspirations. Nevertheless, the capacity of the national budget to achieve the latter largely rests in its redistributive capacity. The redistributive effect of the budget is determined by the extent to which it redirects resources from where they are highly concentrated to where they are less concentrated. The essence of the national budget becomes more important in a context where poverty and inequality are on the rise. Given the high levels of poverty, hunger, and inequality in Zimbabwe, it is high time the government renews efforts to implement pro-poor national budgets with inequality bursting measures and the 2023 budget must do exactly that.

An overview of the inequality crisis in Zimbabwe

Zimbabwe is one of the most unequal countries with evidence highlighting the concentration of wealth and economic resources in the hands of the few whilst most citizens are impoverished. The COVID-19 pandemic revealed rather than conceal inequality in the country. The detrimental effects of COVID-19 also accelerated the rising poverty levels on employment and streams of income for most citizens especially in view of movement restrictions. A survey by Gallup (a global analytics and advice firm that helps leaders and organizations solve their most pressing problems), indicated that in late 2020 and early 2021, on average, more than 60% of citizens in six (6) SADC countries, Zimbabwe included, reported lost income and work, a record among the highest impact of COVID-19 on work and earnings seen globally. The World Bank also estimated that approximately 7.9 million Zimbabweans are now living in extreme poverty, under the food poverty line of US$29.80 for each person a month. The Zimbabwe’s Human Development Index (HDI) for 2021 positioned Zimbabwe at 150/180 countries with a value of 0.571 and having factored in the Inequality-adjusted HDI (IHDI), Zimbabwe’s HDI drops to 0.441 thereby bringing to light the extent to which the country is inequality infested. The HDI is a summary measure of average achievement in key dimensions of human development: a long and healthy life, being knowledgeable and having a decent standard of living. The IHDI takes into account inequality in all three dimensions of the HDI by ‘discounting’ each dimension’s average value according to its level of inequality.” The 2022 Commitment to Reducing Inequality Index (CRI) produced by Oxfam and Development Finance International which ranks 161 governments worldwide on the extent to which they are taking steps to reduce inequality ranked Zimbabwe 139 out of 161 countries globally and 24 out of 42 countries in the Sub Saharan region. The index ranks governments’ efforts based on actions in three areas or pillars vital to reducing the level of inequality, which are social spending, taxation, and labor. The ranking calls for renewed and concerted efforts to reduce inequality in the country and the 2023 National Budget presents that opportunity.

Towards a pro-poor 2023 National Budget

The 2023 National Budget presents yet another opportunity to address the crisis of inequality in Zimbabwe and lift millions of citizens out of poverty, hunger, and deprivation. This can be achieved through:

1. Provision of adequate social protection

The COVID-19 pandemic worsened social vulnerabilities in the country. The 2023 National Budget must prioritise improving the welfare of ordinary citizens through provision of adequate and sustainable social protection. Social safety nets are an important mechanism to address poverty and reducing inequality. The Minister of Finance and Economic Development must allocate at least 4.5% of the National Budget towards social protection in line with the Africa Social Protection Policy. Resources must also be allocated to cater for the People with Disabilities including those in schools including making a provision for their assistive devices. The budget must also make provisions for safeguarding resources allocated towards social protection to ensure that they reach intended beneficiaries through putting in place deterrent mechanism frameworks against perpetrators.

2. Adequate and affordable healthcare and education

The COVID-19 pandemic has brought to the fore the inadequacies of the country’s public healthcare systems. Citizens’ right to basic healthcare is compromised. The 2023 National Budget must prioritise allocating sufficient resources towards motivating health workers and practitioners. In addition, primary healthcare centres must be fully equipped and capacitated with medical drugs and equipment and maternal healthcare must be adequately funded to address the plight of women. On the education front, resources must be set aside to strengthen the BEAM facility and cater for vulnerable children especially those in rural areas for them to have equal access to education. Free Early Childhood Development in rural and peri-urban areas must also be supported. A sustainable school feeding programme must also be a priority.

3. Adopting a progressive taxation system

Zimbabwe’s current taxation system is biased towards advancing the interests of the rich individuals and corporates whilst prejudicing the poor. The system is unfair as it generally benefits higher sections of the society yet people with lesser incomes are burdened with higher rates of taxation, yet they benefit very little from the taxes they pay as evidenced by poor public service provision. It perpetuates poverty as it takes more from those with less and takes less from those with more This is in violation of Section 298 (1) (b) (i) of the Constitution which stipulates that the burden of taxation must be shared fairly. However, the logic is simple – Progressive taxation plus progressive spending challenges inequality.

For starters the government must therefore consider reforming the current tax system in the 2023 National Budget by:

1. Scrapping or at least pegging the 2% tax above the poverty datum line - The average salary for civil servants is ZW$118,000 factoring in the COVID-19 allowance of US$75 converted into ZWL at interbank rate of US$1:ZW$628. In May, the Consumer Council of Zimbabwe revealed that a family of five required $120 000 a month to survive, but inflation shot to 191,7% in June and 256% in July. Already, without putting into consideration tax obligations, such an income is already way below the poverty datum line considering the skyrocketing inflation. Given the high inflationary environment, the ordinary citizens’ disposable income is continually decimated and the 2% tax on online transactions is worsening the situation. The Minister of Finance and Economic Development must therefore consider scrapping or at least pegging the 2% tax above the poverty datum line. This must be complimented by regularly reviewing the 2% tax free threshold cognizant of currency instability, inflation and market volatility and align the thresholds to poverty datum line.

2. Introduce a Redistributive Wealth Tax - Wealth tax is a morally just measure and an important vehicle towards resource redistribution in Zimbabwe by ensuring that each individual pays according to his or her capacity to pay. There is an urgent need to redistribute concentrated wealth and economic power to ensure decent living standards of the majority poor. Evidence suggests that a considerable number of citizens across SADC, Zimbabwe included, strongly support more progressive tax systems. An Afrobarometer survey covering 8 of the 15 countries in the 2021 CRI report found that nearly two-thirds of citizens in SADC think it is fair to tax rich people at a higher rate to help pay for government programmes that benefit people living in poverty. In the case of Zimbabwe, 51% of the population supports such progressive taxation.

3. Levy a once off COVID-19 Windfall Tax - Ever since the COVID-19 pandemic struck, big corporates particularly those in the mining, fuel and telecommunications sectors have made huge profits for shareholders and executives. This is happening at a time when social vulnerabilities are worsening amidst rising levels of poverty and inequality. There is room for such corporates to share the burden of addressing the COVID-19 impacts on vulnerable groups. In the mining sector for instance, we have Additional Profit Tax, on paper that is meant to increase the government's share of revenue when windfall profits are generated. Only one mining company is eligible because it is a holder of a special mining lease, Anglo American-owned Unki Mine. Making additional profit tax applicable to all mining companies who generate for example more than US$10 million annual revenue could address poverty and inequality concerns. Furthermore, the reduction of Corporate Income Tax (CIT) from 25% to 24% during the pandemic is also regressive as there is room to stagger CIT like PAYE.

4. Introduce and provide for Lifestyle Audits for public officials to reduce fleecing of the national purse which tends to shift the burden of resource mobilisation through unfairly taxing ordinary citizens.

Angellah Mandoreba is the National Coordinator of the Fight Inequality Alliance Zimbabwe, convened by the Zimbabwe Coalition on Debt and Development (ZIMCODD). She writes in her own capacity.