23/10/19

Mid-Year Budget Review 2019

The Minister of Finance announced in his Mid-Year Budget Review for FY2019/20 that both the revenue and expenditure forecasts for this year will remain unchanged, at N$58.4 billion and N$66.6 billion respectively. This leaves the deficit for this year unchanged at N$8.1 billion, or 4.1% of GDP.

However, significant reallocation within the budget took place. After the much celebrated 42.3% increase in the Development Budget in March, just shy of N$1 billion (12.7% of the Development Budget) has been shifted to plug gaps in the Operational Budget. This has been the case over the past few years, sacrificing capital spend in order to cover recurrent expenditure. This is problematic, as capital expenditure plays an important role in growth-generating activities, such as through infrastructure allowing businesses activities to expand (provided the capital spend is not on vanity projects).

This mid-year budget mentioned little in the way of tax. No specific mention was made of the dividends tax. However, no new additional taxes were introduced. The Minister made mention of research into a lower tax regime for small businesses. This, the Minister said, should be a means for encouraging entrepreneurship and business growth.

The talk of a lower tax for small businesses is a welcome development. Namibia’s standard corporate tax rate (for non-mining companies) is one of the highest on the continent, at 32%. This, combined with the stagnating economy, acts as a further hurdle to small businesses and start-ups.

However, a lower tax regime alone will not be sufficient. Complementary policy must also be put forward, specifically that which improves the business environment in Namibia. A shift towards pro-business policy and rhetoric is required. Such will need to be followed by firm actions, such as reducing general bureaucracy, introducing the national Single Window Facility, reducing inputs costs such as water and electricity, and work visa reform (amongst others).

Why the focus on small businesses? Namibia’s unemployment rate was reported at 33.4% in the 2018 Namibia Labour Force Survey Report. While this is an improvement from the 34.0% in 2016, further inspection shows that the situation remains bleak. The official youth unemployment  rate (ages 15-34) is at 46.1%, while the unemployment rate for ages 15-24 is a staggering 60.0%. The Agriculture, forestry and fishing sector is the single largest employment sector, accounting for 23.0% of total employment, and 19.8% of Namibian households rely on subsistence agriculture as their main source of income. This comes at a time when Namibia is undergoing another devastating drought – officially declared a national disaster earlier this year.

In addition to this, the Minister revealed during a mid-year budget discussion that only about 12% of Namibian citizens pay personal income tax. With 30% of the total population (all citizens and permanent residents, not just the labour force) employed, this means that just 2 out of every 5 working persons pays income tax – a large burden to bear for those who are fortunate enough to have gainful, salaried employment.

Encouraging small business and entrepreneurship is one avenue to improve this situation, although it must be cautioned that it alone will not be enough. By reducing the hurdles to starting and running a (small) business, we should see more entrepreneurs come to the fore. This, in turn, will increase employment, which in turn improves government revenue through a better tax take (business tax, income tax, VAT), and also improve growth as more value addition takes place. Encouraging small businesses and entrepreneurship is a step in the right direction, we just need to make sure we stay on this path.