The 2017 Budget should demonstrate fiscal sustainability BY MALLY LIKUKELAAs preparations for the 2017 National Budget gather momentum and a greater participation by various stakeholders becomes evident. The budget is a tool whereby government sets out priority programmes for economic transformation and builds shared prosperity, fiscal sustainability and remains a prerequisite for its effectiveness today and tomorrow. Fiscal refers to government spending and investing activities and how these are financed through taxes, debt and other liabilities. Sustainability means having the ability to maintain or support government programmes in the future.
The 2017 national budget comes at a time when government is cash strapped, mounting public debt and public discontent, amongst other economic and social challenges. These developments have increased uncertainty and led to negative expectations and thus making the 2017 national budget a special case. The budget is thus expected to demonstrate practicality and clarity on how government will prevent a collapse of the economy during the next 12 months and beyond to steer the economic in the right direction far away from an economic recession and send a convincing message to rating agencies that it is in control.
Fiscal sustainability
Namibia's public debt grew by N$50 billion from 2010 to 2016, sparking fears among many Namibians over the sustainability of this debt without burdening future generations with high debt servicing costs.
Fiscal rules which simply refers to statutory or constitutional restrictions that set specific limits on fiscal indicators such as budgetary balance, debt, government spending, or taxation must be adhered to at all costs. These rules are critical to demonstrate that government will honour commitments made. In the face of dwindling SACU revenues and low expected domestic tax revenue, achieving fiscal sustainability will require that government tightly matches revenue to expenditure in order to avoid defaulting on international debts. With international agencies having already raised serious concerns regarding public debts, defaulting on international debt will have a negative impact on the country's fiscal profile with far-reaching implications on the economy's ability to attract foreign direct investment (FDI). Therefore, the budget needs to spell out debt ceilings to avoid digging new holes to fill the old ones. Achieving this requires government to make tough decisions not only on non-essential expenditures, but also on expensive vehicles, resource wastage and corruption.
Stable economic growth
It's clearly evident by now that 2016/17 growth will have to be revised downward and outlook remained gloomy. The 2017 budget therefore should aim to inspire sustainable economic growth that is supported by a culture of productivity and expenditure should be matched with results and/or returns and performance agreements to be enforced across the board i.e. Ministers, deputy ministers, CEOs, directors, etc. Those that fail to deliver must be held accountable.
The budget should clearly demonstrate how growth ambitions are contained in policies such as the Harambee, Vision 2030, NDPs, NEEEF, etc and create new business that create new jobs, allowing government to collect taxes with minimum costs. The budget should set the tone for inclusive economic growth and business for all. The perennially neglected informal sector should form part of the mainstream economy and supply chain to increase the tax base. Though experiences have shown it is hard to collect taxes in informal settings, the envisaged Tax Revenue Authority should be charged with that task.
Tax Regime
The 2017 budget needs to provide a stable tax regime that will attract investors while driving existing and new business towards value creation and productivity. Furthermore, it's critical for the 2017 budget to create an enabling business environment for new investments that will bring new jobs, broadening the tax base rather than increasing taxes on already struggling companies.
Responsible Investment
The Bank of Namibia has estimated that over the next five years or so Namibia will require more than N$220 billion to finance the needed infrastructure projects. Of this amount, the highest requirement should go to rail, energy, housing and port infrastructure. Experience elsewhere has shown that investing in infrastructure makes the country an attractive investment destination. Responsible investment enhances the country's investment profile while motivating locals towards productive and sustainable economic development. The 2017 budget needs to reflect a sustainable national investment profile supported by responsible investment values.
Sustainable private sector.
According to the 2016-2017 Global Competitiveness Report of the World Economic Forum, Namibia is now ranked 84th. This calls for a serious attention. As such, the budget needs to reflect ambitions to build a competitive and sustainable private sector that is driven by international best practices and values.
Economic Diversification
Many countries, including Namibia, are bearing the pain of depressed mineral prices, having placed too much hope on the mining sector. Economic diversification is vital to a countries' long-term economic growth, but many resource-rich countries, including Namibia remain heavily reliant on revenues generated by mining and very few sectors. A multiple sector approach to fiscal revenue embedded in the budget is crucial as it provides an avenue for different sectors' contribution to the fiscus. As already identified in the Vision 2030, it is crucial to promote priority sectors like agriculture, manufacturing, tourism and finance services in addition to mining.
Cabinet and Legislature size
Finally, apart from re-looking at the non-essential expenditure items, government should look also at the size of cabinet and legislature and executive composition. The number of ministries, ministers and deputy ministers as well as executives is simply too high. If a large country such as China is run successfully by a sizable number of standing committees of its political bureau, then Namibia does not need all those ministries and a whole lot of advisors to run a small population and even smaller economy. Restructuring of the Executive is, therefore essential as a matter of principle in the 2017 budget and all savings from trimming the bloated Executive and Legislature should be channelled towards more pressing needs facing the country.