National Budget 2005/06

1. National Budget 2005/06 A presentation by the Institute for Public Policy Research 16 May 2005

2. Budget presentation • MTEF fiscal framework • Revenue • Expenditure • Recommendations

3. Fiscal targets * Excludes loan guarantees and other contingent liabilities

4. MTEF framework

5. Points to note • Actual revenues look to be higher than forecast revenues (with the exception of 2003/04) • Actual expenditures look to be higher than forecast expenditures • Actual budget deficits look to be higher than forecast for 2001/02, lower than forecast for 2002/03, far higher than forecast for 2003/04 and higher for the latest MTEF for 2004/05. • The latest four MTEFs (2002/03-2005/06) have all forecast declining revenue, expenditure and deficit but there is no sign that this is taking place. • In spite of introducing a spending target of 30% of GDP in November 2001 spending remains at or above 35% of GDP.

6. Questions • Is spending target really 30% of GDP or lower? • Will spending really fall by 5% of GDP in next two years? • Is reduction in spending due to limited revenues or due to belief in economic benefits? • Does MTEF framework boost credibility and reduce uncertainty?

7. Conclusions • MTEF has not presented accurate picture of future revenue and expenditure • Spending stuck at 35% of GDP • MoF does not achieve targets so why should anyone else? • Focus on spending under MoF’s control

8. Revenue highlights • 25% increase in income tax? • Non-mining corporate tax doubled in five years? • Mining royalty tax? • Parastatal dividend policy? • Halving of diamond royalties? • Contribution of land tax?

9. Revenue highlights • Non-tax revenue down by 25% (tax revenues up by 4%)? • Miscellaneous N$121.8 million under Defence? • Park entrance fees down by N$3 million? • No sale of GRN houses?

10. Expenditure highlights • MTEF vs budget eg. Vote 01 • Combatting of crime down • Defence up • Reduction in primary education and health care • Social welfare?

11. Expenditure highlights – defence spending

12. Expenditure highlights • AALs interest and arrears • Ostrich industry subsidies • N$50 million to land purchases (only N$3.9 million spent in 2003/04!) • N$53 million for Film and Video

13. Recommendations - revenues • Don’t raise tax revenue just because you can • Don’t introduce new taxes until existing taxes fully exploited • Don’t spring tax surprises on economy • Don’t state vague intentions to introduce new taxes • Don’t use monopoly parastatals to raise revenue • Aim to reduce corporate tax rate and eliminate special tax incentives • Focus on non-tax revenues

14. Recommendations - spending • Limit spending on unproductive items • Focus spending on productive items • Reform must precede more spending on education • Increase spending on cash transfers • Streamline structures to reduce spending • Benefits of achieving spending target