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Turning the Fiscal Tap Wide Open and the Known Unknowns

Turning the Fiscal Tap Wide Open and the Known Unknowns. Robin Sherbourne Old Mutual Group Economist 10 March 2011. I have been asked to address the following issues:.

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Turning the Fiscal Tap Wide Open and the Known Unknowns

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  1. Turning the Fiscal Tap Wide Open and the Known Unknowns Robin Sherbourne Old Mutual Group Economist 10 March 2011

  2. I have been asked to address the following issues: The effectiveness of the national mitigating measures introduced by Government to cushion the public against the impact of the global financial crisis: are they working? Unemployment: a critical analysis of how the budget addresses this matter?

  3. How Do Governments Affect Economic Activity? • Monetary policy – interest rates, reserve requirements etc. (Bank of Namibia) • Fiscal policy – taxing, spending and borrowing (Ministry of Finance) • But • Policies (and institutions) are critical over longer term

  4. The 2009/10 Budget… • Development Budget N$4.5 billion • Deficit budgeted to rise to 5.2% of GDP • N$800 million of tax changes • Tax exemption on accumulative gratuities from N$100k to N$300k • Tax on pension payouts N$20k to N$50k • Amendments to personal income tax to avoid “bracket creep” • Corporate tax rate cut from 35% to 34% • Transfer duty • Milk and sugar zero-rated for VAT (+ previous zero-ratings) • Excise duties • Transfer duty rate increased from 8% to 12% • Environmental levy on disposable products

  5. The 2010/11 Budget… • Development Budget N$5.2 billion • Deficit budgeted to rise to 7.1% of GDP • State pension increased to N$500 per month and OVC grants increased by N$30 per month

  6. Plus monetary policy… • Bank of Namibia reduced repo rate from 10.5% in December 2008 to 6.0% in December 2010 • Bank of Namibia obliged commercial banks to reduce the spread between the repo rate and the prime lending rate from 475bp to 375bp

  7. And the results… • Many tax measures announced in February 2009 were only gazetted in April 2010 (although backdated) • No monitoring of measures has taken place (see for instance Government Accountability Report) • Likely that rise in pension and OVC grants helped recipients • Raising tax threshold positive • Impact of zero rating VAT minimal

  8. First a couple of key points on unemployment: • Definition of unemployment: “A person is considered employed if he or she has worked for at least one hour for pay, profit or family gain during the reference period of seven days preceding the interview or was temporarily away from work but would return.” • Unemployment 51.2% (broad) 37.6% (strict) • Employment creation has always been a national development objective • Namibian Labour Force Survey only conducted every 4 years (SA does it quarterly, Botswana quarterly) • NLFS 2008 conducted in (pre-crisis) August 2008 results of NLFS 2008 only released in (post-crisis and post-election) September 2010 • Some serious questions about accuracy of results • Employment Creation Summit: “It is still the Government’s position that the private sector is and should be the main creator of new jobs.”

  9. What Effect Does Government Spending Have on the Economy? • Personnel expenditure • Goods and services • Subsidies and other current transfers • Acquisition of capital assets • Capital transfers • Statutory payments

  10. So size isn’t everything… • Multiplier effect? • Employment impact? • How quickly implemented? • What long-term benefits? • What long-term costs?

  11. We just don’t know!

  12. The 2011/12 Budget…the big numbers

  13. So this year’s budget is big…and so is the deficit thanks to TIPEEG

  14. But what is this TIPEEG? • Targetted Intervention Programme for Employment and Economic Growth • N$9.1 billion spending over next 3 years • Focus on agriculture, transport, tourism, and housing and sanitation • Along with Works will help “preserve and create” about 104,000 direct and indirect job opportunities

  15. And execution will be a challenge…

  16. Verdict on 2011/12 Budget… + Some helpful policy announcements + Unemployment put centre stage • - Fiscally questionable (SACU) • - Execution a challenge • - Quality of Development Budget questionable • - Not set within broader strategy (so is it manufacturing or not?) • - Unclear how it helps private sector job creation • - Shooting in dark • - Little for most vulnerable

  17. A Long-term Employment Strategy for Namibia…policies count • Reduce uncertainty by introducing a clear BEE/TESEF policy • Change visa system to attract international business talent • Ensure we have clear up-to-date sectoral policies • Improve our education system and expand tertiary education • Privatise selected SOEs, encourage JVs and subject rest to commercial forces • Public sector reform which creates effectiveness and trust and cuts red tape • Rolling review of employment legislation • Rolling review of tax system and establish Namibian Revenue Authority • Ensure Development Budget and public procurement maximise local employment creation at reasonable cost to fiscus • Create and introduce proper economic “clearing house” in NPC for government projects • Government challenge to business and National Innovation Fund • Wage subsidies for youth employment • Emphasis on statistics and measurement

  18. Any questions?

  19. RobinSh@nedbank.com.na

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