‘New taxes will hurt the poorest hardest’ – Unemployment expected to soar with proposed 50% reduction of civil service

 Sello Motseta

 4^th February 2021

Despite acknowledging the extraordinary challenges brought about by the COVID-19 pandemic under which the Botswana’s budget was prepared, Finance and Development Planning Minister Thapelo Matsheka introduced new sources of taxes that are bound to increase suffering of least earners.

 Among the key focus areas of the 2021/22 budget speech as highlighted by Minister are modernizing Botswana’s tax collection systems and exploring new sources of tax revenue as well as reviewing the current public service delivery model to improve efficiency and productivity in the public sector

“The advent of COVID-19 pandemic in March 2020 threw everything into disarray as countries the world over, including Botswana, moved into survival mode. Both human and financial resources were channelled towards the fight and containment of COVID-19,” said Thapelo Matsheka, Minister of Finance and Development Planning.

He said, “the impact of the pandemic on economies around the world has also been devastating, with a range of negative impacts, including, reduced or even negative economic growth, increased rates of unemployment and poverty, and balance of payments pressures. There have been particular pressures on public finance throughout the world.”

According to Matsheka, Botswana’s economy is forecasted to contract by 7.7% in 2020 and experience a recovery rate of  8.8% growth in 2021 against a contraction of the global growth output by 3.5% in 2019 and expansion of 5.5% in 2020.

The Minister highlighted that this positive economic growth outlook will be dependent on the overall direction of the global economy recovery and successful implementation of policies, programs and projects outlined in the National Development Plan, i.e., NDP11.

Key Statistics

• For Financial Year 2020/21 the projected revenue and grants in the revised budget dipped to BWP48.33 billion, i.e., BWP14.06 billion below the original budget, largely due to a decline in mineral revenues.
• For Financial Year 2021/22, a deficit is anticipated which is expected to be financed through the issuance of domestic Government securities and external borrowing.
• The Ministry of Basic Education has been allocated the largest share of 18.8% of the recurrent budget which totals to BWP9.52 billion.
• 50% of public service vacant positions to be abolished in an effort to reduce the wage bill.

Fiscal legislation

The Minister highlighted the need to broaden the domestic revenue base to complement the external sources of fiscal revenue. To achieve this goal of fiscal stability, The Minister made the following fiscal proposals:

• Value Added Tax (VAT) to be increased from 12% to 14% with effect from 1 April 2021.
• Fuel levy to be increased by BWP1 per liter with effect from 1 April 2021.
• Withholding tax on local dividends to be increased from 7.5% to 10% with effect from 1 July 2021.
• The minimum taxable threshold for individuals will be increased from annual income of BWP36,000 to BWP48,000 with effect from the 2021/2022 tax year, i.e., from 1 July 2021.
• Taxpayers with outstanding taxes will be granted a tax amnesty for outstanding penalties and interest, provided that they settle the principal amount. The amnesty will take effect in the 2021/2022 tax year.
• A levy on sweetened beverages will be introduced at a rate of 2 thebe per gram of sugar above a content of 4g of sugar per 100 milliliters. The levy is meant to control the excessive consumption of sugar in Botswana.
• A statutory instrument will be introduced to bring into operation a levy on plastic bags. This is a levy that was introduced previously but never implemented.
• A levy on second-hand vehicles imported into Botswana will be introduced with the objective of raising revenue and addressing environmental concerns regarding pollution.
• The Government is continuing to review the fees and levies charged for its services, with six ministries currently reviewing their fees. It is anticipated that the revised fees for the six ministries will take effect on 1 April 2021.

The Government of Botswana (GoB) has decreased its recurrent budget for 2021/22 to P 56.03 bn from revised budget of P 57.2 bn for 2020/21 (2% reduction). This is on the backdrop of recurrent expenditure exceeding budget by 5% to 10% in each of the last four years.

On a combined basis, the recurrent budget allocation of P 14.12 bn for Basic education and Tertiary education, research, science and technology continue to be the highest (28% of overall budget) to drive the country’s transition to a knowledge-based economy.

This is line with trend noted in past few years. Such allocations are primarily to cater for tertiary student scholarships, subventions to Government tertiary institutions (public and private) as well as teachers’ remuneration, service charges, provision of textbooks, stationery, food supplies, furniture, equipment, etc. for primary and secondary education institutions.

The requirement to meet COVID-19 protocols has also resulted in 1,751 positions for teachers at basic education level leading to additional cost.

 Budget Allocation

• The budget allocation for Defence, Justice and Security was reduced by 2% to P 8.39, to meet operational costs of Botswana Defence Force (BDF), Botswana Police Service and Prisons and Rehabilitation services.
• The budget allocation for Health and Wellness is increased by 2.2% to P 7.9 bn in 2021/22 to contain and mitigate risks of COVID-19 infections, procure personal protective equipment for health personnel, vaccines, and medication. The balance of the budget is to meet cost of drugs, vaccines, medical and surgical equipment and antiretroviral therapy (ARV) therapy for HIV/AIDS.

According to budget speech some of the key projects being undertaken include the North-South Carrier (NSC) 2 (Palapye-Mmamashia-Gaborone), connection of Tswapong South villages to NSC, implementation of Lobatse water master plan, water treatment plant at Kasane, Botswana Emergency Water Security and Efficiency project partly funded through a loan from World Bank, and water sanitation at various towns and villages across the country.

 The Leader of the Opposition in parliament Dumelang Saleshando, in his response to the budget speech maintained that the economy will suffer from irreparable harm, if there is no concrete plan to mitigate against COVID-19 to halt the rampant spread of the disease.  He also talked about the importance of proper accountability for procurement of COVIOD-19 related PPE’s.

Dumelang Saleshando, Leader of the Opposition in Parliament, said “We lost the first of our gallant front line officers who have become the symbol of hope for those admitted to our hospitals.  Chief Registered Nurse Uyapo Mukhopo, who was working as a Chief Registered Nurse at Boikhutso Clinic in Greater Francistown DHMT, surrendered to Covid related complications.  Her demise has brought home the risks that our health officers have to contend with on a daily basis in their efforts that we may be soon reunited with our loved ones who have been infected by the virus.”

He said, “Fortunately, various vaccines have now been developed and clinically tested as well as approved to curb the deadly spread of the virus.  Batswana had hoped that with no definitive pronouncement by the President and the Ministers of Health on a vaccine rollout plan, The Minister of Finance and Economic Development would announce the purchase and delivery of vaccines that we need, not only to save human lives, but to also save the economy that he is mandated to monitor, nature and expand.  There has been no such announcement and the economy will continue to be exposed to greater risks by the spread of the Corona virus.”

Minister Matsheka had reported last year that government had spent P 2.4 billion to procure medical goods for the fight against Corona.  It is reported that the country has run shot of testing equipment.  There is need to account for the Covid 19 related expenditure.  There does not seem to be tangible preparedness of our medical facilities for the challenges we face.

Saleshando said it is difficult to comprehend why government has been slow to announce a vaccine rollout for Botswana.  It is not the first time that Botswana has faced a public health crisis .

“Businesses have had to liquidated and many are unsure of their survival.  Many workers are home on unpaid leave or reduced income.  Unemployment is on the rise and tenants have lost the ability to meet their obligations to their landlords.  Parents who could afford to pay school fees for their children in private schools have had to surrender their children to our underperforming public schools,” said Saleshando.

He said, “Young artists who provided for their families have been out of business for almost a year with no income.  Small business owners have had to shut down their businesses in areas like the North West that relied on the collapsed tourism sector.”

Saleshando pointed out that Matsheka has failed to deliver on last year’s promises. These include;

• Top priority will be promotion of export led growth to address the balance of payments problem (paragraph 16)

There is no progress report made to attain growth through export, except for paragraph 29 that promises implementation of robust import substitution strategy.

• Second priority was efficient government spending supported by clampdown on corruption (paragraph 17)

No mention of strategy to reduce corruption as key cases on looting of public coffers are lost.  States at paragraph 59 that 37% of public expenditure on infrastructure goes to waste (IMF 2017 report)

• Measure will be put in place to reduce import bill (paragraph 30)

 No plan reported on reduction of import bill strategy or the impact of the import substitution strategy

 Bold decisions to be taken in the 2020/21 financial year regarding state owned enterprises (paragraph 39)

 Paragraph 40 stating the old story, some parastatals earmarked for privatization and need to avoid duplication and improve corporate governance.

 Establishment of meat regulator at advanced stage (paragraph 41)

Meat Regulator not in place to date

• Formulation of PPP procurement law at an advanced stage (paragraph 48)

Law not in place and nothing published in Government Gazette

•  The national E-Commerce Strategy will be in place by June 2020 (paragraph 50)

 E-Commerce strategy still non existent 

• Decentralisation policy to be finalised in 2020/21 financial year (paragraph 55) 

Decentralization policy still not in place 

• Government to undertake value for money audit of expenditure on the education and health sectors in the 2020/21 financial year (paragraph 57) 

No mention of the value for money audit into health and education sectors 

• Promised to finalise National Employment Policy to tackle unemployment (paragraph 60) 

Draft policy of September 2019 still remains a draft 

• Government formulating a citizen economic empowerment law (paragraph 65) 

No update on the despite 2018 promise 

• Government has reserved concessions for allocation to citizens only (paragraph 68)

No mention of the concessions and still awaiting the allocation of the first concession.

“Clearly, the words it cannot be business as usual were misplaced in the 2020 budget speech.  It is business as usual, it’s all talk and no action.  There is no hurry to attend to the challenges the country faces.  We will continue to be outperformed by less endowed countries,” said Saleshando.

He said, “For the private sector, it’s our sincere hope that after much procrastination, government is indeed committed to the roll out of Public Private Partnership option for the complex development project.  This should be utilized for mega projects and not minor ones as appears to be the case.”

To plug the whole in the national coffers, government appears to be turning to struggling citizens with an array of taxes and levies. 

“We reject the above fiscal interventions.  When the majority are struggling to make end meets, it can’t be justifiable for government to demand more from them.  It has been proven that Value Added Tax affects the low income more adversely than it affects the high-income bracket.  Government is being insensitive to the plight of the populace,” said Saleshando.

He said, “Government must set up a task force that will enable our country to conduct its own research on human viruses and manufacture our own vaccines that we will export.  We manufacture and export cattle vaccines, same can be done for humans.”

Address the problem of corruption by making the DCEC independent and insulate it against political interference by appointing Director General via a transparent process and protect their term of office.

Saleshando also called for a National Jobs Pitso to prevent a jobs bloodbath at the end of the State of Public Emergency and offer tax relief to employers who can commit to ambitious employment targets.

Apply value for money principle across all of government.  Office of the President to desist from expensive populist stunts such as the costly Ram donation by the President and suspend the 42-million-pula refurbishment of Office of the President(OP).

Energise the public sector by absorbing the interns and TSP who have performed well into full time positions.  Double pronged strategy of attracting young talent and incentivising the older generation into early retirement should be pursued.  This should increase uptake of technology and productivity.

He called for BHC to freeze rentals.  The ruling Botswana Democratic Party(BDP) pledged rentals 20% or more below market rental.  Some tenants are now told that their rentals will increase by over 100%.

Enter the space for artificial diamonds.  De Beers should commit to a plant in Botswana.  They have committed over P100 million to their synthetic diamonds’ development.

Make Citizen Economic participation a 50% non-negotiable condition for all government projects.

Saleshando maintained that Developed and developing countries are amending their laws to allow for the farming of hemp. There are allegedly over 100 Hemp products such as;

• Butter
• Energy drinks
• Medicine (immune deficiency diseases)
• Textiles
• Cutlery
• Beauty products
• Hemp seed for vegetarian dishes
• Cooking Oil
• Hemp tea