All taxpayers’ eyes on Shiimi
Budget Day
Corporate and individual taxpayers are eagerly awaiting the tabling of the 2024/24 Budget in parliament this afternoon to hear whether finance minister Iipumbu Shiimi delivers on his tax relief promises.When he tabled the mid-year budget review (MYBR) last October, Shiimi reiterated his commitment to increase the tax exemption threshold for low-income earners from N$50 000 to N$100 000 in 2024/25. He also undertook to lower the non-mining corporate tax rate from 32% to 31% in the new fiscal year.
Should Shiimi keep his word, it will be the first tax relief since 2016.
According to High Intelligence Economics (HEI), government currently depends on individuals for 41% for its total domestic tax revenue, while business contributes 22%.
Robert McGregor, chief economist at Cirrus Capital, said he hopes for positive policy pronouncements – not just confirmation of policy proposals, but actual enactment thereof.
“Chief amongst these are the changes to both personal income tax and the non-mining corporate tax rates. These changes have been spoken about for a while now, but we need to see this converted into action and passed as legislation,” McGregor said.
A higher personal income tax threshold should alleviate the financial strain on lower-income households caused by recent inflation spikes, according to Simonis Storm economist Max Rix. Lower corporate tax will be aimed at enhancing Namibia's appeal as an investment destination, he added.
According to Rix, today’s budget “holds particular importance due to several factors: the impending election, persistent drought conditions, sluggish growth in non-mining sectors and a challenging global landscape”.
Election, civil servants
With elections slated for later this year, there are risks to increased expenditure, McGregor said. This could be in the form of social transfers and grants, as well as some of the troubled public enterprises, he added.
The expenditure forecast for 2024/25 was increased by 8.3% in the MYBR, “with a high likelihood that this will be further increased in today’s budget”, according to McGregor.
Last year’s budget documents estimated total expenditure of N$92.4 billion in 2024/25 – up 4% from 2023/24.
FNB Namibia economist Ruusa Nandago said there is a risk that expenditure growth overshoots this target, as there could be higher election-related expenditure such as welfare spending, grants and drought relief.
Rix agreed with this, also anticipating higher election-related spending, welfare initiatives and drought relief efforts.
The expected increase of 5% in the wage bill of civil servants will also drive up expenditure in 2024/25.
However, McGregor pointed out that “government has done commendable work on making only two wage adjustments for the past half-decade”.
Spending, debt
“Given the revenue and expenditure dynamics, the budget deficit will widen which will exert upward pressure on domestic debt levels,” Nandago said.
“Total government debt is currently estimated at N$165.7 billion for 2024/25. This implies higher interest payments for government, which diverts resources away from more productive expenditure,” she said.
“Encouragingly, government will continue to source most of its funding needs from the domestic market, thus limiting currency risk on debt,” Nandago added.
Cirrus remains “wary on the expenditure front”, McGregor said.
“While we have moved away from the need for drastic fiscal consolidation, we must ensure that expenditure (and the resultant deficit) remains sustainable,” he said.
“It is imperative that we not only bring deficits under control, but actively reduce them. We need to ensure that we spend within our means and we reduce the deficits, both in absolute terms and as a percentage of GDP [gross domestic product],” he continued.
According to McGregor, Namibia’s overall fiscal trajectory has much improved, which is a welcome development.
“However, this does not mean we can relax and spend without consequence. The potential benefits of our natural resources may see some call for increased expenditure in anticipation of future revenues, but Ghana serves as a crucial cautionary tale against such calls,” he said.
Sacu
Cirrus expects an upward revision in Namibia’s share from the Southern African Customs Union’s (Sacu) revenue pool this year.
“South Africa’s National Treasury has not upwardly revised its Sacu forecasts since its October budget, but the figures are up about 3.9% from the forecast a year ago (whereas Namibia’s were unchanged at the MYBR). South Africa’s National Treasury expects its Sacu contributions to increase by 12.7% from the 2023/24 to 2024/25 fiscal years, whereas Namibia’s last forecasts expected Sacu receipts to fall by 11.8%.
“We thus expect some upward revisions for this year’s Sacu revenues, while our ministry of finance and public enterprises remains far more conservative on its Sacu forecasts than what we see from South Africa (a commendable and prudent step),” McGregor said.
Mining revenue
Diamond revenues for the year ahead pose a risk, given the weak global prices, poor sightholder sales of recent quarters, and the impact these will have on production for the year ahead, according to McGregor.
“These may be offset somewhat by revenues from gold and uranium, but overall given the large contribution of diamonds (company tax, royalties and dividends) this will be difficult to offset from other minerals alone,” he said.