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National Budget 2005/06 A presentation by the Institute for Public Policy Research 16 May 2005 Budget presentation • MTEF fiscal framework • Revenue • Expenditure • Recommendations Fiscal targets Target Public expenditure Budget deficit Stock of public debt* Latest estimate (2004/05) 30% 35.6% 3% 2.4% 25% 33.5% * Excludes loan guarantees and other contingent liabilities MTEF framework MTEF 2001/02 Revenue Expenditure Deficit MTEF 2002/03 Revenue Expenditure Deficit MTEF 2003/04 Revenue Expenditure Deficit MTEF 2004/05 Revenue Expenditure Deficit 01/02 02/03 03/04 31.3% 34.9% 3.6% 31.0% 33.9% 2.9% 31.4% 34.3% 2.9% 30.1% 34.5% 4.4% 28.1% 31.1% 3.0% 26.5% 29.0% 2.5% 30.4% 33.4% 3.0% 28.3% 31.6% 3.3% 26.7% 29.7% 3.0% 32.3% 33.8% 1.6% 28.3% 29.6% 1.4% 27.3% 28.3% 1.0% 31.7% 32.9% 1.2% 31.6% 30.4% (1.2%) 04/05 MTEF 2005/06 Revenue Expenditure Deficit Revenue Expenditure Deficit 31.8% 36.0% 4.2% 33.3% 35.9% 2.6% 29.6% 37.1% 7.5% 33.2% 35.6% 2.4% 05/06 06/07 07/08 28.6% 27.7% (0.8%) 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. 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? 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 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? 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? Expenditure highlights • • • • MTEF vs budget eg. Vote 01 Combatting of crime down Defence up Reduction in primary education and health care • Social welfare? Expenditure highlights – defence spending Chart 1: Defence Affairs and Services by functional/economic classification as a % of total spending 10% Start of Namibian involvement in DRC 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% 1990/91 1991/92 1992/93 1993/94 1994/95 1995/96 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 Source: Budget documents 1991/92-2005/06 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 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 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