SACU revenue to nose dive in 2016

October 28, 2015, 6:18am

By Charmaine Ngatjiheue, The Villager Newspaper

Income generated from the Southern African Customs Union (Sacu) is set to take a serious dip in the forthcoming financial year owing to the difficult economic conditions experienced in South Africa coupled with the widening trade integration.

Sacu is a regional revenue pool consisting of Namibia, South Africa, Swaziland, Botswana and Lesotho and has been experiencing a dip on revenue generation.

National Development Advisor from the National Planning Commission (NPC), Samuel Nakale attributed this to a relatively small tax base for both individual tax (due to a high level of unemployment and low income levels) and VAT, thus enhancing tax administration efficiency will be required to bolster domestic tax revenue.

“On the domestic front, there seems to be an improvement in tax administration and collection. Income tax on individuals has been one of the key and most consistent contributors to public revenue growth. Public expenditure and priorities.”

“Namibia’s per capita expenditure increased by almost three quarters over the last five years and compares favourably to those of countries such as Botswana and South Africa. Total public expenditure as percentage of GDP has increased from about 34 percent in 2011/12 to 40 percent in 2015/16,” he said.

According to statistics released by NPC Government’s current debt for the period under review debt stands at N$8.64 billion with domestic debt representing 94% of that amount with 6% being external debt.

“Demand side oriented and countercyclical fiscal measures are the main contributors to these developments. As a result, final consumption expenditure has been the main contributor to GDP and has grown by an average of 8% over the past four years. The wholesale and retail industry has also grown by an average of 10% over the same period,” Nakale said.

Nakale added that Namibia’s per capita expenditure increased by almost three quarters over the last five years and compares favourably to those of countries such as Botswana and South Africa.

“These components make up the highest proportion of the budget and continue to drive expenditure growth. With the persistent fiscal deficit and growing public debt, fiscal space is constrained. Furthermore, the continuous trend of allocating relatively more resources to the security and administrative sectors remains a concern,” he said.

Nakale added that recurrent expenditure takes up over 80% of the total budget and is the main contributors to expenditure growth.

“The development and investment expenditure favours the four priority areas, with about a third of the total capital expenditure allocated to these sectors. Other sectors such as education, health, housing and sanitation also seem to be receiving priority, even though much more can be done considering the increasing amount of productive resources devoted to security, governance and public administration, around 33% in 2015/16,” Nakale said.

Meanwhile, social, economic and infrastructure sectors represent 60% of the total budget, with the social sector being the dominant one.

“Education and health spending are the key drivers of the social spending. However, this seems to be primarily due to the relatively high number of employees in these sectors. Education spending focuses on primary education,” Nakale said.

Nakale added that social safety net programmes are used as “the first line of defence against poverty and represent about 13% of the total social spending, “The recent increment in the old age social grants is perhaps one of the key budget interventions to reduce poverty. However, it’s argued that the basic social grant needs to be more targeted at the needy."

In pursuit of socioeconomic development, developing countries often experience continuous budget related challenges. These relate to high expenditure growth and most often inefficiencies in public expenditure management coupled with limited revenue sources resulting in unsustainable fiscal imbalances. In spite of these challenges, these Governments are often under tremendous pressure to improve public sector performance and most importantly social economic service delivery to the citizenry,” he said.

Revenue performance

Nakale noted that the local income tax system is progressive, and the tax threshold for individuals has been raised to N$ 50 000 per year in 2013/14, saying this benefits the low income earners and impacts positively on income distribution.

“Furthermore, the Value Added Tax (VAT) zero rating of some of the basic goods and necessities makes such goods more affordable to the poor. The lowering of the corporate tax rate to 32 percent has potential to enhance competitiveness. Overall, the individual tax rate adjustments have increased disposable income and consumption,” he said.

There seems to be an improvement in tax collection and administration on the domestic market as income tax on individuals has been one of the key and most consistent contributors to public revenue growth.

“Domestic taxes on goods and services also seem to have reacted positively to the countercyclical fiscal measures. Revenue from SACU is expected to decline in the medium term due to the low economic growth outlook for the South African economy and the ongoing process of widening trade integration,” Nakale said.

He added that, “A more targeted social grant scheme, particularly for the old age grants could improve social grants’ effectiveness in addressing income inequality and poverty, and might be worth exploring.”