THE Zimbabwe Coalition on Debt and Development (Zimcodd) anticipates the economic instability experienced in 2023 to continue next year because of a weak macroeconomic framework.
This year saw economic challenges that include the rapid depreciation of the Zimdollar by over 700%, since last year to date, rampant power outages, water shortages, depressed local and external lending, and forex shortages.
Further, the onset of El Nino drought in the current quarter, political instability emanating from the disputed elections, high public debt, policy flip-flopping and the authorities failure to capture economic data weighed down the economy.
Zimcodd said subdued economic activity caused operational and production costs to become erratic, disrupting business predictability especially in the first half of 2023.
It said the severe fluctuations triggered a rise in operational and production costs while disrupting business predictability.
“The severe macroeconomic fluctuations witnessed in the first half of 2023 (1HY23) derailed some key assumptions underpinning the 2023 budget, such as a stable local currency (ZWL), low inflation and increased domestic electricity production,” Zimcodd said.
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It said the new 2024 tax regime, if implemented, would cause reduced tax compliance.
These new taxes include the wealth tax, the domestic minimum top up tax, and a US$0,02 levy per gramme of sugar contained in beverages.
Treasury also raised fuel levies, tollgate and passport fees, the corporate tax rate, presumptive taxes, car registrations charges and forced businesses with an annual income of US$25 000 be registered for value added tax.
Treasury also gave the greenlight for the power utility to raise tariffs in line with inflation.
“The public is also of the view that the various regressive revenue-generating proposals in the 2024 executive budget, like the crowding out of informal traders from supply chains and hiking of fuel levy, passport, vehicle registration and toll fees, will probably lead to the Laffer Curve effect in 2024,” Zimcodd said.
“The Laffer Curve effect suggests that a country's taxpayers will have a decreasing incentive to work beyond a certain tax rate, thereby reducing tax compliance.”
However, during the ongoing parliamentary debate on the 2024 national budget, Treasury has committed to modifying some of these new taxes.
“The likely Laffer Curve effect will adversely affect government revenue collection, derail service delivery, and increase the debt service burden, ceteris paribus,” Zimcodd said.
The socio-economic justice coalition said it was critical to address underlying socio-political bottlenecks for political reforms to achieve inclusive solutions to existing institutional weaknesses.
“This is needed to implement critical reforms to strengthen democracy, improve government efficiency, reduce leakages, and subdue market pricing distortions,” Zimcodd continued.
“Authorities must continue meaningful dialogue with all creditors to help clear debt arrears and increase the chances of getting the needed debt relief. The 2024 national budget must be a pro-poor budget supporting the provision of quality, affordable and accessible public services, particularly to the most vulnerable groups.”
Zimcodd called for the strengthening of existing legal and regulatory frameworks to curb resource leakages.
“Also, capacitating oversight and accountability institutions must be prioritised to help detect and deter corrupt tendencies of public officials,” it said.
It called for authorities to embrace non-tax increase-induced domestic resource mobilisation, such as formalising the rapidly growing informal sector economy and diversifying the economy through value addition and beneficiation.