The tax-free portion of annual bonuses was pushed up to $100 000 and US$700 yesterday and tax bands were moved up with income under $25 000 a month being at zero rate and the top rate of 40 percent only kicking in at $500 000, as Finance, and Economic Development Minister Mthuli Ncube opened up space for ordinary people in his 2022 Budget.
Presenting the $927 billion people sensitive 2022 National Budget statement in Parliament yesterday, Minister Ncube announced the quadrupling of the tax-free bonus from $25 000 last year to $100 000, while the US dollar-denominated 13th cheque was increased and more than doubled from US$320 to US$700, thus ensuring all civil servants get their forex bonus in full.
Confirming previous predictions, Minister Ncube continues to see the domestic economic growth for this year to remain strong at 7,8 percent, mainly on account of the last agriculture season, higher global mineral commodity prices, a stable economic environment supporting domestication of some value chains and better control of the Covid-19 pandemic.
The budget, the second aligned to the framework outlined in the National Development Strategy 1 (NDS1), the Government’s medium-term economic plan for the five years to 2025, pronounced measures to drive growth across all key sectors of the economy as well as social protection measures, including initiatives to cushion vulnerable groups.
The minister said in order to provide relief to taxpayers and also boost aggregate demand for goods and services, he had adjusted the tax-free threshold from $10 000 to $25 000.
Further, the Treasury chief expanded the tax bands to end at $500 000, above which a marginal tax rate of 40 percent will apply, with effect from January 1, 2022. The bonus concession came into force on November 1.
“I, further, propose to review the tax-free threshold on income accruing in foreign currency from US$70 to US$100, with effect from January 1, 2022. Other foreign currency tax bands remain unchanged,” he said.
The Finance Minister also increased disposable incomes for retrenched workers, hiking the threshold from $50 000 or a third of retrenchment package, whichever is higher, up to a maximum of $250 000, to the greater of $400 000 or a third of the package, whichever is greater, up to a maximum of $2 million.
“Government has continuously reviewed the non-taxable portion of retrenchment packages in line with economic developments, in order to assist retrenchees, the majority of whom are unable to secure employment. In addition, some retrenchees engage in self-help projects using retrenchment packages as seed capital. These self-help projects have transformed from micro to small and medium enterprises, hence the need for the Government to continuously support such taxpayers,” he said.
Government recognised that a number of employees have been retrenched as employers adopt cost rationalisation strategies, in response to the negative effects of the Covid-19 Pandemic.
For next year Minister Ncube said the economy was projected to grow by 5,5 percent, underpinned by higher output in mining, manufacturing, agriculture, construction as well as the accommodation and food services (tourism) sector.
The underlying assumptions for the projected growth include normal to above normal rainfall, subdued Covid-19 pandemic, relatively stable exchange rate and declining inflation; and favourable international mineral prices.
Click the link below to view the National Budget Statement
“Potential risks to the above-projected growth include the uncertainty in the future path of the pandemic and exchange rate volatility, which may contribute to high inflation.
“Other risks relate to underperformance and viability of some of the State-owned enterprises, extreme weather conditions, retreat in international commodity prices and higher than anticipated international oil prices,” the Minister said.
The slightly lower growth, still well above African averages, than this year would arise from the fact that this year there was catching up after a drought while next year would be comparing a good season with a good season.
He said the annual inflation rate continued to decline during the greater part of 2021 to register 54,5 percent by October 2021 compared to 471,3 percent recorded during the same period last year.
The disinflationary path was underpinned by both tight fiscal and monetary policies. Conservative reserve money targeting and the introduction of the foreign exchange auction system brought stability in the foreign exchange market and consequently led to the inflation fall.
In view of the recent developments, Minister Ncube said annual inflation was likely to end the year between 52 and 58 percent, up from the revised target of between 25 and 35 percent. This was partly a result of manipulations in the third quarter that saw black market rates rise.
“Government is, however, implementing the necessary policy measures to ensure that inflation is back on the single-digit desired path and this includes a review of the current foreign currency auction system, further tightening of monetary policy and curbing malpractices in the financial sector,” he said.
Maintenance of price and exchange rate stability over the medium to long term was central in fostering business medium-term planning and investment for the achievement of NDS1 objectives.
“In this regard, both fiscal and monetary measures seek to achieve an average inflation target of 32,6 percent and end period range of 15 percent to 20 percent in 2022, consistent with the macro-fiscal framework anchoring the budget,” Minister Ncube said.
Commenting on Covid-19, which the Government has scored huge success in taming, and progress on the vaccination programme, Minister Ncube said the Government had used budget savings of US$100 million from the previous year in addition to current budget support.
As at the end of September 2021, the Government had spent about US$204 million on procurement of 17 million vaccines and syringes. Part of this extra spending came from the special drawing rights issue this year.
“In addition, as at October 21, 2021, Government utilised $30 billion towards non-vaccine covid-19 related expenditures and these refer to human resource costs, social protection, among others,” Minister Ncube said.
Furthermore, the minister said, Zimbabwe had received US$150 million and 3 million vaccines from development partners. Under the 2022 budget, the Government would continue the vaccination programme targeting the 10 million people aged 16 and above.
“With indications of mutating variants and the need for booster jabs as seen in other countries, Government will set aside contingency funds to the tune of 10 percent of the budget which will be used to mitigate against Covid-19 pandemic and other related interventions,” he said.
Minister Ncube said the Government had also budgeted for the procurement of vaccines under the Gavi Co- Financing agreement with UNICEF. However, in 2022, the Government will meet all the costs for the programme amounting to $350 million.
In the first nine months of this year, social benefits outlays amounted to $20,1 billion against a target of $9,1 billion, with the resources being earmarked towards cushioning of vulnerable groups, also against the effects of the covid-19 pandemic.
The expenditure overrun of 121,5 percent on social benefits was mainly due to interventions that included the productive social protection scheme of $13,7 billion, harmonised social cash transfers of $874,6 million, support to elderly persons of $50 million, support to people with disability of $113 million and Covid-19 emergency response of $100 million.
Commenting on welfare of public workers, the minister agreed recent inflation developments from 2019 had eroded disposable incomes of Government workers. In response, he said the Government was making efforts to restore the value of salaries for public servants beginning with the 2021 bonus payment in United States dollars.
“In 2022, an amount of $340 billion (41 percent of revenues or 7,1 percent of GDP), has been set aside for the wages and salaries for public servants and pensions.
“Further to this, the Government is also pursuing the offering of non-monetary benefits which may include, solar projects scheme, housing and vehicle loan schemes, housing land, as well as seed money to the Government Employee’s Mutual Savings Fund,” the minister said.
The budget includes $1,5 billion for a major thrust in providing civil service housing, with two thirds of the money allocated for junior grades.