Transcript view documents

Fiscal Policy and
Growth in Namibia
Organisation of the Presentation
1. Theories on Fiscal Policy and Growth
- Define growth and competitiveness
- Fiscal policy and neoclassical theory
- Keynesian and endogenous growth theory
2. Namibian Fiscal Policy
- Consolidation of the budget, expenditures, revenues
3. Conclusion
1. Theories on Fiscal Policy and Growth
• Neoclassical Theory:
Supply Side Theory
Support production by non-intervention
market always finds its equilibrium again
• Keynesian Theory:
Demand Side Theory
Support consumption when the economy in longterm disequilibrium
• Endogenous Growth Theory: Synthesis
Intervention, but as support for production only
Define Growth and Competitiveness
• Growth:
Technical know how, progress in technical facilities
(Innovations delivered by FDI) and accumulation of
productive resources such as human capital
• Competitiveness:
Ability of domestic industries to produce at lower costs
and deliver goods and services on higher quality than
other industries in the global market
Fiscal Policy and Neoclassical Theory
• Growth can be raised by consolidation of the
budget (reduction of expenditure), because this
raises financial market confidence and lowers
interest rates = Investments increase
• Revenue collection should be neglected
• Tax concessions are important to attract
investments, taxes should be abolished
Fiscal Policy and Keynesian Theory
• Growth can be increased by countercyclical demand
policy (increased expenditures)
• Revenue collection is key for demand policy
• A reduction of the deficit can lead to recessions
• Direct taxes (progressive) are superior to indirect taxes
(regressive) in triggering domestic demand
Fiscal Policy and Endogenous Growth
Theory
• Certain expenditures lead to growth
• Revenues can also be increased by tax
increases
• The indirect Value Added Tax (VAT) is superior
to direct taxes because it is non-distortionary
2. Namibian Fiscal
Policy and Growth
The Consolidation of the Budget
• Namibian Fiscal Policy is conservative= The
balancing of the budget is a priority
• 2001: MTEF introduced with fiscal target
(budget deficit of 3% of GDP, public debt 25%
of GDP, now extended to 30%)
• 2005-2008 Saara Kuugongelwa-Amadhila
managed to obtain a surplus by increasing
revenues and decreasing expenditures
Budget balance as percentage GDP 2003/2004 –
2006/2007
40
35
30
25
balance budget
20
Expenditure
15
10
Revenues
5
0
2003/2004
-5
-10
2004/2005
2005/2006
2006/2007
6
Foreign direct investment in- and outflows Namibia
1990-2009
5
Foreign direct
investment, net
inflows (% of
GDP)
4
3
Foreign direct
investment, net
outflows (% of
GDP)
2
1
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
-1
GDP growth at domestic prices at constant local
currency
GDP growth (annual %)
14
12
10
8
GDP growth
(annual %)
6
4
2
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
-2
-4
Suggestions for Namibian Budget
Policy
• Saara Kuugongelwa-Amadhila followed an endogenous growth
theory approach = lowered expenditures and increased revenues to
balance budget
• However, FDI and growth were not triggered
• Suggestion: Investments can be obtained by infrastructure,
education, internal market. = More expenditures in these areas
increase competitiveness
• In the 2011/12-2013/14 MTEF more expenditures to lower
unemployment in Namibia
Expenditures in Namibia
• Even though the Minister of Finance reduced the
expenditures before the financial crises, she
increased them during and after the crises
• With the 2011/2014 MTEF 104,000 jobs should
be created by higher expenditures
• However, the composition of the vote funds
could be enhanced: Defence is the second highest
receiver after education, more funds could go to
the social expenditure and industry sector
Expenditures by vote 2008/2009-2011/2012 in N$
billions
7
6
2008/2009
5
2009/2010
4
2010/2011
3
2011/2012
2
1
0
Police
Defence
Defence
Education
Gender
equality and
child welfare
Health and
Social
Services
Social Sector
Labour and
social
services
trade and
industry
agriculture
Economic Sector
Revenues in Namibia
• SACU: collects customs for Namibia, Botswana,
Swaziland, Lesotho and South Africa and channels the
funds on basis of a formula to the countries again
• 2008/2009 40% of Namibian tax revenues by SACU as
customs, in 2011/2012 27.3%.
• Need new revenues sources= increased the share of
VAT and personal income taxes over the years, only low
increase in corporate taxes and no increase in property
taxes
SACU revenues 2008-2014
taxes on international trade/ SACU
45.00
40.00
35.00
30.00
taxes on
international trade/
SACU
25.00
20.00
15.00
10.00
5.00
0.00
2008-2009
2009-2010
2010-2011
2011-2012
2012-2013
2013-2014
The Composition of the Tax System
• In Namibia 22% of the tax revenues are collected by VAT, 24% by personal
income tax and 15% by corporate taxes, property tax is minimal
• Supply side economics would suggest, that the VAT rate (15%) could be
increased even further, but all other taxes should be lower
• From a Keynesian point of view having indirect taxes collect half of the
revenues is too high
• Direct taxes (personal income, corporate, property) are progressive and
indirect (VAT) are regressive= Higher demand and growth if VAT lower and
other higher
• Zero VAT for staple foods is a good step, luxury would also help
Direct and indirect tax revenues
8.00
7.00
6.00
5.00
4.00
3.00
2.00
1.00
0.00
SACU
goods and
services
indirect
Company
Taxes
Individual
income
Other Taxes
on Income
and Profits
direct
Withholding
tax on
interests
taxes on
property
indirect tax revenues
direct tax revenues
47.38%
51.82%
Company Taxes under Tax Competition
• Corporate income tax is 35%
• Their share on revenues increased only little over the years
• The biggest share has the non-mining sector, mining and diamondmining have least share
• Tax concessions: Manufacturing get a deduction of 50% in first
years, EPZ companies are exempt
• Tax concessions are in line with supply side economic theory
• Alternative is: Raising mining taxes, cause industry depends on
Namibian resources, funds can be channelled to manufacturing
industry = competitiveness
Company tax composition 2011/12
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0.00
Non-Mining
Diamond Mining Companies
Other Mining Companies
3. Conclusion
• Namibian supply side fiscal policy neither let to
growth nor investments
• Recommendations for the future are:
• Increase expenditures for education,
infrastructure, social spending and industry
• Decrease spending on defence
• Increase the share of direct taxes, such as
property taxes and corporate taxes for the mining
industry
• Decrease indirect taxes (VAT)