In 1710, the United Kingdom was in financial difficulty. The
Kingdom was involved in two wars and the government’s finances were in
shambles. To raise money, parliament first instituted a national lottery, but
when they had problem paying the winners, they consolidated their debts into a
private company – the South Sea Company. Government debt paid to the company
would be repaid to shareholders as dividends, and at first it seemed to work
well. But soon speculators entered the market, and the value of the shares
skyrocketed in excess of their value. A bubble formed on the back of government
debt.
Like all bubbles, though, it eventually collapsed. Thousands
of investors were ruined, the UK economy suffered, and the people lost faith in
their government’s ability to conduct its own affairs. Thus, in 1720, Robert
Walpole, Chancellor of the Exchequer, in an attempt to restore the confidence
of the public, presented the government’s budget to parliament. While budgets
were not always well received, given their tendency to introduce new forms of
taxes or tax increases, it did usher in a new era of accountability and
transparency of government that still persists to this day.
It should thus be no surprise that on 25 February this year,
Finance Minister Schlettwein presented the Namibian Government Budget to
parliament as well. As Namibian citizens, it behoves us to take a look at the
presented documents to keep our government accountable to the promises they’ve
made.
Let’s start with government revenues – the money the
government receives. In total, the government expects to receive about N$ 57
billion from various sources. N$ 54 billion will be from taxes. N$ 24 billion
will be from income taxes – as paid by us every year, and paid by the various
companies operating in Namibia. Another N$ 30 billion is collected via indirect
taxes, like VAT, that you pay when purchasing products or importing products,
and transfer duties and property taxes.
That leaves about N$ 4 billion that is collected from other
sources. About N$ 1 billion of these is from dividends and profit shares from
government investments and interest of loans and investments. About N$ 2.5
billion is collected as royalties on minerals mined, with about N$ 1.4 billion
of that from diamonds alone. The remaining amount is collected as fines and
administrations fees the government levies.
So far, so good. Let’s take a look at the expenditure now.
Minister Schlettwein’s budget indicates that the government intends to spend N$
66 billion this year. Of that, a staggering N$ 12.8 billion is budgeted for
education. It has been noted that education is the greatest equaliser, and the
Namibian government is certainly striving toward it, as government spending on
education dwarfs other spending by a significant amount. In fact, Namibia is
one of only three countries in the world where education is the top spending
priority for government.
Health and Social Services receive N$ 7.2 billion in the
budget, and in particular, the budget increases the old age pension grant to N$
1 100 per month, allowing our oldest and most vulnerable of citizens to be
placed above the national poverty line. The Ministry of Defense and the Police
receive N$ 6.6 billion and N$ 5.1 billion respectively. Together, the abovementioned
ministries receive more than 50% of the budget.
The rest of the ministries are funded by the remainder, as
well as several infrastructure development programme, which inter alia include the
rehabilitation of the national railway, the on-going expansion of the Port of
Walvis Bay, several national roads, water infrastructure, the Mass Housing
Programme and increased funding to the Public Financial Institutions for
private sector support and SME development.
The more astute reader may have noticed the government
expenses seem to exceed government revenues, and you would be correct! This is
what is known as the budget deficit. When you run out of money to cover your
expenses, you sometime borrow some money to make ends meet. In a similar way,
when the government wants to spend money it does not have, it needs to borrow
as well. In most cases, this is done via Treasury Bills or Government Bonds,
that it then needs to pay interest on. But just as you and I need to be careful
when we borrow, and make sure that we are able to cover the interest and
principal repayments in the coming months, so too the government must be
careful.
In our case, we can take into account possible salary
increases, and stop spending money on frivolous things. In the government’s
case, the equivalent of salary increases would be growth in future revenue,
made possible by economic growth. But the government ran into a different
problem this year.
Treasury Bills and Government Bonds are usually sold
locally, so in essence the government is borrowing from its citizens, in its
local currency. But if the government needs to borrow more than we can give, it
needs to go to foreign markets. During the year, the government had to borrow
US$ 750 million in the international markets, and these bonds are in US
dollars. When the exchange rate weakens, this adds to the cost of the
government’s interest, and as a result, foreign interest payments are budgeted
to increase from N$ 560 million this year to N$ 2.5 billion in the budget.
As a result, Minister Schlettwein has opted to be
exceptionally prudent in his budgeting. His budget this year only has minimal
increases from last year, and in addition there are several expenditure items
that have been severely curtailed, inter alia non-essential operational
expenditure items such as materials and supplies, subsistence travel, overtime,
furniture and office equipment and vehicles, as well as the postponement of
other non-productive capital spending on office buildings. In addition,
government wage increases have been capped at the inflation rate, and a
moratorium on new hires for government service have been put in place. These
measures should allow the government to reduce the debt as a percentage of GDP
from 37% to 34.6% at the end of the 2016/2017 financial year.
In these turbulent economic times we cannot expect Namibia
not to feel the effects of the global economy. This budget, at least, should
give some reassurance that the government is keeping its eye on the ball, and
practising some prudence in managing its finances. Still, this quick summary is
no replacement for your own – every citizen should avail themselves of the
documents as presented on the Ministry of Finance website, and make their own
assessment. It is our duty to keep the government accountable and transparent. Namibia
expects every man and woman to do his/her duty.
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