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The Zambian government is expected to make minor mining
tax regime policy pronouncements as Finance Minister, Alexander Chikwanda
presents the country’s national budget for 2013.
Friday 12th October 2012, Mr Chikwanda will
make known government’s estimates of revenue and expenditure for the coming
year, in parliament.
Despite the expected huge tax regime shifts in the mining
sector, the Ministry of Finance has stated that budget pronouncement will
however have minor policy changes.
The Zambian civil society has been demanding for a revision
of the mining tax regime, in what it says is necessary for purpose of capturing
significant benefits from the country’s economic mainstay.
Notable among the demanded tax changes for the mining
sector, is the re-introduction of the controversial windfall tax, which was
initially introduced in 2008, but later removed by the MMD government.
The Ministry is also expected to further address revenue and
expenditure adjustments before the Minister makes the presentation, which will
be the new Patriotic Front government’s first own formulated budget, after
assuming power last year.
Last year, a K 27 trillion national budget, under the
theme MAKING ZAMBIA A BETTER PLACE FOR ALL, was presented.
Among the notable direct tax policy measures was the increase
in mineral royalty, particularly the doubling to 6 % of royalty for base metals
while that for precious minerals was raised to 5 %.
Attached is a copy of the full budget speech for the
2012.
2012
BUDGET ADDRESS BY HON. ALEXANDER B. CHIKWANDA, MP
HONOURABLE
MINISTER OF FINANCE, DELIVERED TO THE NATIONAL ASSEMBLY ON FRIDAY 11TH
NOVEMBER, 2011
1.
Mr. Speaker, I beg to move that the
House do now resolve into Committee of Supply on the Estimates of Revenue and
Expenditure for the year 1st January 2012 to 31st December, 2012 presented to
the National Assembly in November 2011.
2.
Sir, I am the bearer of a message from
His Excellency the President recommending favourable consideration of the
motion that I now lay on the Table.
3.
Mr. Speaker, as I begin this budget
address, I wish to acknowledge the macro-economic achievements that the country
has attained when the economy was under the stewardship of my predecessor, Hon.
Dr. Situmbeko Musokotwane, MP. I would like to pay tribute to him and the
previous administrations for laying a strong foundation upon which this
Government will build.
4.
Mr. Speaker, 2011 is a landmark year. In
September, we held successful elections and had a peaceful transition of power,
a rare feat on the African continent. As Zambians, we should be justly proud of
this achievement. In October, we celebrated 47 years of independence, regrettably
amidst persistently high and unacceptable poverty levels.
5.
Sir, in his address to Parliament, His
Excellency, the President outlined an ambitious programme of action to begin
his administration’s vigorous and unrelenting fight against poverty. As we
embark on the path to transform our nation, hard work is required and difficult
choices will have to be made. But, as a nation, we have collectively chosen
this path. With this unity of purpose, we are confident that the challenges
before us may be intractable but certainly not insurmountable. It is our
duty to
ensure that the benefits of our recent economic success are felt by every
Zambian. Thus, the theme of the 2012 budget is “Making Zambia a better place for all.”
6.
Sir, my speech this afternoon is in four
parts. In Part I, I review the global and domestic economy. Part II outlines
the macro-economic objectives, policies and strategies for the 2012 budget. In Part
III, I present the 2012 budget and I conclude in Part IV.
PART I
GLOBAL AND
DOMESTIC ECONOMIC REVIEW
GLOBAL ECONOMY
7.
Mr. Speaker, in 2011, the global economy
continued its recovery. Annual growth is projected at 4.0 percent slightly
lower than the 5.1 percent recorded in 2010. Economic growth was strong in the emerging
and developing economies, with growth in Sub-Saharan Africa of 5.2 percent in
2011. In contrast, growth in the advanced economies, at 1.6 percent, continued
to be sluggish largely on account of unsustainable sovereign debts in some Euro
zone countries and weak demand in the United States of America.
8.
Mr. Speaker, strong growth in emerging
economies and political unrest in North Africa and the Middle East have kept
international commodity prices high. The average price of copper in the first
ten months of 2011 was US $8,704 per tonne, compared to US $7,538 per tonne in
2010. The price of oil has averaged US $109.9 per barrel in the first ten
months of 2011, higher than the US $79.0 in 2010. International food prices
have also been generally high in 2011 mainly on account of supply constraints.
9.
Sir, high commodity prices present both
opportunities and risks to the domestic economy. High copper prices can boost
export earnings, facilitate investment and support the fiscal position. Similarly,
high food prices present an opportunity for the country to enhance agricultural
production, and diversify the export base. In contrast, high oil prices could
increase the cost of production thereby increasing inflationary pressures in
the domestic economy.
DOMESTIC ECONOMY
Growth
and Inflation
10.
Mr. Speaker, preliminary estimates
indicate that the economy will grow by 6.5 percent in 2011. This is in line
with the initial projection of 6.4 percent. Agriculture, manufacturing,
construction, and transport and communications are the main drivers of this
growth. Growth could have been significantly higher had the mining sector
performed according to projection. I am concerned that the mining sector data do
not fully reflect actual production.
11.
Sir, annual inflation has remained in
single digits and was 8.7 percent in October, 2011 compared to 7.9 percent in
December 2010. The increase in inflation reflected the slight rise in annual
food inflation despite a high maize harvest. However, non-food inflation has
been fairly unchanged at low double digit levels. The recent reduction in fuel
prices, effected by the PF Government, should reduce inflation by the end of
the year.
Monetary
and Financial Sector Developments
12.
Mr. Speaker, economic activities in 2011
have continued to drive growth in money supply. The annual growth in money
supply was 26.8 percent up to September 2011 compared with 23.6 percent during
the corresponding period of 2010. This was mainly driven by increased lending
to private enterprises, reflecting high confidence and opportunities in the
economy.
13.
Sir, with regard to interest rates,
returns on Government securities rose mainly on account of higher Government
borrowing. Interest rates on Treasury bills increased to 14.2 percent in
October 2011 from 8.2 percent in December 2010. Similarly, interest rates on
Government bonds edged upwards to 16.2 percent from 11.3 percent. Sir, lending
rates in commercial banks have remained high and are not in line with low
inflation and relative macroeconomic stability. At the current level,
commercial bank interest rates are 300 percent the inflation rate.
14.
Mr. Speaker, high interest rates are a
serious constraint to lowering the cost of doing business, increasing access to
credit and accelerating private sector growth. This is particularly true for
the small and medium scale enterprises which account for the bulk of employment
opportunities and growth. In addition, small and medium scale enterprises offer
the most powerful weapon to reduce poverty and create a just and equitable
society.
15.
Sir, Government’s legitimate expectation
is that interest rates will continue the downward trend that started within the
first 30 days of the PF assuming Government. The Bank of Zambia has taken steps
to enhance the liquidity available to banks by lowering the reserve ratios.
This can only be justified with a lower interest rate regime.
16.
Mr. Speaker, the financial sector’s
overall performance has been favourable. In the banking sector, asset quality
improved due to a reduction in gross non-performing loans. With respect to the
non-bank financial institutions, performance and financial condition was rated fair
as at end-September 2011. The sector has
continued to record growth with the number of institutions increasing to 95 as
at end-September 2011 from 87 at end-September 2010.
17.
Sir, with regard to developments under
the Financial Sector Development Plan, access to financial services has
increased through the promotion of microfinance services, mobile banking, money
transfer services, and rural banking for the financially excluded districts. The
number of mobile money service providers increased to 57 as at August 2011 from
29 in December 2010. In addition, the number of districts without banking
services declined to 7 as at end-September, 2011 from 14 in December 2010.
18.
Mr. Speaker, in line with the positive
economic performance, the Lusaka Stock Exchange is poised to register another
year of impressive growth. In the first nine months, the share price index
increased by 9.3 percent to 3,823.1, while market capitalization rose by 44.9
percent to K44,802.1 billion. This outturn was partly due to an improvement in
net portfolio inflows of foreign capital amounting to US $13.0 million,
compared to a net portfolio outflow of US $8.2 million over the same period in
2010.
External
Sector Developments
19.
Mr. Speaker, the external sector
remained strong. The current account surplus is projected to rise by 54.7
percent to US $951.0 million in 2011 from US $614.7 million in 2010. This is
mainly on account of high copper export earnings of US $8.4 billion, up from US
$5.8 billion in 2010. Non-Traditional Exports are again expected to register
robust growth and are projected at US $1.5 billion in 2011 from US $1.2 billion
last year. Consequently, gross international reserves rose to US $2.6 billion
as at end-September 2011, representing 4.3 months of import cover.
20.
Sir, the exchange rate of the Kwacha
against major currencies exhibited resilience. It depreciated marginally by 4.5
percent to K4,949.8 per US dollar at end-October, 2011 from K4,735.7 per dollar
as at end-December 2010. This was despite uncertainties prior to the elections
and the strengthening of the US dollar.
BUDGET
PERFORMANCE IN 2011
21.
Mr. Speaker, the performance of the
budget in 2011 has generally been satisfactory with end year revenues expected
to be above target. However, there have
been large pressures on expenditure arising from the need to fund the general
elections, increased maize purchases and procurement of fertilizer, among
others. Consequently, the overall deficit is expected to be 3.1 percent of GDP,
compared to the projection of 2.9 percent.
22.
Sir, preliminary figures as at
end-September indicate that domestic revenues at K14,580.2 billion have over
performed. This trend is expected to continue and will result in an over
performance of 23.2 percent by the end of the year. This performance is mainly
attributed to payment of mining tax arrears and improved tax administration.
23.
Sir, general budget support receipts from
cooperating partners were projected at K586.5 billion in 2011. As at end-September,
K298.8 billion was received and the balance is expected to be received in full
by the end of the year..
7.
24.
Mr. Speaker, total expenditure by the
end of 2011 is expected to be K24,041.2 billion, 18.8 percent higher than
budgeted. This is against the total expected revenues and grants of K20,657.1
billion. The difference will be financed through borrowing.
Domestic
and External Debt
25.
Mr. Speaker, as at end-September 2011,
Government contracted external loans of US $504.8 million to finance the
implementation of infrastructure projects in the roads, energy and agricultural
sectors. A net amount of about US $200.0 million was disbursed on new and
existing loans. Consequently, external debt rose to
US $1.6 billion as at end-September, 2011 from US $1.4 billion in 2010.
At this level, the external debt stock is 8.2 percent of GDP, well within
sustainable levels.
26.
Sir, as at end-September,
2011, total domestic debt amounted to K13,876.8 billion or 16.1 percent of GDP.
Of this amount, K12,820.9 billion is accounted for by government securities
while the balance of K1,055.9 billion is accounted for by other public
liabilities such as pension arrears, awards and compensation, and arrears to
suppliers of goods and services.
PART II
MACROECONOMIC
OBJECTIVES, POLICIES
AND STRATEGIES IN
2012
Macroeconomic
Objectives
27.
Mr. Speaker, macroeconomic policy under
the new administration will be geared towards maintaining a stable
macroeconomic environment conducive to investment, inclusive growth and
employment creation.
28.
Sir, the specific macroeconomic objectives
in 2012 will be to:
a)
achieve real Gross Domestic Product
growth of above 7.0 percent;
b)
attain end-year inflation of no more
than 7.0 percent;
c)
limit overall fiscal deficit to 4.3
percent of GDP and domestic borrowing to 1.3 percent of GDP; and
d)
maintain gross international reserves of
at least four months of import cover.
Monetary
and Financial Sector Policies
29.
Mr Speaker, monetary policy in 2012 will
remain focused on the maintenance of single-digit inflation. In line with this
objective, the Bank of Zambia will continue to use market-based instruments to
limit money supply growth. The Central Bank will also continue to work towards
enhancing the effectiveness of the monetary policy. In this regard, the option
of adopting an interest rate-based framework will be explored further.
30.
Sir, a flexible exchange rate regime has
worked well for Zambia by absorbing external shocks that could have been
harmful to trade, employment and inflation. In this regard, the Government will
ensure that determination of the exchange rate remains market based while supporting
the competitiveness of our exports. To minimize the impact of rapid movements
in the exchange rate, the Bank of Zambia will maintain its policy of
intervention to smoothen volatility.
31.
Mr. Speaker, maintaining a sound
financial system is essential to investment and economic growth. To this effect,
the Bank of Zambia will continue to promote stability of the financial sector
through strong supervision of financial institutions and by ensuring compliance
with regulations.
Fiscal
Policy
32.
Mr. Speaker, the objective of the Government
in 2012 is to continue with effective fiscal management and supportive fiscal
policies so as to attain high and inclusive economic growth. This fiscal stance
entails increasing domestic and external resource mobilisation to support our
development agenda and deliver on our commitment to “Make Zambia a better place
for all.”
33.
Sir, our fiscal policy objectives in
2012 will be to:
a)
increase domestic revenues to 19 percent
of GDP;
b)
limit domestic borrowing to 1.3 percent
of GDP and net external borrowing to 3.0 percent of GDP; and
c)
commit at least 50 percent of the budget
to social sectors and infrastructure development
Debt
Policy
34.
Mr. Speaker, the Government is aware
that even as we spend more on socio-economic infrastructure, our ability to meet
our debt obligations should not be ignored. In this regard, the Government will
target concessional borrowing as the first option. In order to meet the huge
infrastructure financing needs, the Government will also consider
non-concessional borrowing for projects with high economic and social returns.
35.
Sir, this Government will ensure
transparent and accountable use of loans by strengthening parliamentary
oversight. Further, the capacity to appraise projects in the Ministry of
Finance and other ministries implementing major projects will be strengthened. The
Government will also review the existing legal framework in order to strengthen
debt management.
36.
Mr. Speaker, early this year, Zambia was
assigned a B+ rating by two reputable international rating agencies. This has
opened up the opportunity for Zambia to diversify its external financing
sources to support our commitment to improve infrastructure, particularly in
the road and energy sectors. To this end, the Government plans to proceed with
the issuance of a ten-year sovereign bond worth US $500 million in 2012.
37.
Sir, the issuance of this bond will
establish a pricing benchmark for future bond issuance by both the private and
public sectors. Furthermore, it will enhance the visibility of the country as a
favourable destination for investment. This will “crowd-in” private sector
investment and ease competition for domestic savings.
KEY STRATEGIES AND INTERVENTIONS
38.
Mr. Speaker, the PF Government recognizes
the efforts of previous administrations in establishing strong growth. However,
indicators of human development in Zambia are dismal, with poverty remaining
consistently above 60 percent. In rural areas, the situation is even worse at
77.9 percent. Unemployment levels have remained unacceptably high especially
among our youths. According to the 2011 Human Development Report, Zambia is
still ranked among the poorest at 164th position out of 189 countries.
39.
Sir, this tells us that we must never
focus exclusively on macroeconomic stability. A mother in Gwembe is not
interested in lower inflation if she can’t take her child to school; an unemployed
youth in Kaputa is not empowered by songs of praise about stability of the
exchange rate but by being provided with skills and job opportunities; our hard
working farmers across the country have no interest in real GDP growth if their
farm produce lies uncollected, they are not paid on time and they do not
receive a reasonable and fair recompense for their labour.
40.
Mr. Speaker, to address these concerns,
the PF Government will focus on social justice and equity while sustaining
macroeconomic stability. This will be achieved through diversifying the economy,
enhancing productivity, promoting employment opportunities and pursuing sound
financial management while investing in supportive infrastructure.
41.
Sir, let me now provide brief details on
each of these strategies.
Diversification
and Productivity
42.
Mr. Speaker, for far too long, our
economy has continued to be over reliant on copper which has delivered limited
benefits for the majority of our people. This Government recognises recent
efforts made towards diversifying our economy. We are determined to accelerate
these efforts by promoting growth in the agriculture, tourism and manufacturing
sectors.
43.
Sir, in the agricultural sector, we will
extend support to crops beyond maize, strengthen research and extension
services, invest in irrigation, develop and rehabilitate livestock
infrastructure and promote disease free zones. In addition, the Government will
reform the agricultural marketing system, promote agro-processing and forward
linkages including through the development of farm blocks. Other strategies
will include technological transfer and land development.
44.
Sir, in the tourism sector, we will
promote and expand tourism products and develop key infrastructure. The
Government will also open up areas for private sector investment including the
northern circuit. Further, with His Excellency’s bold decision to relocate the provincial
capital to Choma, Livingstone will now be able to devote all its energies to enhancing
its status as the tourist capital of Zambia.
45.
Mr. Speaker, in the manufacturing sector,
the Government will facilitate private sector development, promote the growth
of Micro Small and Medium Enterprises and develop rural based enterprises. In
this regard, the Government will continue with the development of the
Multi-Facility Economic Zones.
46.
Sir, to enhance private sector
productivity, the Government has, within 50 days of taking office, lowered the cost
of credit. The Bank of Zambia will continue to engage the financial sector to
ensure that innovative ways of providing affordable financing are identified
and implemented. In addition, the Government will accelerate business licensing
and regulatory reforms to further reduce the cost of doing business in Zambia.
We will also invest in vocational and technical education in order to equip the
labour force with the appropriate skills that meet the demand of the private
sector.
Public
Financial Management
47.
Mr. Speaker, Government’s ability to
effectively promote pro-poor growth through the budget is dependent on the
efficacy of its public financial management (PFM) practices. Consultation, transparency
and accountability are cardinal principles upon which this Administration will
manage public finances. Adherence to these principles will reduce the space in
which misuse and abuse of public resources can thrive, thereby enhancing the
development orientation and service delivery impact of public expenditure.
48.
Sir, to this effect, in 2012, the Government
will finalize and begin to implement a revitalized PFM strategy that
practically integrates these core principles into its PFM practices. Further,
Government will bring to this House a Planning and Budgeting bill and an
amendment to the Public Finance Act to place these cardinal PFM principles on a
legal footing.
Public
Private Partnership
49.
Mr. Speaker, the Public Private
Partnership (PPP) framework provides a mechanism to employ private financing
and expertise for delivering public goods and social services that would
ordinarily be funded from the budget. The PF Government will collaborate with
and encourage the private sector to participate in financing key public sector
projects for the benefit of our people. The experience from the already
implemented PPP projects will be used to strengthen project identification,
development and implementation. We will also ensure that the implementation of
PPP projects does not give rise to unsustainable contingent liabilities. There is
a compelling need to guard against fraudulent schemes.
Provision
of Statistics
50.
Mr. Speaker, effective formulation and
evaluation of public policies depends on the availability of good quality and
timely provision of statistics. In the past, inadequacies in the statistics
have hampered well informed decision making. It has come to my attention that a
number of organizations that are obliged to provide statistics have often not
complied with the law.
51.
Sir, we cannot allow this to continue
and every organization operating in this country must avail Government with
relevant information and statistics from time to time. Currently the Central
Statistical Office is conducting an economic census. I implore the business
community to cooperate with Government agencies collecting statistics as we all
stand to benefit.
PART III
THE 2012 BUDGET
52.
Mr. Speaker, I now present the budget
for 2012 which focuses on promoting economic and social development through an
appropriate balance between government expenditure, taxation and borrowing.
53.
Mr. Speaker, the Government proposes to
spend K27,698.3 billion or 26.5 percent of GDP projected at K104,462 billion in
2012. Of this amount, K19,976.0 billion or 72.1 percent will be financed from
domestic revenues. K1,894.4 billion or 6.8 percent will be financed by grants
from Co-operating Partners. The balance of K5,827.9 billion or 21.1 percent of
total expenditure will be financed through domestic borrowing of K1,324.3
billion or 1.3 percent of GDP and gross external financing of K4,503.6 billion
or 4.3 percent of GDP.
54.
Sir, in line with the PF manifesto, the
2012 budget prioritises expenditures in the four core development areas of agriculture;
education and skills development; health services; and local government and
housing. In this regard, the budget allocations to these core programme areas
have significantly been increased compared with the 2011 levels.
55.
Mr. Speaker, let me now discuss policies
and budget allocations.
Agriculture
Development
56.
Mr. Speaker, over the past three years,
there has been an increase in agricultural output. However, the sector
continues to face constraints such as low productivity, dependence on rain-fed
agriculture, lack of appropriate and affordable breeding stock, low value
addition, poor marketing and low investment. In addition, the competitiveness
of the sector has been adversely affected by poor transport infrastructure,
inadequate storage facilities and limited access to electricity. Further,
Government policy has encouraged the growing of maize to the detriment of other
crops.
57.
Sir, these constraints mean that the
benefits of improved agricultural output have often not reached the poorest
rural households. As a result, the sector’s potential to significantly reduce
poverty has not been tapped.
58.
Mr. Speaker, in order to address these
constraints, the Government will redesign the Farmer Input Support Programme,
refocus market guarantees and differentiate extension service provision to
support the production of crops which are appropriate to each agro-ecological
zone.
59.
Sir, alongside these reforms, action
will be taken to improve crop productivity and production as well as soil and
water management. The input provision and crop marketing systems will be streamlined
and the sector’s competitiveness will be enhanced through infrastructure
development and enhanced extension services.
60.
Mr. Speaker, to the agriculture core
programme, I have increased the allocation by 37.9 percent to K1,698.0 billion
in 2012 from K1,231.6 billion in 2011. Of this amount, K500.0 billion is for the
Farmer Input Support Programme and K300.0 billion for crop purchases for the
strategic food reserve. The balance will cater for irrigation infrastructure, livestock
development, fisheries and aquaculture development, and other programmes.
Education
and Skills Development
61.
Mr. Speaker, educating our children is
an important prerequisite for long term growth and reducing inequality.
Currently, there is minimal early childhood education, poor quality primary and
secondary education, dilapidated infrastructure and limited access to
vocational and tertiary education.
62.
Sir, we must, therefore, strive towards
the attainment of high quality, universally accessible and development oriented
education for all. In particular, greater emphasis will be placed on early
childhood education as it is a critical requirement for the social and
intellectual growth of our children. This will lay a firm foundation for our
children to develop into productive and innovative citizens.
63.
In this regard Mr. Speaker, I propose to
increase the sector’s allocation by 26.7 percent to K4,850.5 billion in 2012. Out
of this amount, K796.4 billion has been set aside for various infrastructure
projects including construction of more than 2,000 additional classroom blocks.
I have also provided K126.0 billion to upgrade Chalimbana and Palabana colleges
into universities and commence works on a new university at Lubwa Mission. In
addition, the Government will undertake a net recruitment of 5,000 teachers and
update the curriculum to improve the quality and relevance of education to
bridge the nation’s skills gap.
64.
Sir, in the area of skills development,
the Government will scale up youth skill development programmes through the
construction of nine, and rehabilitation of 12 Technical Training Institutes.
This is aimed at empowering our youths and making them active participants in
the development of the country.
Health
Services
65.
Mr. Speaker, many families across the
country today are struggling to care for their sick. For these families, the
hours are long, the responsibilities daunting, the demands unrelenting and
costs significant. When they visit their nearest health centre, clinic or
referral hospital, their anguish is only minimally diminished, as they face a
health provision system that struggles to provide adequate medicines, beds and
other basic health requirements.
66.
Sir, we cannot allow this situation to
continue. Provision of more resources to the health care system will therefore
be an important starting point. Today, I am making a commitment to the Zambian
people that the budgetary allocation to the health sector will progressively
increase in line with the Abuja Protocol.
67.
Mr. Speaker, in 2012, I have increased
the allocation to the health function by 45.0 percent to K2,579.9 billion. Of
this amount, K301.7 billion will be for drugs and medical supplies. With these
resources, we will scale up the provision of essential drugs, and procurement
of equipment and other medical supplies especially to the under-serviced rural
areas.
68.
Sir, a provision of K77.9 billion has
been made for the net recruitment of 2,500 front line medical personnel while K389.3
billion has been provided for infrastructure and medical equipment. Key
programmes under infrastructure development will include the completion of 8
district hospitals and the construction of 5 new district hospitals including
the requisite housing for medical personnel.
69.
Mr. Speaker, health care provision
cannot only be judged in terms of resource allocation, but also by improving access
and health outcomes. In order to increase access to health services, the Government
will remove all financial barriers to accessing health services by abolishing
all user fees for primary care services not only in rural but also in urban
areas.
Local
Government and Housing Development
70.
Mr. Speaker, Zambia’s communities, towns
and cities are the places where our people live and work, raise their children,
and want to retire in dignity and security. Each council is responsible for
delivering services that are central to the everyday lives of our people.
However, the functionality of the local governance system has been severely eroded
thereby compromising local service delivery.
71.
Sir, it is a priority of this Government
to decentralize appropriate functions to councils over the medium term. The
focus in 2012 will be to build capacity at local level in preparation for the
phased devolution of functions from 2013. The Government will also restructure
financial relations between the centre and the local level. This will ensure that
these extra mandates devolved to the councils are adequately financed, in line with
the principle of “finance follows function”.
72.
Sir, in 2012, I have increased the
grants to councils by more than 100 percent to K257.1 billion. This is to demonstrate
the PF Government’s commitment to capacitate councils ahead of devolution.
73.
Mr. Speaker, the provision of safe, potable
drinking water and sanitation services in our communities requires our
immediate attention. This will be addressed through the rehabilitation of more
than 850, and construction of about 3,000 boreholes in rural areas. In urban
areas, development and rehabilitation of water supply and sanitation
infrastructure systems will be undertaken. In addition, the Government will
facilitate the strengthening of the capacity of utility companies and other
institutions in water and solid waste management.
74.
In light of what has been outlined in
the four core programme areas, the overall functional allocation of
expenditures is as follows:
2012 Expenditure
by Function
|
Function and
Sub-Function
|
Allocation (K' Billion)
|
% of Budget
|
|
General Public Services
Executive
|
8,304.8
|
30.0
|
|
Executive
|
856.1
|
|
|
o/w Grants to Local Authorities
|
257.1
|
|
|
Constituency Development Fund
|
120.1
|
|
|
Legislation
|
594.7
|
|
|
General Government
Services
|
7,400.5
|
|
|
O/w Domestic Debt Interest
|
1,650.1
|
|
|
External Debt
|
1,416.8
|
|
|
Compensation and Awards
|
200.0
|
|
|
Centralised Administrative
Services
|
362.5
|
|
|
Defence
|
1,648.5
|
6.0
|
|
Public Order and
Safety
|
1,017.4
|
3.7
|
|
|
|
|
General Economic,
Commercial and labour
|
266.1
|
|
|
o/w Empowerment Fund
|
40.0
|
|
|
Agriculture Forestry
and Fishing
|
1,698.0
|
|
|
o/w Farmer Input Support Programme
|
500.0
|
|
|
Strategic Food Reserve
|
300.0
|
|
|
Food Security Pack
|
25.0
|
|
|
Fuel and Energy
|
1,369.7
|
|
|
O/w Kafue Gorge Lower Power Project
|
864.0
|
|
|
Rural Electrification
Programme
|
437.1
|
|
|
Transport
|
4,658.8
|
|
|
o/w Roads
|
4,481.0
|
|
|
Communications
|
39.0
|
|
|
Tourism
|
52.6
|
|
|
Environment Protection
|
31.8
|
0.1
|
|
Housing and Community
Amenities
|
352.9
|
1.3
|
|
o/w Water Supply and Sanitation
|
150.3
|
|
|
Health
|
2,579.9
|
9.3
|
|
o/w Infrastructure Development
|
389.3
|
|
|
Recreation, Culture
and Religion
|
136.9
|
0.5
|
|
Education
|
4,850.5
|
17.5
|
|
o/w Infrastructure Development
|
796.4
|
|
|
Social Protection
|
655.6
|
2.4
|
|
o/w Public Service Pension Fund
|
474.2
|
|
|
Social Cash Transfer
|
55.0
|
|
|
Grand Total
|
27,698.3
|
100.0
|
75.
Mr. Speaker, the detailed expenditures
for 2012, categorised by function are as follows:
General Public Services
76.
Mr. Speaker, under the General Public
Services function, the Government has made a provision of K8,304.8 billion or 29.9
percent of the budget. Out of this amount, I have allocated K2, 091.9 billion
to service domestic and external debt and K336.3 billion for payment of arrears
to suppliers of goods and services. In addition, K257.1 billion has been
provided for grants to local authorities, and K120.1 billion for the
Constituency Development Fund.
77.
Sir, other provisions include K200.0
billion for compensation and awards for payment of litigation cases ruled
against the Government. A further K120.0 billion has been provided for
contingency reserve meant to cater for unforeseen and unavoidable expenditures.
The remainder of the resources will go towards regular Government operations.
Economic Affairs
78.
Mr. Speaker, expenditure on the economic
affairs function is projected to rise by 54.6 percent to K8,120.0 billion. Notable
programmes include those in the agricultural sector, which I have already
discussed, together with large investments in the energy and roads sectors. In
the energy sector, I have allocated K864.0 billion as Government’s contribution
to equity in the construction of the Kafue Gorge Lower power project while K437.1
billion is for the Rural Electrification Fund.
79.
Sir, for the road sector, I have
provided K4,481.0 billion, the bulk of which will go towards ongoing projects.
Out of this amount, K101.0 billion has been allocated for feasibility studies
and design for new projects including Leopards Hill to Chiawa, Kasempa-Kaoma,
Kawambwa-Mporokoso and Luwingu-Kaputa roads. In addition, K60.0 billion has
been provided for preparatory works on the Lusaka Ring-Road project. Other road
projects that will be undertaken in 2012 include Mongu-Kalabo, Nyimba-Sinda,
Nakonde-Mbala, Kalulushi-Lufwanyama, Kabompo-Chavuma, Bottom road and
Mumbwa-Landless corner.
80.
Mr. Speaker, with regard to the tourism
sector, I have provided K21.1 billion for tourism marketing and promotion and K15.0
billion to recapitalize Zambia Wildlife Authority.
81.
Sir, I have also provided K30.0 billion to
facilitate the initial works of establishing the new provincial headquarters
for Muchinga Province and the relocation of the provincial capital for Southern
Province to Choma.
Public Order and Safety
82.
Mr. Speaker, the Government intends to
spend K1,017.4 billion or 3.7 percent of the budget on the Public Order and
Safety function. Of this amount, K55.8 billion has been set aside for infrastructure
development projects which include police housing units, police stations and
forensic laboratories. In order to improve policing, K30.0 billion has been provided
for the Zambia Police modernization programme and K16.7 billion for the net recruitment
of 1,000 police officers. Further, an allocation of K50.0 billion has been made
to continue with the programme of court construction and rehabilitation.
Housing and Community Amenities
83.
Mr. Speaker, I have allocated K352.9
billion to this function. Of this amount, K150 billion has been provided as
Government contribution to the water and sanitation sector, representing an
increase of 26.1 percent from the 2011 provision. The funds will be used to
improve access to clean and safe drinking water in rural and peri-urban areas.
Social Protection
84.
Mr. Speaker, a total of K655.6 billion
has been allocated for social protection programmes. Of this amount, K474.2
billion has been provided for grants to the Public Service Pension Fund. In
addition, K90.0 billion has been provided for various social safety nets which
include the Public Welfare Assistance Scheme, food security packs and social
cash transfers.
REVENUE
ESTIMATES AND MEASURES
REVENUE
ESTIMATES
85.
Mr. Speaker, in the economic objectives
and policies that I have just outlined, it is very clear that the PF Government
has a very ambitious plan to transform the Zambian economy. To do so, we need
to carefully balance the demands of our citizens for lower taxes against the
demands for higher spending, especially on poverty reducing programmes. This
means that we must rebalance the burden of taxation, providing tax relief for
those who have borne a disproportionate burden in the past while at the same
time generate more resources from those areas of the economy that have benefited
most from our strong macroeconomic performance.
86.
Sir, under these circumstances, the
Government expects to raise resources of K27,698.3 billion or 26.5 percent of
GDP to support the 2012 Budget. Domestic revenues will constitute 19.1 percent of
GDP while grant receipts from our cooperating partners will be 1.8 percent. The
balance of 5.6 percent of GDP will be total borrowing out of which 1.3 percent
of GDP will come from domestic borrowing and the balance of 4.3 percent of GDP
will be external financing.
87.
Mr. Speaker, the summary of the revenue estimates
and financing to support the 2012 expenditures is as follows:
Resource Envelope for the 2012 Budget
|
|
(K’
billion)
|
|
|
Total Tax Revenues
|
|
19,267.7
|
|
Income Tax
|
10,271.5
|
10,271.5
|
|
Company
Income Tax
|
3,264.4
|
|
|
PAYE
|
4,216.2
|
|
|
Withholding
& other
|
909.5
|
|
|
Mineral
Royalty
|
1,881.4
|
|
|
Value Added Tax
|
4,723.6
|
|
|
Domestic
VAT
|
392.0
|
|
|
Import
VAT
|
4,331.6
|
|
|
Customs and Excise
|
4,272.6
|
|
|
Customs
duty
|
2,108.6
|
|
|
Excise
duty
|
2,164.0
|
|
|
o/w Fuel Levy
|
460.6
|
|
|
Non-Tax Revenues
|
708.3
|
|
|
Fees
& Fines
|
465.0
|
|
|
Exceptional
|
216.2
|
|
|
Medical
Levy
|
19.2
|
|
|
Dividends
& On-lending
|
7.9
|
|
|
Domestic Borrowing
|
|
1,324.3
|
|
|
|
|
|
Total Domestic Revenue and
Financing
|
|
21,300.3
|
|
|
|
|
|
Total Foreign Grants and Financing
|
|
6,398.0
|
|
Grants
|
1,894.4
|
|
|
General
Budget Support
|
541.4
|
|
|
Sector
Budget Support
|
219.2
|
|
|
Project
Grants
|
1,133.7
|
|
|
Foreign Financing
|
4,503.6
|
|
|
Programme
Loans
|
2,652.0
|
|
|
Project
Loans
|
1,851.6
|
|
|
TOTAL REVENUE AND FINANCING
|
|
27,698.3
|
REVENUE
MEASURES
DIRECT TAXES
88.
Mr. Speaker, during the run up to the
election, the PF Government made a promise to the people of Zambia that it will
streamline the tax system, lower tax rates and promote tax compliance. One of
the commitments we made was to put more money in people’s pockets. I wish to
assure this august House that we remain as committed to this cause as we were
then.
89.
Sir, as a first step to honour our
commitments, I propose to double the exempt threshold for PAYE from the current
K12 million to K24 million per annum. This translates into tax free income of
K2 million per month and will result in more than 80,000 low paid workers
moving out of the taxable brackets. In addition, I have provided more relief by
adjusting the tax brackets as follows:
Current
PAYE System
|
Income Bands
|
Tax Rate
|
|
K1,000,000
and below per month
|
0 %
|
|
K1,000,001
– K1,735,000 per month
|
25
%
|
|
K1,735,001
– K4,200,000 per month
|
30
%
|
|
Above
K4,200,000 per month
|
35
%
|
Proposed PAYE System
|
Income Bands
|
Tax Rate
|
|
K
2,000,000 and below per month
|
0 %
|
|
K2,000,001
– K2,800,000 per month
|
25
%
|
|
K2,800,001
– K5,700,000 per month
|
30
%
|
|
Above
K5,700,000 per month
|
35
%
|
90.
Sir, the PAYE restructuring increases
disposable incomes of the workforce by about K1.0 trillion which can only be
salutary for the economy.
91.
Mr. Speaker, the Government believes
that growth should be largely private sector driven. However, the cost of
borrowing for investment has inhibited most of the private sector, particularly
our local entrepreneurs, from engaging in gainful ventures. In order to
compliment the efforts that we have already undertaken to reduce the cost of
money, I propose to abolish the 40 percent upper corporate tax rate for banks. With
this measure, banks will now be required to pay the standard corporate tax rate
of 35 percent. This will help to make banks more liquid, a desirable objective
to facilitate low cost borrowing by enterprises.
92.
Sir, this measure will result in a
revenue loss of K65.0 billion and I expect the banks to pass on the benefit of
this measure to the borrowers by lowering lending rates further.
93.
Mr. Speaker, agriculture is at the
centre of our pro-poor development agenda. Sustaining the gains which have been
registered in this sector over the recent years requires that we continue to
increase capital formation and investment in this sector. I, therefore, propose
to reduce the corporate income tax that is applicable to the agricultural
sector from 15 to 10 percent. The proposed reduction is meant to increase investment
and thereby raise productivity, output and incomes of our farmers. This measure
will make available K10.6 billion for re-investment into the farming sector.
94.
Mr. Speaker, in order to compensate for
the revenue loss arising from the above measures, I propose to increase the
mineral royalty rate to 6 percent from 3 percent and 5 percent for base and
precious metals, respectively. I also propose to separate income arising from
hedging activities from core mining activities for income tax purposes.
95.
Sir, I expect to raise K981.0 billion
from these two measures.
96.
Mr. Speaker, in order to align the
treatment of commission payments to non-residents with that of other income
streams such as royalties, interest and management or consultancy fees, I
propose that commission payments made to non-residents be deemed to have a source in Zambia and therefore taxable at 15
percent. This measure will result in a revenue gain of K24.0 billion.
97.
Sir, all the above measures will come
into effect on 1st April, 2012.
VALUE ADDED TAX
98.
Mr. Speaker, in 2009, the Government
introduced a policy to include copper and cobalt ores and concentrates on the
VAT deferment scheme. This was done to promote the utilization of excess
smelting capacity following the decline in the country’s mineral production.
However, with the increase in local production of copper and cobalt ores, it is
no longer justifiable to retain these products on the scheme. I, therefore,
propose to remove copper and cobalt ores and concentrates from the Import VAT
Deferment Scheme. This measure will generate an extra K6.9 billion.
99.
Sir, this VAT measure will come into
effect on 1st January, 2012.
CUSTOMS AND EXCISE
100.
Mr. Speaker, in 2006, Government
introduced an export duty of 15 percent on the export of copper and cobalt
concentrates in order to encourage local value addition and create employment.
This policy is discriminatory as it does not apply to other minerals thereby creating an uneven
playing field. In the spirit of making this tax less burdensome and its
application non-discriminatory, I propose to reduce export duty to 10 percent
but also extend it to all unprocessed or semi-processed mineral ores. The
revenue gain as a result of this measure is K70 billion.
101.
Sir, in 2007, the Government removed
customs duty on light passenger aircraft to promote tourism. I propose to
extend this concession to cover helicopters and micro-lites. This measure will
have a minimal revenue loss.
102.
Mr. Speaker, I propose to increase the duty
rebate threshold on travelers’ effects from US $500 to US $1,000. This will benefit
travelers coming with accompanied personal effects from outside of the country.
This measure will have a minimal revenue impact.
103.
Sir, all the above Customs and Excise
measures will take effect on 1st January, 2012.
HOUSEKEEPING
MEASURES
104.
Mr. Speaker, I propose to amend the
income tax Act so as to harmonize the fiscal year and the charge year. In this
regard, the Charge year for 2012 will run for nine months from 1st April to
31st December, 2012 so that the succeeding charge years from 2013 will run for
a full twelve months from 1st January to 31st December.
105.
Sir, I also propose to amend the Customs
and Excise, Income Tax and the Value Added Tax Acts to update and strengthen
provisions and remove ambiguities in certain sections of these pieces of legislation.
INCENTIVES
UNDER THE ZAMBIA DEVELOPMENT AGENCY ACT
106.
Mr. Speaker, the process of granting
additional incentives under Section 58 of the ZDA Act provides discretion and
lacks transparency, thereby creating opportunities for corruption. I, therefore,
propose to remove Section 58 in the ZDA Act in order to prevent leakages in the
tax system and strengthen the quest for enhanced revenue mobilization.
PART
IV
CONCLUSION
107.
Mr. Speaker, the Patriotic Front won the
2011 Elections because it listened to the needs of the People at all levels.
Now that we are in Government, we have not, and will never, distance ourselves
from our people. His Excellency the President and his entire Cabinet have
committed themselves to work tirelessly so that Government responds, in
practical ways, to ensure that the economy is put on a path of rapid growth and
that its benefits are widely shared by every Zambian.
108.
Sir, we are not a Government that basks
in the empty glory of statistical euphoria, but one that seeks a transformational
shift in society to make it more just and equitable. In this regard Mr.
Speaker, allow me to briefly summarize what this first budget of the PF Government
means to ordinary Zambians.
109.
Mr. Speaker, to the unemployed youth who
feels this nation has little use for his energies, it means more opportunities
for appropriate skills training and thus greater prospects for income-earning
activities through which he can positively contribute to the development of his
nation.
§ To
the peasant farmer who only seeks to feed his family through his toil in the
field, it means the provision of extension services and farm inputs that are
tailored to the agricultural conditions of his area and to improved access to
markets for his produce.
§ To
the promising pupil who learns in a makeshift classroom with no desk and not a
single text book, it means an improved learning environment which can better
equip her for a bright and productive future.
§ To
the grandmother who is looking after her deceased daughter’s sick orphan, it
means free access to health care so she can buy the food they need.
§ To
the enterprising businesswoman who lacks the funds to embark on her great ideas,
it means access to cheaper capital that can be the catalyst to make her dream a
reality.
§ To
the hard pressed resident in a compound whose home and property is threatened
with floods each rainy season and whose environment is strewn with refuse, it
means the laying of the foundation for an empowered local council which can
provide the basic local services he and his family deserve.
§ To
the hardworking copper miner, the committed artisan and the industrious
businessman, it means more money in their pockets from which they can raise
their living standards and those of their families.
§ To
civil servants, it means an environment where professionalism is reinvigorated and
impropriety repudiated.
110.
Mr. Speaker, to all taxpayers, the PF
Government promises to manage public finances in a fully accountable and
transparent manner so that all abuse of taxpayers’ money is identified and
dealt with and all scope for corrupt practices eliminated.
111.
Finally Mr. Speaker, allow me to enter a
passionate plea to all Zambians to resolutely and unequivocally rally behind
our President, the custodian of our interest, especially those of the
disadvantaged segments of our great country, to put Zambia’s development on a
sustainable trajectory.
112.
Mr. Speaker, I beg to move.
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