Tax breaks bring little relief for urban poor, economist

Zimbabwe's government has announced tax breaks aimed at stimulating the ailing economy and easing the erosion of incomes caused by soaring inflation. Economist Dennis Nikisi told IRIN on Tuesday that "the tax break announced is a good start, but certainly not the whole solution to the problem" of ongoing erosion of household purchasing power, even though inflation had slowed from a peak of 600 percent last year. "Inflation is increasing, but at a slower rate, so as long as we do not address the question of a complete moratorium on price increases [for basic goods and services], then [the tax breaks] are meaningless," said Nikisi, director of the Graduate School of Management at the University of Zimbabwe. Finance Minister Herbert Murerwa announced the tax breaks on Monday at a mid-term review of the government's financial policies. "High rates of inflation have not only eroded the real value of incomes but have pushed up most employees into high tax brackets. This undermines disposable incomes, critical for stimulating aggregate demand in the economy," Agence France-Presse quoted him as saying. The individual tax-free threshold will be raised from Zim $200,000 (about US $40) to Zim $750,000 (US $140) per month from 1 September. As inflation cuts into incomes, there has been further evidence of increased vulnerability among ordinary Zimbabweans, leaving them less able to procure basic goods and services. In a recent press release the International Monetary Fund (IMF) said Zimbabwe's GDP fell by 30 percent over the last five years and another 4-5 percent decline is expected this year. "Unemployment is very high and increasing, social indicators, which were once among the best in Africa, have worsened, and the widespread HIV/AIDS pandemic remains largely unchecked. Severe food shortages have necessitated massive food imports and donor assistance," the Fund noted. IRIN reported earlier this month that the capital, Harare, had seen a rising number of kwashiorkor cases. The symptoms of kwashiorkor, caused by inadequate protein consumption, include a bloated stomach and spindly arms and legs, and can result in death if not treated. In his health report for 2003, the city's director of health services, Dr Lovemore Mbengeranwa, noted that instances of diagnosed kwashiorkor had risen by 11.1 percent. A total of 621 cases were treated at council-run clinics, of which 97 percent were children under the age of five. Mbengeranwa told IRIN that "food vulnerability in urban areas is increasing at an alarming level due to economic instability in the country". NGOs had earlier warned that a recent 150 percent hike in the maize producer price, as well as a 50 percent increase in bread prices, brought on by a shortage of flour, was going to result in staple foods becoming increasingly inaccessible to ordinary Zimbabweans. "Most Zimbabweans cannot afford mealie [maize] meal ... when it is available in the retail outlets," a representative of a food security monitoring agency told IRIN in May. Nikisi said average salaries of between Zim $500,000 and Zim $700,000 were not enough to secure accommodation in one of the country's working class suburbs. "The monthly rental for a typical five-roomed home in a high-density suburb, where the majority of people live, is between Zim $800,000 and Zim $1.5 million. Even if they are not taxed, they then can only afford a two-roomed home - whether or not they have a family - so where are they going to get money for food? There's no money for food, school fees, transport." "What I'm saying, basically, is there should be huge tax breaks - in fact, I would suggest that a person earning up to Zim $2 million should be tax free - but we know the government has admitted that it is getting the greatest portion of its revenue inflow from individual taxes, so that suggestion would not be viable for them," he added. All these factors have had a "very negative impact on the urban poor" and more and more people have had to turn to the informal economy to earn a living. "Everywhere you go now in Harare you see people selling this and that on the street - that to me is a sign that things are not in order," Nikisi concluded. The IMF has attributed Zimbabwe's economic decline mainly to inappropriate macroeconomic policies and structural changes that weakened Zimbabwe's economic base. "In particular, the disorderly implementation of the land reform programme has contributed to a sharp reduction in agricultural production. Concerns about governance and human rights, and the continued lack of clarity about property rights have severely damaged confidence, discouraged investment, and promoted capital flight and emigration," the Fund said.