Finance Minister Mlus

By Joana Msamba

BLANTYRE -(MaraviPost)-The country’s social monitoring body Centre For Social Concern (CFSC) says the current 2021/2022 national budget key indicators favour than ordinary Malawians.

According to CFSC, the proposed budget presented the August house did not address the challenges which the poor Malawian citizens are facing.

The centre cited low minimum wage, unfair tax policies, unable to contain cost of living arguing that the budget will not trickle down meaningful towards the poor lives.

CFSC has also proposed for the removal of free custom duty for elites such as members of parliament,ministers and Judges who earn high income from the government as this will reduce inequality and poverty in Malawi.

The body therefore has pleaded with Members of Parliament (MPs) to holistically scrutinize the budget with majority of poor people in mind with an aim of ensuring that the attainment of United Nations Sustainable Development Goals and our own blueprint of Malawi agenda 2063.

“The budget should aim at empowering and uplifting those who are in abject poverty and not simply favour the upper class the high income earners”, urges CFSC in a statement made available to The Maravi Post

Below is CFSC statement on 2021/2022 National budget:

CITIZENS DEMAND FOR INCLUSIVE AND PRO POOR BUDGET – A GLANCE AT THE 2021/2022 BUDGET PROPOSAL PRESENTED BY MINISTER OF FINANCE  HONOURABLE FELIX MLUSU

  1. BACKGROUND AND INTRODUCTION

The Centre for Social Concern (CfSC) brings you another reflection on the budget as it does in most of the years. Centre for Social Concern (CfSC) founded in 2002, a faith-based organization, promotes research and action on social issues, linking the Christian Faith and Social Justice. The CfSC aims at transforming the unjust structures in Malawian society through research and advocacy so as to ensure sustained change in policies for the betterment of all in line with their human dignity.

In the spirit of exposing the plight of the poor and with the realization that the average person is struggling to afford even the most basic of monthly commodities, CfSC, through its Social Conditions Research Programme conducts the “Basic Needs Basket” (BNB) survey since 2002. The Programme aims at gathering facts through research and to use those facts to lobby and advocate for change in policies and/or practices that inhibit attainment of sustainable livelihoods. The hallmark of the project is to contribute towards a humane and socially just Malawi. The Centre’s activity dwells on four pillars, namely Economic Governance, Active Citizenship, Social Conditions Research and Interreligious Dialogue.

The input to the budget falls under the Economic Governance pillar and Active Citizenship pillar, but informed with data from the Social Conditions Research, which documents through Urban and Rural Basic Needs Basket (BNB) on the cost of living.

The 2021/2022 budget that was presented by The Minister of Finance is the first under the new National Vision, The Malawi 2063. National Planning Commission laid out a national development blueprint, the Malawi 2063 which outlines that by the year 2063, the Malawi we want should be “An inclusively wealthy and self-reliant industrialized upper-middle-income nation.”

The budget has, therefore, designed to set Malawi on the trajectory towards the achievement of the nation’s aspirations towards 2063.

In the spirit of exposing the plight of the poor, Centre for Social Concern carries out the budget analysis to determine whether the budget that has been formulated and presented to the cabinet will help to address the challenges which the poor citizens are facing or not.

  • THE CENTRE’S POINT OF VIEW ON THE BUDGET

2.1 Agriculture Sector

The Tonse Alliance government through Malawi Congress Party leader, Dr. Lazarus Chakwera, campaigned on a ticket to transform Malawi into middle income economy by building a capable democratic development State. Malawi being an agricultural country, most of the campaign promises by current Tonse Alliance government were dominated by promises to transform agriculture sector in order to ensure food security, improved income and creation of employment. Going through Tonse Alliance manifestos the campaign centred on production and productivity issues, markets and marketing issues, agriculture services and value addition issues. Agriculture, surely, is on priority number one on Malawi 2063 agenda.

The Minister of Finance Honourable, Felix Mlusu, reported that the Agriculture Sector has been allocated MK284.4 billion which is 2.8 percent of GDP, and representing 14.3 percent of the total budget. This provision is intended to enhance agricultural productivity as Prescribed under Pillar One of the Malawi 2063 and to achieve permanent food security for all Malawians. These resource or allocation will cater for wages and salaries for officers in the sector.

Out of the MK284.4 billion which is allocated to Agriculture Sector, the Affordable input program has been allocated with MK142.0 billion which is expected to achieve an outreach of not less than 3.5 million farming families. This is about 50% of the sector budget.

To reduce dependency of smallholder farmers on subsidies, CfSC is, therefore, proposing to the Members of Parliament to consider upward adjustment of budget on agricultural development projects in order to improve productivity and to promote structured markets. An increase in the present structured markets will lead to profitable farming, thereby increase income for smallholder farmers. It is envisaged that profitable farming may reduce burden on tax payers’ money through subsidies. The Members of Parliament need to consider in investing in production of agriculture products for the regional and international export markets. This in effect, would improve the incomes of smallholder farmers at household level and create employment. The increase in allocation in development agriculture can also boost the availability of foreign exchange at macro level, thereby contributing to sustainable economic growth and development of this country.

2.2 Minimum Wage

According to 2018 National Statistical Office (NSO) about 9 million Malawians are living below poverty line.  Given this situation, if Malawi has to move forward, then this unacceptable prevailing social-economic state of affairs should be addressed. The poor people are facing numerous social economic challenges due to post 2019 elections and global pandemic Covid-19.

There is, therefore, an urgent need to undertake initiatives aimed at social and economic transformation. An increase in minimum wage is one of the initiatives that the government must implement to bail Malawians out of poverty. So far, the government through the Minister of Finance in the latest presented budget to the Parliament, has maintained the minimum wage for 2021/2022 proposed budget. Centre for Social Concerns has noted with concern that by maintaining the minimum wage, more Malawians will be pushed into poverty bracket.

Studies conducted by Centre for Social Concern through monthly Basic Needs Basket (BNB) findings of 2020 and 2021 revealed that the cost of living is increasing due to global pandemic and the weakening of the Kwacha. In April, 2020 the average cost of living was over MK209,000 and is increasing every month. Food poverty line is over Mk118,000. The current minimum wage of MK50,000 cannot support to buy food that provide adequate nutrition and buy essential household needs.

The low minimum wage is not necessarily due to performance of our economy, BUT total negligence and maintenance of exploitive policies.  Centre for Social Concern believes that an increase in minimum wage will support the majority of Malawians to move out of poverty line. As mentioned above, the poor Malawians are greatly affected by the global pandemic of Covid-19 and negative effects of the post-election demonstrations. It is, therefore, imperative to formulate a budget that will also cushion or embrace poor people in Malawi who form the majority of the population. The budget should not just carter or support few rich people. As a country we also need to put a deliberate policy to cushion low income earners who are struggling to survive during this pandemic period.

Centre for Social Concern feels that the 2020/2021 budget is mostly focusing on economic recovery of the rich people. The Centre believes that an increase in minimum wage will help majority of Malawians in attaining their rights such as right to food, right to education, right to access to quality health services, and right to life. The low minimum wage of MK50,000 per month is impinging Malawians to their dignified life. There is a lot of discrimination due to provision of low minimum wage that was set by government. A lot of Malawians are wallowing in abject poverty due to provision of low minimum wage.

2.2    Taxation Justice

Centre for Social Concern has for a long time advocated for progressive tax systems which will not only increase the revenue basket but fairly distribute the same to reduce the gap between the rich and the poor.

CfSC, therefore, agrees with what was said by the Minister during the presentation of this year’s budget that a good tax system needs to conform to or with the principles of progressiveness or vertical equity. This implies that high-income earners should pay more taxes. The Minister announced the introduction of two new Pay as You Earn (PAYE) brackets of 25 percent for income between MK100,000 to MK1.0 million per month and of 40 percent for incomes of more than K6.0 million per month. Accordingly, the new monthly PAYE schedule will be MK0 to MK100,000 at 0 percent; between MK100,000 to MK1.0 million at 25 percent; between K1.0 million to K3.0 million at 30 percent; between K3.0 million to K6.0 million at 35 percent; and from K6.0 million and above at 40 percent.  He said that this is expected to promote distribution of wealth in the country and increase disposable income for all low income earners.

Centre for Social Concern observed that some proposals on changes of tax policy will be favouring the rich other than the poor people. According to the Minister the Free tax band was left at MK100,000 and citizens earning between Mk100,000 and MK1 million will be taxed 25%. Centre for Social Concern is of the view that this is an injustice to low income earners. The cost of living is now at MK209,000. Taxing 25% to Malawians earning less than MK200,000 is unfair considering that the same government has proposed some tax measures which will only benefit the rich . Some of the taxation policies favouring the rich are:

  1. The government has introduced Customs Procedures Code (CPC) to cater for duty free importation of motor vehicles by the Justices of Appeal and High Court Judges, General Officers of the Malawi Defense Force, Grade A and B under the Civil Service and Malawi Electoral Commission Commissioners in line with their condition of service. Civil Service and Malawi Electoral Commission Commissioners in line with their condition of service. This is in addition to Cabinet Ministers and members of parliament who have privileges to buy duty free vehicles every 5 years.
  2. The proposal of duty free week of goods less that USD3000 will only benefit the rich.
  3. The duty free importation of building materials for churches and mosques. Churches and mosques are not poor but the members are poor.
  4. The reduction of tax on opaque beer from 30 percent to 10 percent while tax on malt beer will be reduced from 60 percent to 40 percent will not directly have a positive impact to local Malawians.

Centre for Social Concern proposes the removal of free custom duty for elites such as Members of Parliament, Ministers, Judges and all those who already earn high income from the government. This taxation system will, therefore, reduce inequality and poverty in Malawi.

The increase in free tax bracket to closer to food poverty line of mk120,00 and the reduction for rate of tax for citizens receving less than nk200, 000 a day will be in line with the United Nations Development Goals that advocates for leaving no one behind by 2030. CFSC believes that an increase in free tax band will lead to an increase in disposable income. The increased in disposable income will lead to an increased in demand for commodities. In addition, the increased demand for commodities will create more labour that will also lead more people paying taxes.

2.3 Interest Payment

Centre for Social Concern is pleased to note that Public debt interest payments has been projected at MK299.7 billion.  This is a drop from MK376 billion in the last budget.  An increase in interest payment reduces disposable income for citizens since the government increased taxes. Increase in interest payment also reduces provision of social services to its citizens.  CfSC is, therefore, asking the government to put in place practical strategies like using less expensive vehicles by executives, having unnecessary long convoys of government executives as well as reducing unnecessary government executives’ travels. This will reduce expenditure that will lead to reduced borrowing. The continued appetite for borrowing by government is negatively impacting poor Malawians. They are to pay for it let it be in short term or in a long run term.

2.4 Maize Purchases

CFSC has noted that the proposal in this budget of MK12.0 billion which has increased from MK10 billion by National Food Reserve Agency and ADMARC to restock the Strategic Grain Reserves is a good gesture. While the proposal sounds very good, however, experience has shown that smallholder farmers do not benefit from this allocation due to inability by ADMARC to buy maize from smallholder farmers. Center for Social Concern has noted with regrets that smallholder farmers in Southern Region and Central Region are selling maize below farm gate price at MK100.00/kg instead of MK150/kg. CFSC recommends that the government must ensure that farmers are not being exploited. This money must not benefit selected few Malawians.

2.5 Management of Debt                       

It has been observed with concern that amount of public debt is increasing every month due to low revenue generation. It has been projected that this year’s deficit is MK718.3 billion. Out of MK718.3 billion it is estimated that MK583.5 billion will be financed by domestic borrowing.  Knowing that domestic borrowing burdens citizens through taxes due to high interest rate, CfSC is, therefore, proposing to the Members of Parliament to put strategies that will ensure that the government is controlling expenditure that will result in reduction of unnecessary borrowing.

  • Conclusion

Centre for Social Concern is, therefore, pleading to Honourable Members of Parliament to holistically scrutinize the budget with majority of poor people in mind with an aim of ensuring that the attainment of United Nations Sustainable Development Goals and our own blueprint of Malawi agenda 2063. The budget should aim at empowering and uplifting those who are in abject poverty and not simply favour the upper class the high income earners!

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