THE government risks failing to pay employees in the next few months following a recent 23% wage increase amid falling revenues as the economy continues to slow down, analysts have said, warning of aggressive tax collection measures.
The pay increase comes at a time when government revenues have come in 6% lower than target since the beginning of the year. Last month, the State paid its workers late, amid reports it was not remitting mandatory pension, social security and retail credit deductions, among others.
Following election promises by President Robert Mugabe’s Zanu PF party last year, the government pledged to raise the wages of its 235 000 employees to the $543 breadline by year-end, but only managed to implement the 23% increase this month, backdated to January.
Zimbabwe already spends three quarters of the $4,1 billion budget on salaries for State employees, the bulk of whom are teachers.
Recurrent expenditures, mostly wages, have eaten up 96% of monthly revenues since January, crowding out essential capital expenditure.
The government has been coy about the source of funds it has used to effect the salary increases, which will see the least-paid worker earning $375.
Zimbabwe’s government, which last year embarked on an International Monetary Fund (IMF) staff-monitored programme — an informal agreement which allows the IMF to observe the government’s economic programmes — last month admitted failing to meet the fund’s target to cap personnel-related budgetary funding.
Although the pay increases might provide a fillip to the economy by improving sagging aggregate demand, analysts say the effect on government finances far outweighs the positives.
“Where will the government get the money to pay the salaries and will it be able to afford such a huge bill given the depressed economic activity?” economist Innocent Makwiramiti said.
“You might get a situation where government will be unable to pay after one or two months, given that it has struggled since January to raise that increment.”
Business consultant Herbert Mazonde said the latest increment will put a “serious squeeze” on the fiscus because there was no fiscal space for the awards and the finance ministry will struggle to distribute its income.
“It cannot be business as usual. There has to be new or improved streams of income otherwise it cannot be sustained by existing tax revenue. The risk is that the government may fail to pay salaries in the coming months,” he said.
Although the government has managed to pacify its workers for now, pressure for more increases remains.
Public Service Association deputy executive secretary Jeremiah Bvirindi told The Source that the labour union expects two other increments by the end of January 2015.
“At least to us it is quite a good achievement and we are aiming for a poverty datum line-related income. We expect another increment in June and by January next year we should have reached the PDL,” he said.
In its weekly report, stockbroking firm, MMC Capital said it would be very difficult for the government to meet its financial obligations such as the payment of civil servants salaries and servicing debt as its revenue base continues to shrink.
“The precarious position will likely push the government to implement very tough measures to collect every cent that is due, especially unremitted taxes, through garnishee orders over unpaid taxes,” it said.
“The majority of companies in Zimbabwe are in dire straits on the back of capital constraints. Recovery prospects for many companies remain clipped, leaving many companies with no option but to either close down or scale down their operations,” it said, adding that this would affect income tax contributions to the fiscus.
In the first quarter, collections under PAYE surpassed the target of $168 million by 15% because of the improvement in compliance by companies on the back of follow-ups and audits.
Last week the Zimbabwe Revenue Authority (Zimra) revenue performance report for the first quarter of 2014 showed that collections at $834,6 million were 2% higher relative to the target of $817,9 million, but Zimra commissioner-general, Gershem Pasi said this was “miraculous” given the poor performance of the economy as liquidity constraints, low industry capacity utilisation and company closures continue to put pressure on the tax base.
Recently, the authority reportedly raided diamond firms, Zimbabwe Open University and the National Social Security Authority to demand unpaid taxes running into millions of dollars as the authority seeks to boost government’s earnings.
Pasi also announced that there would be new measures before year end to harness cash from the small and medium scale enterprises where an estimated $7 billion is circulating outside the banking system.
— The Source