Murerwa unveils tax cuts, predicts growth

Murerwa unveils tax cuts, predicts growth

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By Staff Reporter

ZIMBABWE will stem a six-year recession in the next financial year, Finance Minister Herbert Murerwa predicted Thursday, but analysts said this offered no hope for the country's millions stuck in poverty.

Murerwa also unveiled tax cuts and proposed an upward review of the tax-free threshold for Zimbabwean workers who have seen their incomes eroded by high inflation.

Zimbabwe, once the bread basket of southern Africa, is reeling from its worst economic crisis since independence from Britain in 1980.

The crunch is widely blamed on mismanagement by Robert Mugabe's government, especially the seizure of white-owned farms, which has led to the collapse of the agricultural sector, formerly the mainstay of the economy.

Unveiling his Zim$123,9 trillion 2006 national budget proposals to parliament, Murerwa said gross domestic product (GDP) growth was forecast at between 2% and 3.5% next year, against a 3.5% contraction this year.

"Growth will be driven mainly by agriculture, manufacturing, mining and tourism," Murerwa said, drawing shouts of derision from opposition legislators.

Last year, the government said the economy would start to expand again this year, predicting 5% growth.

Inflation running above 400%
The country has suffered six years of recession, with output contracting by more than a third.

A combination of foreign currency shortages and the drought has forced the country's manufacturing sector to operate well below capacity.

Unemployment is estimated at more than 70% and inflation is running above 400%. Economists said the budget will do nothing to solve the economy's main problems of unemployment and growing poverty.

Murerwa hiked the tax-free portion of bonus income from Zim$5 million up to Zim$20 million, effective November 1 2005.

“Employees look forward to the bonus income in order to acquire assets as well as prepare for the festive season," Murerwa said, pressing populist buttons. "Aggregate demand for goods and services is thus stimulated.”

Murerwa also suggested a review of the Pay As You Earn (PAYE) income brackets and tax thresholds, with a proposal for an upward review of the tax-free threshold from the current Zim $1,5 million per month to Zim$7 million per month.

Murerwa also stretched the income tax band to end at Zim$40 million, above which income will be taxed at 35 percent, effective from January 1 2006 - Reuters/Staff Reporter
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