Zambian Watchdog

MPs move motion to compel govt to reinstate maize and fuel subsidies

July 10
19:07 2013

THE NATIONAL ASSEMBLY OF ZAMBIA

 

MOTION TO REQUEST GOVERNMENT TO REINSTATE SUBSIDIES

I beg to move: That, in view of the hardships that ordinary citizens are currently facing as a result of the removal of subsidies, this House urges the Government to reinstate the subsidies.

 

 

 

 

Moved by: Hon. Lucky Mulusa, Solwezi Constituency

&

Seconded by: Hon. Ambrose Lufuma, Kabompo West Constituency

INTRODUCTION

Sir, on 7 March 2012, I moved a motion in which, this House urged the Government, as a matter of urgency, to develop a “Broadly Shared Economic and Human Development Strategy”.

In supporting this motion, Hon Alexander Chikwanda, said the following and I quote, that “Government is an all-inclusive thing – that we are this side and others are that side, is just a question of convenience of sitting arrangements”. He further said that governance of the country is continuous.

The last part of Hon Chikwanda’s statement meant that a new government would pick up the threads where the last one left off. The first part Mr Speaker meant that we on this side of the House are part and parcel of the government.

Mr Speaker,

We need to be consulted or at the minimum be engaged on matters of national importance. In the elections of September 2011, the PF government scored around 40 per cent of the votes. The combined opposition got the rest and we would not therefore be wrong in assuming that we represent close to 60 per cent of Zambians and therefore we are actually the majority.

Mr Speaker, if the PF represents 40 per cent of Zambians and they support removal of subsidies, we represent 60 per cent of them and, this afternoon, we wish to share their views because they, through their representatives, were never consulted in arriving at the decision to remove the subsidies.

Mr Speaker, this motion is divided into seven parts:

Part 1:The Essence of Subsidies in general

Part 2:Subsidies in Zambia

Part 3:The Essence of Subsidies in Zambia

Part 4:Alternative Solutions for Savings, Income generation and sources of wasteful expenditure and   related the cost implications

PART ONE

THE ESSENCE OF SUBSIDIES

According to the Encyclopaedia Britannica (2003), a subsidy is a direct or indirect payment, economic concession, or privilege granted by a government to private firms, households, or other government units in order to promote a private objective. It also refers to a sum of money granted by the government or a public body to assist an industry or business so that the price of a commodity or service may remain low or competitive.

More broadly defined, subsides include welfare payments designed to ameliorate inequalities in the distribution of income and other governmental programmes designed to mitigate the effects of market forces.

PART TWO

SUBSIDIES IN ZAMBIA

The government of Zambia has in the past subsidized various sectors of the economy such as the agriculture, transport and education sectors as a means of helping the poor deal with the cost of certain related commodities or services.

In the agricultural sector, the government subsidized Zambian farmers as well as consumers through the implementation of a maize subsidy through the Farmer Input Support Program (FISP). This was aimed at providing farmers with farming inputs such as fertilizer and seeds at prices cheaper than the actual market value in order to allow small-scale farmers to grow more maize and reap profits and also stabilise the price of maize meal which is Zambia’s staple crop.

In these particular agricultural related subsidies, a distinction was made between consumer and producer subsidies which are categorised as direct or visible subsidies and indirect or concealed subsidies. Distinction was also made between two categories of recipients: producers and consumers.

Understandably Sir,

Fuel subsidies were introduced in 2009 due to the increase in the international price of oil from $50/barrel to $140/barrel in 2004 to 2008 respectively. This was against the governments projected increase of $100/barrel during the same period of 2004 to 2008. Therefore, the government decided to introduce fuel subsidies with the aim of cushioning the public especially those vulnerable in society against high market prices by paying a portion of the actual price. Since 2009 to date, the government has spent a total of KR 2.5 Billion. KR 179 million was spent in 2009, KR 90 million in 2010, KR 247.6 million in 2011, KR 754 million in 2012 and KR 1.22 billion between January and May 2013.

The government has since withdrawn both the maize subsidy and the fuel subsidy but asserts that it will still continue to support 900,000 farmers through the FISP.

The government will however continue subsidizing the education sector through the continued provision of free Primary education and the bursary scheme for public universities namely the University of Zambia (UNZA) and the Copper-belt University (CBU). We thank the government for that although we would like students at the University of Mulungushi to benefit from bursary schemes as well.

PART THREE

THE ESSENCE OF SUBSIDIES IN ZAMBIA

Sir,       

In terms of the essence of subsidies in Zambia, regardless of the form that subsidies take, their purpose has always been to alter the results created by otherwise free markets and unimpeded competition in a direction considered more with the objectives of public policy.

PART FOUR

ALTERNATIVE SOLUTIONS FOR SAVINGS: SOURCES OF WASTEFUL EXPENDITURE AND RELATED COST IMPLICATION

Mr Speaker,

This motion highlights alternative solutions for savings: it also talks about sources of wasteful expenditure and related cost implications.

But let me start this part by reminding the House of an appeal made by Honourable Chikwanda on the 6 March 2012. He stated that, “only us Zambians will develop Zambia and that we must join hands together to find common solutions”.

Today Mr Speaker,

We extend our hands of togetherness and now wish to suggest solutions to the challenge of achieving savings from the economy other than through punishing the poor, who are defenceless and vulnerable to the government. The poor are the easiest targets. Any strategy to use alternative means that touch on the benefits of ministers and government officials or the rich are conveniently avoided.

Sir,

There are 31 possible sources of savings but I know that my colleagues this side of the House, including Hon. Chungu who eloquently represents the people of Lupososhi constituency, will add more ways. It’s a pity that the voice of the people of Chilubi island has been silenced – otherwise we would have heard more sources of savings added to the ones listed below:

Mr Speaker,

We have examples of this government never taking decisions that are full packages of all factors that should be at play. For instance, when the US $750 million Euro-bond was obtained, government started searching for projects. The approach should have been, identify projects and look for suitable sources of financing.

Similarly Mr Speaker,

We were told that this government was going to successfully implement the link 8000 project. We were never told on how the funding would be obtained. Now we are being told that subsidies have been removed in order to reallocate the savings towards infrastructure development particularly road construction. Mr Speaker we have a problem with that. It clearly shows that the lack of a well-defined developmental strategy is affecting Zambians negatively.

We are told that savings from removal of subsidies will amount to K2.5 billion which is the total expenditure over the five year period the fuel subsidy was in place.

Mr Speaker,

Although this amount spent over a period of five years sounds very little in terms of annual savings, it went a long way to assist lift the welfare of people generally.

The message we have this afternoon is that we can raise well over K40 trillion or twice the projected tax collections in 2013 using different strategies:

The following Mr Speaker,

Are the possible sources savings:

 

ITEM

 

DESCRIPTION

 

ESTIMATED COST

1

Fuel donation to Malawi

K     27 bn

 

2

Donation of maize to Zimbabwe

K  140 bn

 

3

Expensive fuel source right now is costing us:

K1,350 bn

 

4

Bloated government – another source of wasteful expenditure

Amount not known

 

5

Expanded fleet of ministerial vehicles

 K 107 bn

 

 

 PROCUREMENT COSTS

 RUNNING COSTS/fuel

 MTCE COSTS

 

NO OF D/MINISTERS

                            50

                    50

                      50

VEHICLES/D.MIN

                              2

                      2

                        2

COST PER VEHICLE

                 500,000

                   7,000

                5,000

TOTAL

           50,000,000

         700,000

           500,000

PERIOD

                              1

                    60

                      30

TOTAL

           50,000,000

   42,000,000

     15,000,000

GRAND TOTAL

 

 

   107,000,000

6

Expanded fleet of Permanent Secretaries’  vehicles      (Add salaries)

K 100 bn

 

7

Expanded cadre of diplomats and former diplomats not working but with full benefits – is another source of wasteful expenditure.

 Amount not known

Replacement of career diplomats by cadres. These career diplomats are now at home due to lack of sitting space and simply not having anything to do at the Ministry.

8

Lack of initiative on our part to extract maximum value from our defence forces in times of peace. We can cut down the cost of road construction by half by using our armed forces.

K44 trn or K5.5/yr

 

9

Unnecessary movement of maize

Amount not known

Mr Speaker, unnecessary movement of maize instead of investing in storage facilities close to the place of harvest and consumption

10

Large entourage on trips abroad

Amount not known

 

11

Unexplained extended stay abroad by the President

Amount not known

 

12

Purchase of military hardware – we are not at war and neither is there a threat of conflict.

Amount not known

 

13

High levels of unnecessary expatriate workers in all sectors of our economy

Amount not known

Sir by mismanaging the issuance of work permits, Zambia is exporting job opportunities and importing unemployment. In short we subsidising richer economies at the expense of our own peoples’ welfare. Savings can be obtained by more money retained in the economy and contributing to the reproductive capacity of our economy. In most foreign owned companies, the only time you meet a Zambian is a security guard at the gate and at the receptionist at the reception. Behind the curtain, everybody including cashiers are foreigners.

14

Unnecessary expenditure on by-election

K 150 bn

 

15

Extended expenditure on the constitution making process

Amount not known

 

16

Unnecessary expenditure on the Chikopa tribunal

Amount not known

 

17

Politically motivated economic and social infrastructure development

Amount not known

Roads contracts Mr Speaker

Are being given out as a priority using political reasoning. If it was not the case, there is no way Solwezi Chingola road which delivers 15 per cent of the taxes paid in Zambia could not have been a priority in two years of the PF rule. Now let me tell you. There is a down turn to that. The Chingola Solwezi road users are losing vehicles and incurring higher running costs due to the poor state of that road. There is also a policy by several contractors who use that road for their trucks to pack by 19:00hrs and commence movement the next day by 05:00hrs. The effect of that is lower net income before tax and therefore lower taxes.

18

Low levels of value addition to our natural resources

Amount not known

Sir, the low levels of value addition to all the natural resources extracted in Zambia and exported to be fully processed outside the country means that Zambia is subsidising richer economies to levels the country cannot sustain but appears to sustain because we have agreed to be chained in perpetual poverty. By exporting job opportunities we are denying our domestic economy wealth retention and Local Economic Development. We also reducing opportunities to collect more taxes.

19

Unsustainable infrastructure funding options

Amount not known

While the issuance of the bond was a great success, fund usage is fraught with mismatches (not to mention corruption). To start with, it was a wrong funding instrument for the proposed projects to be funded. When you have an economy that is at the stage of building capacity and resilience, you need to ensure that as much as possible, there is a match between the funding instruments and the timing of the positive cash flows to liquidate the debts. Ninety one (91) per cent of the proceeds went to projects in the energy and transport sectors most of which are yet to be conceptualised. The planned projects should have been more suitably funded with concessionary loans that carry conditions such as 7 years grace period and thereafter 15 years to repay. The Japanese ODA loans would have been more suitable funding options. It is therefore not possible that in ten years’ time, the US $750 million will contribute to the reproductive capacity and resilience of the economy to support the bond redemption without causing funding pressures.

 

20

Incidences of corruption in the Eurobond proceeds

Amount not known

Corruption is an added cost to infrastructure costs because the public eventually bears the cost.

21

Unnecessary trips abroad e.g. to Cuba, Sudan, Palestine

Amount not known

To go and make unnecessary declarations in conflicts we cannot play any significant role

22

Costly policy interventions – 5% tax rebate for banks

K500 m

 

Mr Speaker, you will recall that the Minister of Finance during the 2012 Budget Policy Statement gave financial institutions in Zambia a 5 per cent tax reduction which cost our fiscus Kr500 m. Mr Speaker, Banking Sector Consolidated Balance Sheet indicates that over the following fiscal year after the Minister’s policy pronouncement, Zambians became more financially stressed and increased their borrowings for consumption purposes (personal loans). This can be indicative of low savings in the economy. Under the PF with that policy intervention, gross loans and advances grew by 40% compared to the MMD’s at 29% without that policy intervention. Loan loss provision under the PF grew by 3% compared to a drop of 12% under the MMD. The PF’s 40% growth in gross loans and advances was singularly driven by personal loans which grew by 62% and accounted for 26.2% of the country’s financial sector loan portfolio. Interestingly, during the last year in office of the MMD (2010-2011), personal loans accounted for 22% of total loans and advances and only grew by 50% year on year. Personal loans beat loans into important sectors such as Agriculture, Forestry, Fishing and Hunting at 22.6%, Manufacturing at 11.3%, Wholesale and Retail Trade at 6.6%, Mining & Quarrying at 5.7% and Electricity, Gas, Water & Energy 2%. Clearly, we should have seen more lending into the manufacturing and Electricity, Gas, Water & Energy sectors to promote job creation. But because the carrot was surrendered before work was done, the financial sector did as it pleased.

Mr Speaker, The public lost K500 million and reaped no benefits!

 

23

Tax avoidance by foreign companies

K7 trillion + K6.4 trillion

In a story entitled: More companies exposed in tax avoidance scandal in Zambia published by the Watchdog on was reported that: The Zambia Sugar Company tax scandal that was exposed by Action Aid is a tip of an ice that is wreaking havoc in the country. Sources in the Ministry of Finance have reported that only two mines paid taxes in 2012 amounting to K2.5 trillion. Kansanshi Mines Plc paid K2.3 trillion and Chambeshi Mines paid K200 billion.  These are the only mines that have been paying taxes since 2007.

The rest of the mines declared losses and have never declared tax profits from the time they started operating with the help of government and Zambia Revenue Authority (ZRA) officials on their payroll. Ironically the mines that have been declaring losses have continued receiving refunds on taxes they pay when they import goods, buy electricity and other goods locally. Konkola Copper Mines received tax refunds amounting to K1.9 trillion, Mopani K0.6 billion and Lumwana K0.7 billion.

According to Dr. Francis Mubanga, a Certified Fraud Examiner (CFE) and Securities and Investment Expert (Chartered MCSI – U.K.) he reported that according to Action Aid, The Zambian sugar-producing subsidiary of Associated British Foods (Zambia Sugar Plc – Illovo), a FTSE100 company, contributed virtually no corporation tax to the state’s exchequer between 2007 and 2012, and none at all for two of those years.

The firm, Zambia Sugar, has recently posted record pre-tax profits and its huge plantation is increasing its capacity to produce more sugar for markets in Europe and Africa.

It is estimated that the tax haven transactions of this one British headquartered multinational deprived Zambia of a sum 14 times larger than the UK aid provided to the country to combat hunger and food insecurity.

Mr Thornton said  that aid budget is spent in Zambia comes to half a billion Kwacha rebased a year.  This means that the amount of taxes lost due to the tax avoidance bt Zambia Sugar is K 7 bn per year.

 

I pose the question Mr Speaker,

Did we have to remove subsidies instead of realising savings from this wastage?

24

Narrow tax base where most economic activities remain untaxed

Amount not known

 

25

Unnecessary budget line items creating a bloated budget

K12.8 trn

 

26

Low tax recovery from mineral resources

Amount not known

 

27

Continued treatment of patients abroad

Amount not known

 

28

Corruption in the allocation of road construction tenders

K  4.4 trn

Mr Speaker, commissions paid in corrupt arrangements can vary as a percentage of the total contract value. Assuming the average is 10% in the road construction sector alone, the country will lose K4.4 trn in the link 8000 project.

29

High rates of contract jobs and casual labour

Amount not known

These rob us taxes through reduced savings that can contribute to reproductive activities in the economy

30

High levels of expatriate labour force especially in the mining sector

Amount not known

These lead to externalisation of the earnings and therefore lower wealth retention and possible tax earnings from local investments and expenditure.

31

Energy Subsidies to Mining Houses

Amount not known

The question here Mr Speaker is; how much do the poor subsidies the rich mines compared to the cost of the subsidies you have withdrawn from the poor?

 

Mr Speaker,

Out of the 31 sources of losses of income and wasteful expenditure, only 12 items have explicit values. The rest of the items require detailed trans-disciplinary and inter-disciplinary qualitative and quantitative studies to estimate the quantum of losses. The 12 items combined value as a loss to our fiscus amounts to close to K40 trillion. If you consider the fact that Norway captures taxes worth 60 per cent to its GDP, then the argument that Zambia at 19.4 per cent tax collection to GDP, still has potential right up to the world’s best benchmark of 60 per cent. This means that Zambia can potentially raise an additional K50 trillion. The 12 items above have accounted for K40 trillion – there is therefore no exaggeration especially that when we properly account for our GDP, THE GDP figure will self-correct and increase proportionately.  

MOTIVATION FOR THE REINTRODUCTION OF THE REMOVED SUBSIDIES

Mr Speaker,

In this motion, we have adequately argued that the fuel subsidy at KR 2.5 Billion over five years, with a breakdown of K 179 billion spent in 2009, K 90 billion in 2010, K 247.6 billion in 2011, K 754 billion in 2012 and K 1.22 trillion between January and May 2013, is very small compared to the minimum of K40 trillion that the government can realise per annum through prudent fiscal discipline, ingenuity in policy formulation and widening the tax base.

Sir,

When evaluating subsidies it is important to assess their impact on the efficiency of resource allocation, the distribution of resources, the fiscal burden, and their spill over effects including the nature of beneficiation to the poor. We do agree Mr Speaker, that although subsidies are initiated and justified in terms of benefits to the general public, they result in either a higher level of general taxation or higher prices for consumers goods. They may also encourage the preservation of inefficient producers. The test of the desirability of a subsidy hinges on a comparison of the public benefits which are usually difficult to measure.

This Sir,

Makes subsidy reform often very difficult to implement. The absence of safety net programmes to shield the poor from subsidy cuts and weak capacity to achieve target beneficiaries are important obstacles to subsidy reform.

Successful subsidy reforms should include steps toward building political support. Measures to overcome vested interests must include promoting transparency and educating the public. One major advantage of transparent reporting of subsidies is that it helps clarify the cost of subsidies and assess trade-offs through public debate. Assuring the public that the savings from targeting will be used well can also promote subsidy reform.

This Mr Speaker has not happened and this afternoon, we wish to achieve just that.

Mr Speaker,

There is need to realise that the cost and social impact of subsidies are often poorly understood, and this hampers their assessment and the design of reform.

Secondly, subsidies can create vested interests that may be difficult to overcome politically.

Sir,

In justifying the removal of subsidies, the government observed through information from the 2010 Living Conditions Survey carried out by the Central Statistical Office (CSO) that 60.5 per cent of Zambia’s population is living in poverty.  It also observed that the fuel subsidy introduced in 2009 was not benefitting the rural areas but the urban areas where living conditions are much higher.

Mr Speaker,

We must be careful here. There is no analysis done to show that indeed, the rural poor do not in any way lead their lives in a manner that has no link to any activity, service or product which has fuel in put in their production processes. The argument is also silent on the fact that there exist poor people within urban areas, meaning that Zambia, with real unemployment rate of around 90 per cent may just have 90 per cent of its combined rural and urban population living in abject poverty. Remember that poverty is largely caused by unemployment.

 

Mr Speaker,

The so called urban rich actually support their poor rural relatives through social transfers. Withdrawing any support from them may actually affect their ability to assist their poor rural relatives.

 

CONCLUSION

In conclusion Mr Speaker,

I would like to sincerely thank Hon. Mbulakulima for having thought of this motion and having suggested that I move the motion.

Sir,

Through the Clerk’s office, indebtedness goes to the Journals Office as well as the Research Office for the assistance rendered in crafting the title and contents of this motion.                                                                                                                                                        

I would also like to sincerely thank you Sir, for approving the motion and therefore facilitating debate on the matter.

I hope that our colleagues in government will see the sense in realising savings and earnings elsewhere rather than use measures that affect the poor negatively.

Mr Speaker,

I beg to move

*

WINDING UP DEBATE

Mr Speaker,

In winding up debate, I would like once again to thank the gallant people of Luapula for having requested their son, Hon. Mbulakulima to bring this motion to Parliament.

Sir while it is not possible for me to single out each speaker, it will be disingenuous of me not to thank Hon. Kalaba for quoting an MMD document of intent sent to the IMF regarding the removal of subsidies.

Sir, the mere fact that the MMD did not remove subsidies is indicative of the fact the MMD government was a caring government.

Sir I would also like to thank the Members of Parliament from the opposition who represent the 60 per cent majority Zambians who they represent.

Sir, again it will be disingenuous of me and un African not to thank the PF for the unsolicited campaign done this afternoon in our favour through opposing this motion. Sir, this means that the people have heard who their true representatives are. In the event of any further by-elections, I am sure that the voters, will send us back to Parliament.

The PF party has constantly asked for constructive engagement – for constructive criticism and for a responsible opposition.

I want to believe that, this afternoon, we have done our work and done it well in that regard.

We thank you all!

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