Debates- Friday, 11th November, 2011

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DAILY PARLIAMENTARY DEBATES FOR THE FIRST SESSION OF THE ELEVENTH ASSEMBLY

Friday, 11th November, 2011

The House met at 1415 hours

[MR SPEAKER in the Chair]

NATIONAL ANTHEM

PRAYER

_________

BUSINESS OF THE HOUSE

The Vice-President (Dr Scott): Mr Speaker, I rise to give the House some idea of the business it will consider next week.

Sir, on Tuesday, 15th November, 2011, the business of the House will begin with Questions, if there will be any. This will be followed by Presentation of Government Bills, if there will be any. Thereafter, the House will consider the Motion of Supply on the Estimates of Revenue and Expenditure for the Year 2012.

On Wednesday, 16th November, 2011, the business of the House will commence with Questions, if there will any. This will be followed by Presentation of Government Bills, if there will be any. Thereafter, the House will consider Private Members’ Motions, if there will be any. The House will then continue with the debate on the Motion of Supply on the Estimates of Revenue and Expenditure for the Year 2012.

On Thursday, 17th November, 2011, the business of the House will begin with Questions, if there will be any. This will be followed by Presentation of Government Bills, if there will be any. Thereafter, the House will continue with the debate on the Motion of Supply on the Estimates of Revenue and Expenditure for the Year 2012.

Sir, on Friday, 18th November, 2011, the business of the House will begin with His Honour, the Vice-President’s Question Time.

Hon. Members: Hear, hear!

The Vice-President: This will be followed by Questions, if there will any. Thereafter, the House will deal with the Presentation of Government Bills, if there will be any. The House will then continue with the debate on the Motion of Supply on the Estimates of Revenue and Expenditure for the Year 2012.

Mr Speaker, I thank you.

Hon. Members: Hear, hear!

_______

MOTIONS

2012 BUDGET ADDRESS

The Minister of Finance (Mr Chikwanda): Mr Speaker, I beg to move that the House do now resolve into the Committee of Supply on the Estimates of Revenue and Expenditure for the Year 1st January 2012 to 31st December, 2012, presented to the National Assembly in November 2011.
 
 Sir, I am the bearer of a message from His Excellency, the President of the Republic of Zambia, recommending favourable consideration of the Motion that I now lay on the Table.

Mr Chikwanda laid the paper on the Table.

Hon. Members: Hear, hear!

Hon. Government Members: Boma!

Mr Chikwanda: Mr Speaker, as I begin this Budget Address, I wish to acknowledge the macro-economic achievements that the country has attained when the economy was under the stewardship of my predecessor, Hon. Dr Situmbeko Musokotwane, MP.

Hon. MMD Members: Hear, hear!

Mr Chikwanda: I would like to pay tribute to him and the previous administrations for laying a strong foundation on which this Government will build.

Hon. MMD Members: Hear, hear!

Mr Chikwanda: Mr Speaker, 2011 is a landmark year. In September, we held successful elections and had a peaceful transition of power, a rare feat on the African Continent.

Hon. Members: Hear, hear!

Mr Chikwanda: As Zambians, we deserve to be proud of this achievement. In October, we celebrated forty-seven years of Independence, regrettably, amidst persistently high and unacceptable poverty levels.

Hon. Government Members: Hear, hear! 

Mr Chikwanda: Sir, in his address to Parliament, His Excellency, the President, outlined an ambitious programme of action to begin his administration’s vigorous and unrelenting fight against poverty. As we embark on the path to transforming our nation, hard work is required and difficult choices will have to be made.

Hon. Government Members: Hear, hear!

Mr Chikwanda: However, as a nation, we have collectively chosen this path. With this unity of purpose, we are confident that the challenges before us may be intractable but, certainly, not insurmountable. It is our duty to ensure that the benefits of our recent economic success are felt by every Zambian. Thus, the theme of the 2012 Budget is “Making Zambia a Better Place for All.”

Hon. MMD Members: Hear, hear!

Mr Chikwanda: Sir, my speech this afternoon is in four parts. In Part I, I review the global and domestic economy. Part II outlines the macro-economic objectives, policies and strategies for the 2012 Budget. In Part III, I present the 2012 Budget and I conclude in Part IV.

PART I

GLOBAL AND DOMESTIC ECONOMIC REVIEW

GLOBAL ECONOMY

Mr Speaker, in 2011, the global economy continued its recovery. Annual growth is projected at 4.0 per cent, slightly lower than the 5.1 per cent recorded in 2010. Economic growth was strong in the emerging and developing economies, with a 5.2 per cent growth in Sub-Saharan Africa in 2011. In contrast, growth in the advanced economies, at 1.6 per cent, continued to be sluggish largely on account of unsustainable sovereign debts in some Euro-zone countries and weak demand in the United States of America.

Mr Speaker, strong growth in emerging economies and political unrest in North Africa and the Middle East have kept international commodity prices high. The average price of copper in the first ten months of 2011 was US $8,704 per tonne, compared with US$7,538 per tonne in 2010. The price of oil averaged US $109.9 per barrel in the first ten months of 2011, higher than the US $79.0 in 2010. International food prices have also been generally high in 2011, mainly on account of supply constraints.

Sir, high commodity prices present both opportunities and risks to the domestic economy. High copper prices can boost export earnings, facilitate investment and support the fiscal position. Similarly, high food prices present an opportunity for the country to enhance agricultural production, and diversify its export base. In contrast, high oil prices could increase the cost of production, thereby increasing inflationary pressures in the domestic economy.

DOMESTIC ECONOMY

GROWTH AND INFLATION

Mr Speaker, preliminary estimates indicate that the economy will grow by 6.5 per cent in 2011. This is in line with the initial projection of 6.4 per cent. Agriculture, manufacturing, construction, transport and communications are the main drivers of this growth. The growth could have been significantly higher had the mining sector performed according to projections. I am concerned that the mining sector data does not fully reflect actual production.

Hon. Government Members: Shame!

Mr Kambwili: In that former Government.

Mr Chikwanda: Sir, annual inflation has remained in single digits and was 8.7 per cent in October, 2011, compared with 7.9 per cent in December, 2010. The increase in inflation reflected the slight rise in annual food inflation despite a bumper maize harvest. However, non-food inflation has been fairly unchanged at low double digit levels. The recent reduction in fuel prices effected by the PF Government should reduce inflation by the end of the year.

MONETARY AND FINANCIAL SECTOR DEVELOPMENTS

Mr Speaker, economic activities in 2011 have continued to drive growth in money supply. The annual growth in money supply was 26.8 per cent, up to September 2011 compared with 23.6 per cent during the corresponding period in 2010. This was mainly driven by increased lending to private enterprises, reflecting high confidence and opportunities in the economy.

Sir, with regard to interest rates, returns on Government securities rose mainly on account of higher Government borrowing. Interest rates on Treasury bills increased to 14.2 per cent in October, 2011, from 8.2 per cent in December, 2010. Similarly, interest rates on Government bonds edged upwards to 16.2 per cent from 11.3 per cent while lending rates in commercial banks have remained high and are not in line with the low inflation and relative macroeconomic stability. At the current level, commercial bank interest rates are 300 per cent of the rate of inflation.

Hon. Government Members: Shame!

Mr Lubinda: Bamalukula!

Laughter

Mr Chikwanda: Mr Speaker, high interest rates are a serious constraint to lowering the cost of doing business, increasing access to credit and accelerating private sector growth. This is particularly true for the small and medium scale enterprises, which account for the bulk of employment opportunities and growth. In addition, small and medium scale enterprises offer the most powerful weapon for reducing poverty and creating a just and equitable society.

Sir, the Government’s legitimate expectation is that interest rates will continue their downward trend that started within the first 30 days of the PF’s taking over of the Government.

Hon. Government Members: Hear, hear!

Mr Chikwanda: The Bank of Zambia (BOZ) has taken steps to enhance the liquidity of banks by lowering the reserve ratios. This can only be justified with a lower interest rate regime.

Mr Speaker, the financial sector’s overall performance has been favourable. In the banking sector, asset quality improved due to a reduction in gross non-performing loans. With respect to the non-bank financial institutions, performance and financial conditions were rated fair as at end of September, 2011. The sector has continued to record growth with the number of institutions increasing by 95 by the end of September, 2011, from 87 at the end of September 2010.

Sir, with regard to developments under the Financial Sector Development Plan, access to financial services has increased through the promotion of microfinance services, mobile banking, money transfer services and rural banking for non-serviced districts. The number of mobile money service providers increased to 57 as at August, 2011, from 29 in December, 2010. In addition, the number of districts without banking services declined to 7 as at the end of September, 2011, from 14 in December, 2010.

Mr Speaker, in line with the positive economic performance, the Lusaka Stock Exchange (LuSE) is poised to register another year of impressive growth. In the first nine months, the share price index increased by 9.3 per cent to 3,823.1, while market capitalisation rose by 44.9 per cent to K44,802.1 billion. This outturn was partly due to an improvement in net portfolio inflows of foreign capital amounting to US $13.0 million, compared to a net portfolio outflow of US $8.2 million over the same period in 2010.

EXTERNAL SECTOR DEVELOPMENTS

Mr Speaker, the external sector remained strong. The current account surplus is projected to rise by 54.7 per cent to US $951.0 million in 2011 from US $614.7 million in 2010. This is mainly on account of high copper export earnings of US $8.4 billion, up from US $5.8 billion in 2010. Non-Traditional Exports are again expected to register robust growth projected at US $1.5 billion in 2011 from US $1.2 billion in 2010. Consequently, gross international reserves rose to US $2.6 billion as at the end of September, 2011, representing 4.3 months of import cover.

Hon. MMD Members: Hear, hear!{mospagebreak}

Mr Chikwanda: Sir, the exchange rate of the Kwacha against major currencies exhibited resilience. It depreciated marginally by 4.5 per cent to K4,949.8 per US Dollar at the end of October, 2011, from K4,735.7 per US Dollar as at the end of December, 2010. This was despite uncertainties prior to the elections and the strengthening of the US Dollar.

BUDGET PERFORMANCE IN 2011

Mr Speaker, the performance of the Budget in 2011 has generally been satisfactory …

Hon. MMD Members: Hear, hear!

Mr Chikwanda: …with end-of-year revenues expected to be above target. However, there have been large pressures on expenditure arising from the need to fund the general elections, increased maize purchases and procurement of fertiliser, among others. Consequently, the overall deficit is expected to be 3.1 per cent of GDP, compared to the projection of 2.9 per cent.

Sir, preliminary figures as at end of September, 2011, indicate that domestic revenues, at K14,580.2 billion, have over-performed. This trend is expected …

Hon. MMD Members: Hear, hear!

Mr V. Mwale: One-zero!

Mr Chikwanda: Thank you for the space.

Laughter

Mr Chikwanda: … to continue and will result in an over-performance of 23.2 per cent by the end of the year. This performance is mainly attributed to payment of mining tax arrears and improved tax administration.

Hon. MMD Members: Hear, hear!

Mr Chikwanda: Sir, general Budget support receipts from co-operating partners were projected at K586.5 billion in 2011. As at end of September, 2011, K298.8 billion was received and the balance is expected to be received in full by the end of the year.

Hon. MMD Members: Hear, hear!

Mr Chikwanda: Mr Speaker, total expenditure by the end of 2011 is expected to be K24,041.2 billion or 18.8 per cent higher than budgeted.

Hon. Government Members: Shame!

Mr Kambwili: Bamalukula!

Mr Speaker: Order!

Mr Chikwanda: This is against the total expected revenues and grants of K20,657.1 billion. The difference will be financed through borrowing.

Hon. Government Members: Shame!

DOMESTIC AND EXTERNAL DEBT

Mr Chikwanda: Mr Speaker, as at end of September, 2011, the Government contracted external loans of US $504.8 million to finance the implementation of infrastructure projects in the roads, energy and agricultural sectors.

Hon. MMD Members: Hear, hear!

Mr Chikwanda: A net amount of about US $200.0 million was disbursed on new and existing loans. Consequently, external debt rose to US $1.6 billion as at end of September, 2011, from US $1.4 billion in 2010.

Hon. Government Members: Shame!

Mr Lubinda: Bamalukula!

Mr Chikwanda:  At this level, the external debt stock is 8.2 per cent of the GDP, well within sustainable levels.

Hon. MMD Members: Hear, hear!

Mr Chikwanda: Sir, as at end of September, 2011, total domestic debt amounted to K13,876.8 billion or 16.1 per cent of the GDP. Of this amount, K12,820.9 billion is accounted for by Government securities while the balance of K1,055.9 billion is accounted for by other public liabilities such as pension arrears, awards and compensation, and arrears to suppliers of goods and services.

Hon. Government Members: Shame!

PART II

MACROECONOMIC OBJECTIVES, POLICIES AND STRATEGIES IN 2012

MACROECONOMIC OBJECTIVES

Mr Chikwanda: Mr Speaker, the macroeconomic policy, under the new administration will be geared towards maintaining a stable macroeconomic environment …

Interruptions

Mr Speaker: Order!

Mr Chikwanda: …conducive to investment, inclusive growth and employment creation.

 Sir, the specific macroeconomic objectives in 2012 will be to:

(a) achieve real GDP growth of above 7.0 per cent;

(b) attain end-of-year inflation of no more than 7.0 per cent;

(c) limit overall fiscal deficit to 4.3 per cent of the GDP and domestic borrowing to 1.3 per cent of the GDP; and

(d) maintain gross international reserves of at least four months of import cover.

Hon. Government Members: Hear, hear!

MONETARY AND FINANCIAL SECTOR POLICIES

Mr Chikwanda: Mr Speaker, the monetary policy in 2012 will remain focused on the maintenance of single-digit inflation. In line with this objective, the Bank of Zambia will continue to use market-based instruments to limit money supply growth. The Central Bank will also continue to work towards enhancing the effectiveness of the monetary policy. In this regard, the option of adopting an interest rate-based framework will be explored further.

Hon. Government Members: Hear, hear!

Mr Chikwanda: Sir, a flexible exchange rate regime has worked well for Zambia by absorbing external shocks that could have been harmful to trade, employment and inflation.

Hon. Government Members: Hear, hear!

Mr Chikwanda: In this regard, the Government will ensure that the determination of the exchange rate remains market-based while supporting the competitiveness of our exports.

Hon. Government Members: Hear, hear!

Mr Chikwanda: To minimise the impact of rapid movements in the exchange rate, the Bank of Zambia will maintain its policy of intervention to smoothen volatility.

Mr Speaker, maintaining a sound financial system is essential to investment and economic growth. To this effect, the Bank of Zambia will continue to promote stability of the financial sector through strong supervision of financial institutions and by ensuring compliance with regulations.

Hon. Government Members: Hear, hear!

Mr Lubinda: Not selling banks.

FISCAL POLICY

Mr Chikwanda: Mr Speaker, the objective of the Government in 2012 is to continue with effective fiscal management and supportive fiscal policies so as to attain high and inclusive economic growth. This fiscal stance entails increasing domestic and external resource mobilisation to support our development agenda and deliver on our commitment to “Make Zambia a Better Place for All.”

Sir, our fiscal policy objectives in 2012 will be to:

(a) increase domestic revenues to 19 per cent of GDP;

(b) limit domestic borrowing to 1.3 per cent of GDP and net external borrowing to 3.0 per cent of GDP; and

(c) commit, at least, 50 per cent of the budget to social sectors and infrastructure development.

Hon. Government Members: Hear, hear!

DEBT POLICY

Mr Chikwanda: Mr Speaker, the Government is aware that, even as we spend more on socio-economic infrastructure, our ability to meet our debt obligations should not be ignored. In this regard, it will target concessional borrowing as the first option. In order to meet the huge infrastructure financing needs, the Government will also consider non-concessional borrowing for projects with high economic and social returns.

Hon. Government Members: Hear, hear!

Mr Chikwanda: Sir, this Government will ensure transparent and accountable use of loans by strengthening parliamentary oversight.

Hon. Government Members: Hear, hear!

Mr Chikwanda: Further, the capacity to appraise projects in the Ministry of Finance and National Planning and other ministries implementing major projects will be strengthened. The Government will also review the existing legal framework in order to strengthen debt management.

Mr Speaker, early this year, Zambia was assigned a B+ rating by two reputable international rating agencies.

Hon. MMD Members: Hear, hear!

Mr Chikwanda: This has opened up the opportunity for Zambia to diversify its external financing sources to support our commitment to improving infrastructure, particularly, in the road and energy sectors.

Hon. Government Members: Hear, hear!

Mr Chikwanda: To this end, the Government plans to proceed with the issuance of a ten-year sovereign bond worth US $500 million in 2012.

Sir, the issuance of this bond will establish a pricing benchmark for future bond issuance by both the private and public sectors. Furthermore, it will enhance the visibility of the country as a favourable destination for investment. This will crowd in private sector investment and ease competition for domestic savings.

KEY STRATEGIES AND INTERVENTIONS

Mr Speaker, the PF Government recognises the efforts of previous administrations in establishing strong growth.

Hon. MMD Members: Hear, hear!

Mr Chikwanda: However, …

Hon. MMD Members: Aah!

Mr Chikwanda: …indicators of human development in Zambia are dismal, …

Hon. Government Members: Shame!

Mr Chikwanda: …with poverty remaining consistently above 60 per cent.

Hon. Government Members: Shame!

Mr Chikwanda: In rural areas, the situation is even worse at 77.9 per cent.

Hon. Government Members: Shame!

Mr Chikwanda: Unemployment levels have remained unacceptably high, especially, among our youths.

Hon. Government Members: Shame!

Mr Chikwanda: According to the 2011 Human Development Report, Zambia is still ranked among the poorest at 164th position out of 189 countries.

Hon. Government Members: Shame!

Mr Speaker: Order!

Mr Chikwanda: Sir, this tells us that we must never focus exclusively on macroeconomic stability. A mother in Gwembe is not interested in lower inflation if she cannot take her child to school; an unemployed youth in Kaputa is not empowered by songs of praise about stability of the exchange rate, but by being provided with skills and job opportunities; and our hard working farmers across the country have no interest in real GDP growth if their farm produce lies uncollected, they are not paid on time and do not receive a reasonable and fair recompense for their labour.

Hon. Government Members: Hear, hear!

Mr Kambwili: Mutati uleumfwa?

Mr Chikwanda: Mr Speaker, to address these concerns, the PF Government will focus on social justice and equity while sustaining macroeconomic stability. This will be achieved through diversifying the economy, enhancing productivity, promoting employment opportunities and pursuing sound financial management while investing in supportive infrastructure.

Sir, let me, now, provide brief details on each of these strategies.

Hon. MMD Members: Drink some water!

Mr Chikwanda drank water.

Laughter

Hon. Government Members: Boma!

Mr Chikwanda: Zikomo, twalumba, luitumezi ahulu.

Laughter

DIVERSIFICATION AND PRODUCTIVITY

Mr Chikwanda: Mr Speaker, for far too long, our economy has continued to be over-reliant on copper, which has delivered limited benefits for the majority of our people.

Hon. Members: Hear, hear!

Mr Chikwanda: This Government recognises recent efforts made towards diversifying our economy. We are determined to accelerate these efforts by promoting growth in the agricultural, tourism and manufacturing sectors.

Hon. Government Members: Yah!

Mr Chikwanda: Sir, in the agricultural sector, we will extend support to crops beyond maize, strengthen research and extension services, invest in irrigation, develop and rehabilitate livestock infrastructure and promote disease-free zones. In addition, the Government will reform the agricultural marketing system, promote agro-processing and forward linkages, including through the development of farm blocks. Other strategies will include technological transfer and land development.

Hon. Government Members: Hear, hear!

Mr Chikwanda: Sir, in the tourism sector, we will promote and expand tourism products and develop key infrastructure. The Government will also open up areas for private sector investment, including the Northern Circuit. Further, with His Excellency’s bold decision to relocate the provincial capital to Choma, Livingstone will, now, be able to devote all its energies to enhancing its status as the tourist capital of Zambia.

Hon. Government Members: Hear, hear!

Mr Chikwanda: Mr. Speaker, in the manufacturing sector, the Government will facilitate private sector development, promote the growth of micro, small and medium enterprises and develop rural based-enterprises. In this regard, the Government will continue with the development of the Multi-Facility Economic Zones.

Sir, to enhance private sector productivity, the Government has, within fifty days of taking office, lowered the cost of borrowing. The Bank of Zambia will continue to engage the financial sector to ensure that innovative ways of providing affordable financing are identified and implemented. In addition, the Government will accelerate business licensing and regulatory reforms to further reduce the cost of doing business in Zambia.

Hon. Government Members: Hear, hear!

Mr Chikwanda: We will also invest in vocational and technical education in order to equip the labour force with the skills that will meet the demands of the private sector.

PUBLIC FINANCE MANAGEMENT

Mr Speaker, the Government’s ability to effectively promote pro-poor growth through the budget is dependent on the efficacy of its public financial management (PFM) practices. Consultation, transparency and accountability are cardinal principles upon which this administration will manage public finances. Adherence to these principles will reduce the space in which misuse and abuse of public resources can thrive, thereby, enhancing the development orientation and service delivery impact of public expenditure.

Sir, to this effect, in 2012, the Government will finalise and begin to implement a revitalised PFM strategy that practically integrates these core principles into its practices. Further, the Government will bring to this House a Planning and Budgeting Bill and an amendment to the Public Finance Act to give these cardinal PFM principles legal backing.

PUBLIC-PRIVATE PARTNERSHIP

Mr Speaker, the public-private partnership (PPP) framework provides a mechanism to employ private financing and expertise for delivering public goods and social services that would ordinarily be funded from the budget. The PF Government will collaborate with, and encourage, the private sector to participate in financing key public sector projects for the benefit of our people. The experience from the already implemented PPP projects will be used to strengthen project identification, development and implementation. We will also ensure that the implementation of the PPP projects does not give rise to unsustainable contingent liabilities. There is a compelling need to guard against fraudulent schemes.

PROVISION OF STATISTICS

Mr Speaker, effective formulation and evaluation of public policies depends on the availability of good quality and timely statistics. In the past, inadequacies in the availability of statistics have hampered well-informed decision-making. It has come to my attention that a number of organisations that are obliged to provide statistics have often not complied with the law.

Sir, we cannot allow this to continue. Every organisation operating in this country must avail the Government relevant information and statistics from time to time. Currently, the Central Statistical Office is conducting an economic census. I implore the business community to co-operate with Government agencies collecting statistics as we all stand to benefit.

PART III

THE 2012 BUDGET

Mr Speaker, I now present the Budget for 2012, which focuses on promoting economic and social development through an appropriate balance between Government expenditure, taxation and borrowing.

Mr Speaker, the Government proposes to spend K27,698.3 billion or 26.5 per cent of GDP projected at K104,462 billion in 2012. Of this amount, K19,976.0 billion or 72.1 per cent will be financed from domestic revenues while K1,894.4 billion or 6.8 per cent will be financed by grants from co-operating partners. The balance of K5,827.9 billion or 21.1 per cent of total expenditure will be financed through domestic borrowing of K1,324.3 billion or 1.3 per cent of the GDP and gross external financing of K4,503.6 billion or 4.3 per cent of the GDP.

Sir, in line with the PF manifesto, the 2012 Budget prioritises expenditures in the four core development areas of agriculture, education and skills development, health services and local government and housing.

Hon. Government Members: Hear, hear!{mospagebreak}

Mr Chikwanda: In this regard, the budgetary allocations to these core programme areas have significantly been increased compared with the 2011 levels.

Mr Speaker, let me, now, talk about policies and Budget allocations.

AGRICULTURAL DEVELOPMENT

Mr Speaker, over the past three years, there has been an increase in agricultural output.

Hon. MMD Members: Hear, hear!

Mr Chikwanda: However, the sector continues to face constraints such as low productivity, dependence on rain-fed agriculture, lack of appropriate and affordable breeding stock, low value addition, poor marketing and low investment. In addition, the competitiveness of the sector has been adversely affected by poor transport infrastructure, inadequate storage facilities and limited access to electricity. Further, Government policy has encouraged the growing of maize to the detriment of other crops.

Hon. Government Members: Shame!

Mr Chikwanda: Sir, these constraints mean that the benefits of improved agricultural output have often not reached the poorest rural households. As a result, the sector’s potential to significantly reduce poverty has not been tapped.

Mr Speaker, in order to address these constraints, the Government will redesign the Farmer Input Support Programme, refocus market guarantees and differentiate extension service provision to support the production of crops appropriate to each agro-ecological zone.

Hon. Government Members: Hear, hear!

Mr Chikwanda: Sir, alongside these reforms, action will be taken to improve crop-productivity and production as well as soil and water management. The input provision and crop marketing systems will be streamlined and the sector’s competitiveness will be enhanced through infrastructure development and enhanced extension services.

Mr Speaker, to the agriculture core programme, I have increased the allocation by 37.9 per cent to K1,698.0 billion in 2012 from K1,231.6 billion in 2011.

Hon. Government Members: Hear, hear!

Mr Chikwanda: Of this amount, K500.0 billion is for the Farmer Input Support Programme and K300.0 billion for crop purchases for the strategic food reserve. The balance will cater for irrigation infrastructure, livestock development, fisheries and aquaculture development, and other programmes.

EDUCATION AND SKILLS DEVELOPMENT

Mr Speaker, educating our children is an important pre-requisite for long term growth and reduction of inequality. Currently, there is minimal early childhood education, poor quality primary and secondary education, dilapidated infrastructure and limited access to vocational and tertiary education.

Sir, we must, therefore, strive towards the attainment of high quality, universally accessible and development-oriented education for all. In particular, greater emphasis will be placed on early childhood education as it is a critical requirement for the social and intellectual growth of our children. This will lay a firm foundation for our children to develop into productive and innovative citizens. In this regard, I propose to increase the sector’s allocation by 26.7 per cent to K4,850.5 billion in 2012. Out of this amount, K796.4 billion has been set aside for various infrastructure projects, including construction of more than 2,000 additional classroom blocks. I have also provided K126.0 billion to upgrade Chalimbana and Palabana colleges into universities and commence works on a new university at Lubwa Mission.

Hon. Government Members: Hear, hear!

Mr Chikwanda: In addition, the Government will undertake a net recruitment of 5,000 teachers and update the curriculum to improve the quality and relevance of education to bridge the nation’s skills gap.

Sir, in the area of skills development, the Government will scale up youth skill development programmes through the construction of nine, and rehabilitation of 12 technical training institutes. This is aimed at empowering our youths and making them active participants in the development of the country.

HEALTH SERVICES

Mr Speaker, many families across the country, today, are struggling to care for their sick. For these families, the hours are long, the responsibilities daunting, the demands unrelenting and the costs significant. When they visit their nearest health centre, clinic or referral hospital, their anguish is only minimally diminished, as they face a health provision system that struggles to provide adequate medicines, beds and other basic health requirements.

Sir, we cannot allow the situation to continue. Provision of more resources to the health care system will therefore be an important starting point. Today, I am making a commitment to the people of Zambia that the budgetary allocation to the health sector will progressively increase in line with the Abuja Protocol which requires 15 per cent of the Budget to be spent on health services.

Hon. Members: Hear, hear!

Mr Chikwanda: Mr Speaker, in 2012, I have increased the allocation to the health function by 45.0 per cent to K2,579.9 billion.

Hon. Government Members: Hear, hear!

Mr Chikwanda: Of this amount, K301.7 billion will be for drugs and medical supplies.

Mr Kambwili: Hear, hear!

Mr Chikwanda: With these resources, we will scale up the provision of essential drugs, and procurement of equipment and other medical supplies, especially, to the under-serviced rural areas.

Hon. Government Members: Hear, hear!

Mr Chikwanda: Sir, a provision of K77.9 billion has been made for the net recruitment of 2,500 frontline medical personnel while K389.3 billion has been provided for infrastructure and medical equipment. Key programmes under infrastructure development will include the completion of eight district hospitals, five new district hospitals and the requisite housing for medical personnel.

Hon. Members: Hear, hear!

Mr Chikwanda: Mr Speaker, health care provision cannot be judged only in terms of resource allocation, but also on how it improves access and health outcomes. In order to increase access to health services, the Government will remove all financial barriers to accessing health services by abolishing all user fees for primary care services not only in rural but, also, in urban areas.

LOCAL GOVERNMENT AND HOUSING DEVELOPMENT

Sir, Zambia’s communities, towns and cities are the places where our people live and work, raise their children, and to which they want to retire in dignity and security. Each council is responsible for delivering services that are central to the everyday lives of our people. However, the functionality of the local governance system has been severely eroded, thereby, compromising local service delivery.

Mr Speaker, it is a priority of this Government to decentralise appropriate functions to councils over the medium term. The focus, in 2012, will be to build capacity at the local level in preparation for the phased devolution of functions from 2013.

Hon. Government Members: Hear, hear! Boma!

Mr Chikwanda: The Government will also restructure financial relations between the central and the local level. This will ensure that these extra mandates devolved to the councils are adequately financed in line with the principle of “finance follows functions”.

Sir, in 2012, I have increased the grants to councils by more than 100 per cent …

Hon. Government Members: Hear, hear! Boma, boma!

Mr Kambwili: Hey, Bantustans! Tamulelanda, ba Bantustan?

Mr Speaker: Order!

Mr Chikwanda: … to K257.1 billion. This is to demonstrate the PF Government’s commitment to capacitating councils ahead of devolution.

Hon. Government Members: Hear, hear!

Mr Chikwanda: Mr Speaker, the provision of safe portable drinking water and sanitation services in our communities requires our immediate attention. This will be addressed through the rehabilitation of more than 850, and construction of about 3,000, boreholes in rural areas.

Hon. Government Members: Hear, hear! Kalabo!

Mr Speaker: Order, order!

Mr Chikwanda: In urban areas, development and rehabilitation of the water supply and sanitation infrastructure system will be undertaken. In addition, the Government will facilitate the strengthening of the capacity of utility companies and other institutions in water and solid waste management.

Hon. Government Members: Hear, hear!

Mr Chikwanda: In light of what has just been outlined in the four core programmes areas, the overall functional allocation of expenditures is as follows:

2012 Expenditure by Function

Function and Sub-Function Allocation (K’Billion) percentage of Budget

General Public Services Executive 8,304.8 30.0
Executive 856.1
   o/w Grants to Local Authorities 257.1
   Constituency Development Fund 120.1
Legislation 594.7
General Government Services 7,400.5
   o/w Domestic Debt Interest 1,650.1
   External Debt 1,416.8
   Compensation and Awards 200.0
Centralised Administrative Services 362.5
Defence 1,648.5 6.0
Public Order and Safety 1,017.4 3.7
Economic Affairs 8,120.0 29.3
General Economic, Commercial and Labour 266.1
   o/w Empowerment Funds 40.0
Agriculture Forestry and Fishing 1,698.0
   o/w Farmer Input Support Programme 500.0
   Strategic Food Reserve 300.0
   Food Security Pack 25.0
Fuel and Energy 1,369.7
   o/w Kafue Gorge Lower Power Project 864.0
   Rural Electrification Programme 437.1
Transport 4,658.8
   o/w Roads 4,481.0
Communications 39.0
Tourism 52.6
Environment Protection 31.8 0.1
Housing and Community Amenities 352.9 1.3
   o/w Water Supply and Sanitation 150.3
Health 2,579.9 9.3
   o/w Infrastructure Development 389.3
Recreation, Culture and Religion 136.9 0.5
Education 4,850.5 17.5
   o/w Infrastructure Development 796.4
Social Protection 655.6 2.4
   o/w Public Service Pension Fund 474.2
   Social Cash Transfer  55.0
Grand Total 27,698.2 100.0

Sir, the detailed expenditures for 2012, categorised by function are as follows:

GENERAL PUBLIC SERVICES

Mr Speaker, under the General Public Services function, the Government has made a provision of K8,304.8 billion or 29.9 per cent of the budget. Out of this amount, I have allocated K2,091.9 billion to the servicing of the domestic and external debt and K336.3 billion for payment of arrears to suppliers of goods and services. In addition, K257.1 billion has been provided for grants to local authorities, and K120.1 billion for the Constituency Development Fund.

Hon. Government Members: Hear, hear! Very good.

Interruptions

Mr Chikwanda: Sir, other provisions include K200.0 billion for compensation and awards for payment of litigation cases ruled against the Government. A further K120.0 billion has been provided for a contingency reserve meant to cater for unforeseen and unavoidable expenditures. The remainder of the resources will go towards regular Government operations.

ECONOMIC AFFAIRS

Mr Speaker, expenditure on the economic affairs function is projected to rise by 54.6 per cent to K8,120.0 billion. Notable programmes include those in the agricultural sector, which I have already discussed, together with large investments in the energy and roads sectors.

Mr Kambwili: Hear, hear!

Mr Chikwanda: In the energy sector, I have allocated K864.0 billion as the Government’s contribution to equity in the construction of the Kafue Gorge Lower Power Station while K437.1 billion is for the Rural Electrification Fund.

Hon. Government Members: Hear, hear!

Mr Chikwanda: Sir, for the road sector, I have provided K4,481.0 billion, the bulk of which will go towards on-going projects. Out of this amount, K101.0 billion has been allocated for feasibility studies and design for new projects, including Leopards Hill to Chiawa, Kasempa/Kaoma, Kawambwa/Mporokoso and Luwingu/Kaputa roads. In addition, K60.0 billion has been provided for preparatory works on the Lusaka Ring-Road project. Other road projects that will be undertaken in 2012 include Mongu/Kalabo, Nyimba/Sinda, Nakonde/Mbala, Kalulushi-Lufwanyama, Kabompo/Chavuma, the Bottom Road and Mumbwa/Landless Corner.

Hon. Government Members: Hear, hear!

Laughter

Mr Speaker: Order!

Mr Chikwanda: Mr Speaker, with regard to the tourism sector, I have provided K21.1 billion for tourism marketing and promotion and K15.0 billion to recapitalise the Zambia Wildlife Authority.

Hon. Government Members: Hear, hear!

Mr Chikwanda: Sir, I have also provided K30 billion to facilitate the initial works of establishing the new provincial headquarters for Muchinga Province and the relocation of the provincial capital for South Province to Choma.

PUBLIC ORDER AND SAFETY

Mr Speaker, the Government intends to spend K1,017.4 billion or 3.7 per cent of the budget on the Public Order and Safety function. Of this amount, K55.8 billion has been set aside for infrastructure development projects which include police housing units, police stations and forensic laboratories. In order to improve policing, K30.0 billion has been provided for the Zambia Police modernisation programme and K16.7 billion for the net recruitment of 1,000 police officers. Further, an allocation of K50.0 billion has been made to continue with the programme of constructing and rehabilitating courts.

HOUSING AND COMMUNITY AMENITIES

Sir, I have allocated K352.9 billion to this function. Of this amount, K150 billion has been provided as the Government’s contribution to the water and sanitation sector, representing an increase of 26.1 per cent on the 2011 provision. The funds will be used to improve access to clean and safe drinking water in rural and peri-urban areas.

SOCIAL PROTECTION

Mr Speaker, a total of K655.6 billion has been allocated for social protection programmes. Of this amount, K474.2 billion has been provided for grants to the Public Service Pension Fund. In addition, K90.0 billion has been provided for various social safety nets that include the Public Welfare Assistance Scheme, food security packs and social cash transfers.

REVENUE ESTIMATES AND MEASURES

REVENUE ESTIMATES

Sir, in the economic objectives and policies that I have just outlined, it is very clear that the PF Government has a very ambitious plan to transform the Zambian economy.

Hon. Government Members: Hear, hear!

Mr Chikwanda: To do so, we need to carefully balance the demands of our citizens for lower taxes against the demands for higher spending, especially on poverty reduction programmes. This means that we must rebalance the burden of taxation to provide tax relief for those who have borne a disproportionate burden in the past while, at the same time, generating more resources from those areas of the economy that have benefited most from our strong macroeconomic performance.

Hon. Government Members: Hear, hear!

Mr Chikwanda: Mr Speaker, under these circumstances, the Government expects to raise resources of K27,698.3 billion or 26.5 per cent of the GDP to support the 2012 Budget. Domestic revenues will constitute 19.1 per cent of the GDP while grant receipts from our cooperating partners will be 1.8 per cent. The balance of 5.6 per cent of the GDP will be total borrowing out of which 1.3 per cent will come from domestic borrowing while the balance of 4.3 per cent will be external financing.

Sir, the summary of the revenue estimates and financing to support the 2012 expenditures is as follows:

Total Resource Envelope for the 2012 Budget

Source Amount (K’billion) Percentage of Budget

Total Tax Revenues   19,267.7
Income Tax 10,271.5 10,271.5
Company Income Tax 3,264.4
PAYE 4,216.2
Withholding & Other 909.5
Mineral Royalty 1,881.4
Value Added Tax 4,723.6
Domestic VAT 392.0
Import VAT 4,331.6
Customs and Excise 4,272.6
Customs Duty 2,108.6
Excise Duty 2,164.0
   o/w Fuel Levy 460.6
Non-Tax Revenues  708.3
Fees & Fines 465.0
Exceptional 216.2
Medical Levy 19.2
Dividends & On-lending 7.9
Domestic Borrowing  1,324.3

Total Domestic Revenue and Financing  21,300.3

Total Foreign Grants and Financing   6,398.0
Grants 1,894.4
General Budget Support 541.4
Sector Budget Support 219.2
Project Grants 1,133.7
Foreign Financing 4,503.6
Programme Loans 2,652.0
Project Loans 1,851.6
Total Revenue and Financing  27,698.3

REVENUE MEASURES

DIRECT TAXES

Mr Speaker, during the run up to the election, the PF Government made a promise to the people of Zambia that it would streamline the tax system, lower tax rates and promote tax compliance. One of the commitments we made was to put more money in people’s pockets.

Hon. Government Members: Hear, hear!

Mr Chikwanda: I wish to assure this august House that we remain as committed to this cause as we were then.

Sir, as a first step to honouring our commitments, I propose to double the exempt threshold for PAYE from the current K12 million to K24 million per annum.

Hon. Government Members: Hear, hear!

Mr Chikwanda: This translates into tax free income of K2 million per month …

Hon. Government Members: Hear, hear!

Mr Kambwili: Unprecedented! 15-0!

Interruptions

Hon. Government Members: Boma!

Interruptions

Mr Speaker: Order!

Mr Chikwanda: … and will result in more than 80,000 low paid workers moving out of the taxable brackets. In addition, I have provided more relief by adjusting the tax brackets as follows:

Current PAYE System

Income Bands Tax Rate Percentage

K1,000,000 and below per month 0
K1,000,001 – K1,735,000 per month 25
K1,735,001 – K4,200,000 per month 30
Above K4,200,000 per month 35

Proposed PAYE System

Income Bands/ month Tax Rate Percentage

K2,000,000 and below 0
K2,000,001 – K2,800,000 25
K2,800,001 –K5,700,000 30
Above K5,700,000 35

Hon. Government Members: Hear, hear! People’s Budget.

Mr Chikwanda: Mr Speaker, the PAYE restructuring increases disposable incomes of the workforce by about K1.0 trillion, which can only be salutary for the economy.

Sir, the Government believes that growth should be largely driven by the private sector. However, the cost of borrowing for investment has inhibited initiative most of the private sector, particularly, our local entrepreneurs, from engaging in gainful ventures. In order to compliment the efforts that we have already undertaken to reduce the cost of borrowing, I propose to abolish the 40 per cent upper corporate tax rate for banks. With this measure, banks will now be required to pay the standard corporate tax rate of 35 per cent.

Hon. Government Members: Hear, hear!

Mr Chikwanda: This will help to make banks more liquid, a desirable objective to facilitate low-cost borrowing by enterprises.

Mr Speaker, this measure will result in a revenue loss of K65.0 billion and I except the banks to pass on the benefits to the borrowers by lowering lending rates further.

Hon. Government Members: Hear, hear!

Mr Chikwanda: Sir, agriculture is at the centre of our pro-poor development agenda. Sustaining the gains which that have been registered in this sector over the recent years requires that we continue to increase capital formation and investment in this sector. I, therefore, propose to reduce the corporate income tax that is applicable to the agricultural sector from 15 to 10 per cent.

Hon. Government Members: Hear, hear!{mospagebreak}

Mr Chikwanda: The proposed reduction is meant to increase investment and, thereby, raise productivity, output and incomes of our farmers. This measure will make available K10.6 billion for re-investment into the farming sector.

Mr Speaker, in order to compensate for the revenue loss arising from the measures above, I propose to increase the mineral royalty rate to 6 per cent from 3 per cent and 5 per cent for base and precious metals, respectively. I also propose to separate income arising from hedging activities for income tax purposes.

Hon. Government Members: Hear, hear!

Mr Chikwanda: Sir, I expect to raise K981.0 billion from these two measures.

Mr Speaker, in order to align the treatment of commission payments to non-residents with that of other income streams, such as royalties, interest and management or consultancy fees, I propose that commission payments made to non-residents be deemed to have a source in Zambia and, therefore, taxable at 15 per cent. This measure will result in a revenue gain of K24.0 billion.

Sir, all the above measures will come into effect on 1st April, 2012.

Mr Mutati: Aah! Why?

Mr Chikwanda: That is a charge year!

Mr Lubinda: That is the charge year kabili. You do not know, Mutati!

Interruptions

Mr Lubinda: Charge year, Mutati!

Mr Speaker: Order!

Mr Chikwanda:

VALUE ADDED TAX

Mr Speaker, in 2009, the Government introduced a policy to include copper and cobalt ores and concentrates on the VAT deferment scheme. This was done to promote the utilisation of excess smelting capacity following the decline in the country’s mineral production. However, with the increase in local production of copper and cobalt ores, it is no longer justifiable to retain these products on the scheme. I, therefore, propose to remove copper and cobalt ores and concentrates from the Import VAT Deferment Scheme. This measure will generate an extra K6.9 billion.

Sir, this VAT measure will come into effect on 1st January, 2012.

CUSTOMS AND EXCISE

Mr Speaker, in 2006, the Government introduced an export duty of 15 per cent on the export of copper and cobalt concentrates in order to encourage local value addition and create employment. This policy is discriminatory as it does not apply to other minerals, thereby, creating an uneven playing field. In the spirit of making this tax less burdensome and its application non-discriminatory, I propose to reduce export duty to 10 per cent but also extend it to all unprocessed or semi-processed mineral ores. The expected revenue gain from this measure is K70 billion.

Sir, in 2007, the Government removed customs duty on light passenger aircraft to promote tourism. I propose to extend this concession to cover helicopters and micro-lites.

Hon. Government Members: Hear, hear! Very good.

Mr Chikwanda: This measure will result in a minimal revenue loss. Cost neutral.

Interruptions

Mr Chikwanda: Hon. Members may be interested in this.

Laughter

Mr Chikwanda: Mr Speaker, I propose to increase the duty rebate threshold on travellers’ effects from US $500 to US $1,000. This will benefit travellers coming with unaccompanied personal effects from outside the country. This measure will have a minimal revenue impact.

Sir, all the above Customs and Excise measures will take effect on 1st January, 2012.

HOUSEKEEPING MEASURES

Mr Speaker, I propose to amend the Income Tax Act so as to harmonise the fiscal year and the Charge Year. In this regard, the charge year for 2012 will run from nine months from 1st April to 31st December, 2012, so that the succeeding charge years from 2013 will run for a full twelve months from 1st January to 31st December.

Hon. Government Members: Hear, hear!

Mr Kambwili: For twenty years mwalifilwa!

Mr Chikwanda: Sir, I also propose to amend the Customs and Excise, Income Tax and the Value Added Tax Acts to update and strengthen provisions and remove ambiguities in certain sections of these pieces of legislation.

INCENTIVES UNDER THE ZAMBIA DEVELOPMENT AGENCY (ZDA) ACT

Mr Speaker, the process of granting additional incentives under Section 58 of the ZDA Act provides discretion and lacks transparency, thereby, creating opportunities for corruption.

Hon. Government Members: Hear, hear!

Mr Chikwanda: I, therefore, propose to remove Section 58 in the ZDA Act in order to prevent leakages in the tax system and strengthen the quest for enhanced revenue mobilisation.

PART IV

CONCLUSION

Mr Speaker, in conclusion, hon. Members have a very short attention span.

Laughter

Mr Chikwanda: Sir, the PF won the 2011 elections because it listened to the needs of the people at all levels. Now that it is in Government, it has not, and will never, distance itself from our people.

Hon. Government Members: Hear, hear!

Mr Chikwanda: His Excellency, the President, and his entire Cabinet have committed themselves to working tirelessly so that the Government responds, in practical ways, to ensure that the economy is put on a path of rapid growth and that its benefits are widely shared by every Zambian.

Hon. Government Members: Hear, hear!

Mr Chikwanda: Mr Speaker, we are not a Government that basks in the empty glory of statistical euphoria, …

Hon. Government Members: Hear, hear!

Mr Chikwanda: … but one that seeks a transformational shift in society to make it more just and equitable. In this regard, allow me to briefly summarise what this first Budget of the PF Government means to ordinary Zambians:

(i) to the unemployed youth who feels this nation has little use for his energies, it means more opportunities for appropriate skills training and thus greater prospects for income-earning activities through which he can positively contribute to the development of his nation.

(ii) to the peasant farmer who only seeks to feed his family through his toil in the field, it means the provision of extension services and farm inputs that are tailored to the agricultural conditions of his area and to improved access to markets for his produce;

(iii) to the promising pupil who learns in a makeshift  classroom with no desk and not a single text book, it means an improved learning environment that can better equip her or him for a bright and productive future;

(iv) to the grandmother who is looking after her deceased daughter’s sick orphan, it means free access to health care so that she can buy the food they need;

(v) to the enterprising businesswoman who lacks the funds to embark on her great ideas, it means access to cheaper capital that can be the catalyst to make her dream a reality;

(vi) to the hard-pressed resident in a compound whose home and property is threatened by floods each rainy season and whose environment is strewn with refuse, it means the laying of the foundation for an empowered local council that can provide the basic local services he and his family deserve;

(vii) to the hardworking copper miner, the committed artisan and the industrious businessman, it means more money in their pockets from which they can raise their living standards and those of their families; and

(viii) to civil servants, it means an environment in which professionalism is re-invigorated and impropriety repudiated.

Hon. Government Members: Hear, hear!

Mr Chikwanda: Mr Speaker, to all taxpayers, the PF Government promises to manage public finances in a fully accountable and transparent manner so that all abuse of taxpayers’ money is identified and dealt with and all scope for corrupt practices eliminated.

Finally, Sir, allow me to make a passionate plea to all Zambians to resolutely and unequivocally rally behind our President, the custodian of our interests, especially those of the disadvantaged segments of our great country, to put Zambia’s development on a sustainable trajectory.

Mr Speaker, I beg to move.

Hon. Government Members: Hear, hear! 50-0! Boma!

Interruptions

Mr Speaker: Order, order!

Mr Mulenga (Chinsali): Mr Speaker, I thank you for giving me the rare privilege to be the first hon. Member to debate the Motion moved by the hon. Minister of Finance and National Planning on the Budget for 2012.

Sir, allow, me to, first, congratulate the hon. Minister on his successful presentation of the Budget for 2012.

Hon. Government Members: Hear, hear!

Mr Mulenga: Mr Speaker, the speech has covered important developmental issues that need to be digested and carefully analysed by hon. Members.

Mr Mushanga: Hear, hear!

Mr Mulenga: In order to give ample time to hon. Members of this august House to study the Budget Speech in detail and, later, be able to debate it more meaningfully, I wish to propose that the debate on the Motion moved by the hon. Minister of Finance and National Planning be deferred to Tuesday, 15th November, 2011.

Mr Speaker, I thank you.

Hon. Government Members: Hear, hear!

Mr Speaker: Is the proposal to adjourn the debate seconded?

Mr Hamududu (Bweengwa): Mr Speaker, I thank you for according me this opportunity to support the proposal by the hon. Member of Parliament for Chinsali Parliamentary Constituency that the debate on the Motion of Supply moved by the hon. Minister be deferred to Tuesday, 15th November, 2011. I am confident that hon. Members will agree with me that the issues contained in the Budget Speech have an impact on the life of every citizen of our great country.

Hon. Members: Hear, hear!

Mr Hamududu: Sir, for this reason, it is important that more time is accorded to hon. Members to carefully scrutinise the Budget Speech which has just been presented in readiness for debate next week. I, therefore, urge my fellow hon. Members to come well prepared on Tuesday, next week, so that we can engage in meaningful debate on the issues that have been raised in the Budget Speech. I, therefore, wish to support the proposal to adjourn the debate on the Motion to Tuesday, next week.

Mr Speaker, I thank you.

Hon. Members: Hear, hear!

Question put and agreed to.

ADJOURNMENT

The Vice-President (Dr Scott): Mr Speaker, I beg to move that the House do now adjourn.

Question put and agreed to.

_________

The House adjourned at 1548 hours until 1430 hours on Tuesday, 15th November, 2011.