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Debates- Friday, 25th January, 2008
DAILY PARLIAMENTARY DEBATES FOR THE SECOND SESSION OF THE TENTH ASSEMBLY
Friday, 25th January, 2008
The House met at 1415 hours
[MR SPEAKER in the Chair]
NATIONAL ANTHEM
PRAYER
____________
ANNOUNCEMENT
PROCEDURAL ARRANGEMENT
Mr Speaker: Hon. Members, you are reminded that as apart of the procedure and parliamentary reforms, the Estimates of Revenue and Expenditure are referred to the Expanded Committed on Estimates comprising the Committee on Estimates, Chairpersons of all Portfolio Committees and Chairpersons of the Public Accounts Committee and the Committee on Reforms and Modernisation for their consideration. This procedural arrangement will apply to the Estimates of Revenue and Expenditure for 2008.
Alongside the foregoing, the House will continue with the debate on the general policy on the budget and other business that will be brought before it. The Expanded Committee will be expected to present their report to the House on Wednesday, 13th February, 2008.
Thank you.
________________
BUSINESS OF THE HOUSE
The Vice-President (Mr R. Banda): Mr Speaker, I rise to give the House some idea of the business it will consider next week.
Sir, on Tuesday, 29th January, 2008, 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 this year’s Budget.
On Wednesday, 30th January, 2008, the Business of the House will commence with Questions, if there will be any. This will be followed by presentation of Government Bills, if there will be any. After that, 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 for the Estimates of Revenue and Expenditure for 2008.
On Thursday, 31st January, 2008, 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 policy debate on the Motion of Supply.
Sir, on Friday, 1st February, 2008, the Business of the House will begin with the Vice-President’s Question Time. Then, the House will consider Questions, if there will be any. This will be followed by presentation of Government Bills, if there will be any. After that, the House will continue with the debate on the Motion of Supply on this year’s Estimates of Revenue and Expenditure.
Mr Speaker, I thank you.
Hon. Members: Hear, hear!
__________
MOTIONS
BUDGET ADDRESS
The Minister of Finance and National Planning (Mr Magande): Mr Speaker, I beg to move that the House do now resolve into Committee of Supply on the Estimates of Revenue and Expenditure for the year 1st January, 2008 to 31st December, 2008, presented to the National Assembly in January, 2008.
Sir, I am a bearer of a message from His Excellency the President recommending favourable consideration of the Motion I now lay on the Table.
Hon. Members: Hear, hear!
Mr Magande: Mr Speaker, over the past 5 years, the nation has achieved macro-economic stability characterised by growth in the real Gross Domestic Product (GDP) in excess of 5 per cent per annum, the reduction of inflation to single digit, a stable exchange rate, declining interest rates, a stable financial system, the removal of the external debt burden and a substantial build up in foreign exchange reserves. These achievements have resulted in notable success in the creation of jobs and wealth and the reduction in poverty levels.
Mr Kambwili: Question!
Mr Magande: Mr Speaker, our cherished and chosen vision is to be a prosperous middle income country by the year 2030.
Hon. Government Members: Hear, hear!
Mr Magande: Mr Speaker, this will be achieved by creating a nation of dynamic, self confident and vibrant entrepreneurs. Our foremost challenge, this year and in the medium-term, is to create the fiscal space that will allow us to marshal both human and financial resources. This will enable us to accelerate the implementation of the Fifth National Development Plan.
Mr Speaker, to realise this vision, the theme for this year’s budget is, and I quote:
“Unlocking Resources for Economic Empowerment and Wealth Creation.”
Hon. Government Members: Hear, hear!
Mr Magande: Mr Speaker, the preparation of this Budget has benefited from broad-based consultations with various stakeholders. This is in line with this Government’s policy of openness and transparency. I, therefore, wish to express my utmost gratitude for the variable contributions made by various organisations and individuals and indeed, as you can hear from your left side, some of them did not participate.
Hon. Members: Hear, hear!
Interruptions
Mr Magande: Mr Speaker, my address this afternoon comprises five parts. In Part I, I give an overview of the performance of the global economy during the past year. In Part II, I discuss development in the Zambian economy during the same period and this is followed by Part III, by an outline of the Government’s economic policies for 2008. In Part IV, I present details of the 2008 Budget. Finally, in Part V, I conclude my address.
Hon. Government Members: Hear, hear!
PART I
PERFORMANCE OF THE GLOBAL ECONOMY IN 2007
Mr Magande: Mr Speaker, preliminary estimates indicate that the world estimates registered a robust real GDP growth of about 5 per cent, largely driven by the strong expansion in China, India and Russia. These favourable developments mitigated the lower growth recorded in the advanced economies, especially the United States of America, which experienced a significant reduction in investments in residential property.
Mr Speaker, this sustained growth in the world economy continued to drive the price of commodities upwards, with oil prices reaching record levels. Further, lower oil production by the Organisation of Oil Producing and Exporting Countries (OPEC), and a smaller rise in oil output in the non-OPEC countries contributed to the high oil prices.
Sir, the prices of none-fuel commodities similarly increased during the year, with copper prices rising by 12.6 per cent to US$3.15 per pound. In 2007, Africa posted real GDP growth of 5.7 per cent, a modest 0.1 percentage points above the growth recorded in 2006. However, Sub-Saharan Africa recorded a robust real GDP growth rate of 6.1 per cent, which was 0.4 percentage points above the 2006 level. On balance, these global developments had a positive impact on Zambia’s terms of trade.
PART II
PERFORMANCE OF THE DOMESTIC ECONOMY IN 2007
Macro-economic Performance
Mr Speaker, preliminary estimates indicate that the macro-economic out turn was satisfactory. The growth in real GDP continued to be positive at a preliminary estimate of around 6.2 per cent, which was lower than the target of 7 per cent. This was mainly on account of lower than projected growth in the primary and secondary sectors of the economy.
Mr Speaker, despite the adverse external shocks associated with the high international oil prices, an end of the year single digit inflation rate was achieved for the second year running. As at the end of December, 2007, the annual inflation was 8.9 per cent, which was consistent with the revised target of 9 per cent, but we are aware, of course, that this was above the 8.2 per cent achieved in December, 2006.
Mr Speaker, with regard to the fiscal out turn, a strong revenue performance and the slow utilisation of resources by some Government institutions explains the lower domestic borrowing. Preliminary estimates indicate that in 2007, domestic borrowing amounted to K437 billion or 0.95 per cent of GDP against the target of 1.2 per cent. Zambia’s external position remained positive during the year under review. This was reflected in the strong build-up of Gross International Reserves (GIR) to US$1,080.2 million or 3.6 months of import cover against the target of 2.5 months.
Hon. Members: Hear, hear!
External Sector Developments
Mr Magande: Mr Speaker preliminary information indicates that in 2007, external sector developments were largely positive. The overall balance of payments recorded a positive balance of US$266.3 million compared to US$821 million in 2006. The current account balance recorded an estimated deficit of US$856 million compared to a surplus of US$120 million in 2006. This was largely accounted for by a higher deficit in the income account.
Mr Speaker, the current account deficit was financed by increased external capital inflows in the form of foreign direct and portfolio investments of US$853.5 million and project grants of US$153.6 million. Although the trade surplus declined to US$686.4 million from US$1,183 million in 2006, both total exports and imports increased. Total exports increased by 11.9 per cent to US$4,273.4 million compared to US$3,819 million recorded in 2006. However, imports rose at a higher rate of 37.4 per cent to US$3,622.3 million, largely on account of increased investment in the mining sector. Metal exports rose by 10.2 per cent to US$3,400.3 million whilst non-traditional exports were 24.5 per cent higher at US$924.4 million, largely due to the growth in the economies of our trading partners.
External Debt
Mr Speaker, preliminary information indicates that the stock of external debt increased by 9.5 per cent to US$2,035.2 million in 2007 from US$1,859.0 million in 2006. The increase was largely accounted for by the 16.7 per cent growth in the private sector external debt to US$980.7 million which was related to investment in plant and machinery by mining companies. The stock of Government external debt increased by 3.5 per cent to US$1,054.5 million in 2007 from US$1,019.0 million in 2006, mainly due to new disbursements to support the budget.
Sir, the amount of US$635 million reported in last year’s budget was adjusted upwards during the year. This adjustment was to reflect undelivered HIPC Initiative debt relief from some of the bilateral creditors with whom we have not yet reached agreements.
Foreign Financing
Mr Speaker, in 2007, foreign financing continued to compliment our domestic resources. In this regard, our co-operating partners disbursed a total of US$503.6 million. Of this amount, US$356.1 million was disbursed as project support while US$147.5 million was for direct budget support. Project support comprised of US$125.8 million for Sector Wide Approach Project Support (SWAPS) while US$153.6 million was for project grants and US$76.7 million for project loans.
Sir, on behalf of the Zambian people and indeed on my own behalf, I wish to sincerely thank our co-operating partners for their continued support to Zambia’s development agenda.
Hon. Members: Hear, hear!
Domestic Debt
Mr Magande: Mr Speaker, preliminary figures showing that the stock of domestic debt and other public liabilities declined by 7.1 per cent to an estimated K8,885.5 billion in 2007. The decrease was primarily on account of a decline in the stock of domestic arrears to suppliers of goods and services and also to the Pension Fund. Domestic arrears to road contractors and other suppliers of goods and services fell by 16.5 per cent to K370.5 billion while the stock of pension arrears were reduced by 31.9 per cent from K396.5 billion in 2006 to K269.0 billion in 2007.
Mr Speaker, the stock of Government securities increased by 11.6 per cent to K6,966.1 billion in 2007, compared to an increase of 25.7 per cent in 2006. The increase in the stock of Government securities was on account of the rise in the stock of Government bonds by 20.7 per cent to K3,904.8 billion and treasury bills, which rose by 1.8 per cent to K3,061.3 billion. This partly reflects intensified monetary operations by the Bank of Zambia to contain liquidity pressure arising from the accumulation of international reserves.{mospagebreak}
Monetary and Financial Sector Developments
Mr Speaker, monetary and financial sector developments continued to be favourable during the year. Inflation was contained within single digit, money supply growth slowed down, commercial banks lending rates continued to trend downwards and the financial sector remained sound.
Interruptions
Hon. Opposition Members: Question!
Mr Magande: Sir, the 2007 single digit inflation was reflective of an appropriately firm monetary policy stance and a favourable fiscal out turn. In addition, the appreciation of the kwacha against major international currencies, which I hope your left does not question, further dampened inflationary pressures.
Hon. Government Members: Hear, hear!
Mr Magande: Mr Speaker, preliminary estimates show that annual money supply growth slowed to 25.9 per cent in December, 2007 from 45.1 per cent in December, 2006. This was largely due to the reduction in the Government borrowing from the banking system by 21.6 per cent. However, I am happy to report that lending to the private sector registered a strong growth of 44.5 per cent.
Sir, in an effort to further reduce the cost of funds in October, 2007, the Bank of Zambia significantly reduced the statutory reserve ratio on both kwacha and foreign currency deposit liabilities from 14 to 8 per cent. The composite weighed average yield rates on treasury bills and Government bonds rose to 13.4 per cent and 15.6 per cent in December, 2007 from 9.2 per cent and 12.3 per cent in December, 2006. This was largely due to efforts by the Bank of Zambia, like I have already indicated, to contain money supply growth and inflationary pressures.
Sir, in line with falling inflation, commercial bank’s’ lending rates fell to 24.4 per cent in December, 2007 from 27.9 per cent in December, 2006.
Interruptions
Mr Magande: However, commercial bank interest rates, as already indicated, remained relatively high contrary to the Government expectations. You might believe that lack of positive co-operation in this particular area is indicative of the failure of liberalisation and market forces.
Hon. Members: Hear, hear!
Mr Magande: Mr Speaker, in 2007, the Bank of Zambia also continued to consolidate financial system stability by enhancing supervision of the financial sector. As a result, the performance of the banking sector remained sound and was well capitalised, profitable and liquid while the performance of the non-banking sector was fair.
Sir, other significant developments in the sector during the year included the commencement of operations by the first Credit Reference Bureau early in the year. It is expected that once fully operational, the bureau will assist in improving the credit culture in our country. Further, I have to report that the National Payment Systems Act was enacted in June, 2007 and this should help with the banking operations.
Capital Market Developments
Mr Speaker, the Lusaka Stock Exchange continued to record impressive gains in 2007. Market capitalisation in kwacha terms rose by 31.6 per cent to K17, 206.1 billion whilst in United States dollar terms, it rose by 41.2 per cent to US$4.5 billion. The other notable development was the Government’s introduction of longer dated bonds of 7, 10, and 15-year tenors. The introduction of these longer dated securities will help deepen the financial markets by extending the yield curve and providing bench mark rates to the markets.
SECTOR PERFORMANCE
Agriculture
Mr Speaker, preliminary data show that the agriculture sector grew by 2.8 per cent in 2007 compared to a growth of 3.0 per cent in 2006.
Interruptions
Mr Magande: As the hon. Member for Zambezi West is aware, the slower growth in this sector was due to poor prices for crops, such as, cotton and tobacco as well as flooding in some farming areas. Nevertheless, for the second consecutive year, a good surplus on grains was achieved with accumulative stocks reaching 628,396 metric tonnes of food scattered throughout the country.
Interruptions
Mining and Quarrying
Mr Magande: Mr Speaker, the mining sector registered positive growth in 2007, albeit at a slower rate. Preliminary figures show that copper production increased by 1.5 per cent to 523,435 metric tonnes from 515,618 metric tonnes in 2006. However, cobalt production declined by 9 per cent to 4,229 metric tonnes in 2007 from 4,648 metric tonnes in 2006. The slow down in the metal output was mainly on account of flooding at some of the mines in the first half of 2007.
Construction
Mr Speaker, preliminary data indicate that the construction sector continued to register positive growth of 13.3 per cent in 2007 slightly lower than the 14.4 per cent recorded in 2006. The favourable performance in the sector continues to be driven by construction of residential housing, investments in the mines, road construction and other civil works, which are reflective of the strong economic growth and rising incomes amongst our population.
Hon. Members: Hear, hear!
Mr Magande: Mr Speaker, this also includes the Bottom Road.
Hon. UPND Members: Aah!
Laughter
Manufacturing
Mr Magande: Sir, the manufacturing sector recorded a positive growth of 3.4 per cent. This growth was broad-based with increased value addition in most of the sub-sectors. However, the growth was lower than the 5.7 per cent recorded in 2006. This was mainly on account of the negative growth in the textile and leather sub-sectors.
Tourism
Sir, the performance of the tourism sector was encouraging. The number of tourists coming into the country is estimated to have increased by 6.4 per cent to 805,059 in 2007. This resulted in an increase in room and bed occupancy, number of beds and employment levels. In turn, the sector’s earnings increased to an estimated US$188 million from US$177 million in 2006.
Energy
Mr Speaker, the energy sector faced a number of challenges related to the supply of electricity and petroleum products in the face of increased demand. Electricity generation increased marginally to 9.7 million megawatt hours from 9.6 million megawatt hours in 2006. This was due to the power rehabilitation works being undertaken by the Zambia Electricity Supply Company (ZESCO) at the various generation points. In the petroleum sub-sector, supply was generally reliable despite the shut down of the Indeni Oil Refinery for rehabilitation works. The move by the Government to allow oil marketing companies to import finished petroleum products eased disruptions in supply.
Transport and Communications
Mr Speaker, the transport, storage and communications sector continued to perform positively with the output increasing by 22.5 per cent compared to 22.1 per cent in 2006. A robust expansion was recorded in all the sub-sectors except for railway transport, which recorded negative growth, mainly on account of the poor state of the railway infrastructure.
SOCIAL SECTOR DEVELOPMENTS
Education
Sir, in 2007, the Government recruited and placed 10,600 teachers in various schools in the country.
Hon. Government Members: Hear, hear!
Mr Magande: Mr Speaker, I expected Hon. Kasongo to cheer that because it is a positive development.
Hon. Government Members: Hear, hear!
Mr Magande: This recruitment was augmented by a countrywide distribution of textbooks and other school needs. In addition, the Government continued with the programme of rehabilitation and construction of classrooms and teachers’ houses. In this regard, construction of thirty-one high schools commenced countrywide.
Mr Speaker, the Government also enrolled a total of 452,974 pupils in Grade 1, which is a 2 per cent increase from the previous year. In relation to gender, more female children accessed education in the first grade than their male counterparts.
Mr Speaker, with regard to tertiary education, the Mulungushi University was establishment as the third public university in the country. In addition, the Government continued with the programme of rehabilitation and development of infrastructure across the country. This programme included works at the University of Zambia, Copperbelt University, Evelyn Hone College and trades training institutes. This is a true demonstration of the Government’s commitment to improving the standard of education for the future generation.
Hon. Government Member: Well done.
Health
Mr Magande: Mr Speaker, the focus of the Government in 2007 was to provide access to quality health care. In this regard, the Government abolished user fees in fifty-four rural districts and recruited over 1,100 frontline medical personnel. It is obvious that we could not recruit some of them as they are in London working for others, like the hon. Member’s wives.
Laughter
Mr Magande: Mr Speaker, in addition, the Government continued with the programme of infrastructure rehabilitation and development. An x-ray theatre and maternity wing were completed at Samfya whilst construction works for the new hospitals in Chadiza and Mumbwa reached advanced stages. Other programmes included the construction of thirty-three health posts in various districts across the country. Further, the Cancer Disease Hospital was commissioned and has currently over 300 patients on treatment. This number is expected to rise to 1,800 patients this year as more of our people become aware of the availability of this facility.
Hon. Government Members: Nizoona.
Mr Magande: Sir, the provision of essential drugs and medical supplies was scaled up in 2007 with Medical Stores Limited making 83.5 per cent of its deliveries on time. However, there is an urgent need to institute effective measures to safeguard medicines and hospital equipment once they are delivered to health institutions.{mospagebreak}
HIV/AIDS
Mr Speaker, with this sober reflection made by all the hon. Members, I want to inform the House that the HIV/AIDS pandemic continues to be a major challenge as it mostly affects the productive age groups. In 2007, the number of cases diagnosed increased to 30,960 from 29,515 in 2006. The Government continued to make headway in ensuring that more of our people living with HIV/AIDS have access to anti-retroviral therapy. In this regard, a total of 137,000 patients accessed free anti-retroviral therapy countrywide compared to 75,000 in 2006.
Structural Reforms
Mr Speaker, the Government continued to implement reforms under the Public Expenditure Management and Financial Accountability (PEMFA), Public Service Management (PSM), Financial Sector Development Plan (FSDP) and the Private Sector Development (PSD) Initiative. With regard to PEMFA, progress has been made in providing the required environment and resources for the reforms. In 2007, the key milestones included the following:
(a) the IFMIS solution provider came on board and the design implementation of the system started;
(b) data collection for the economic census commenced. I hope this will improve the national accounts statistics compiled annually so that some hon. Members can clearly see that things are changing for the better; and
(c) three provincial offices for the Auditor-General’s Office were constructed and completed in Solwezi, Mongu and Kasama to increase audit coverage on public resources.
Mr Speaker, under FSDP, the Government launched the Rural Finance Programme last year to improve access to financial services particularly in rural areas. The programme will be private sector driven.
Budget Performance in 2007
Mr Speaker, the overall budget out turn in 2007 was strong despite challenges in the execution of capital projects. Preliminary figures indicate that total resources mobilised, including borrowing to cover the budget deficit, amounted to K10,720.1 billion. Of this amount, revenues and grants accounted for K10,176.1 billion while K544 billion or 1.2 per cent of GDP was borrowed. Total expenditure releases at K10.720.1 billion accounted for 89.7 per cent of the budget. An amount of K8,794.1 billion or 81 per cent of the total expenditure releases were directed towards current expenditure while K1,926.0 billion or 19 per cent was absorbed by capital expenditures.
Sir, domestic revenue collections at K8,522.1 billion were above target by K405 billion or 5 per cent. Higher company tax and import Value Added Tax (VAT) receipts largely accounted for this performance. Grant receipts from co-operating partners amounted to K1,654.1 billion, out of which K581.9 billion was direct budget support. Direct budget support receipts were above target by 10 per cent, reflecting the support that this Government continues to enjoy from our co-operating partners.
Mr Speaker, due to the slow absorption by the ministries, provinces and other spending agencies, the 2007 Budget allocations could not be disbursed in full. This was, in part, a reflection of capacity constraints within spending ministries of Government and more within the contractors in the private sector who delayed procurement and structural factors associated with the budget cycle.
Mr Kambwili: Question!
Mr Magande: Mr Speaker, for domestically financed expenditures, general public services and accounted for the largest share at 36.6 per cent, followed by the social sector at 33.8 per cent and economic affairs at 14.5 per cent. Other functions accounted for the balance.
Sir, general public service releases, which are primarily activities of an operational nature for the general running of Government, amounted to K3,487.3 billion representing 93.5 per cent of the target. Of this amount, K959.5 billion went towards the payment of domestic and external debt, reflecting the Government’s commitment to meet its debt obligations.
Hon. Government Members: Hear, hear!
Mr Magande: Mr Speaker, releases towards the economic affairs function amounted to K1,384.4 billion, representing 98.3 per cent of the target. Of this amount, K1,175 billion or 84.9 per cent went to agriculture, forestry, fisheries and transport. These releases covered the following main programmes, namely, the Fertiliser Support Programme which received K184 billion, Strategic Food Reserve Programme, Food Security Pack, Farm Mechanisation and the Irrigation Fund. Other programmes included the construction and rehabilitation of roads for which K419.8 billion was released. The total released to the social sectors amounted to K3,220.7 billion, representing 99.2 per cent of the target. Out of this amount, education accounted for 54.4 per cent, health 24.9 per cent, housing and community amenities 9.2 per cent and social protection 8.2 per cent.
PART III
ECONOMIC AND SOCIAL POLICIES FOR 2008
Macro-economic Policies for 2008
Mr Kambwili: That is what we are waiting for!
Mr Magande: You have now arrived.
Hon. Members: Hear, hear!
Mr Magande: Mr Speaker, having stabilised the macro-economic environment the key challenges are to transform these positive developments into improved living standards, more jobs and sustained broad-based economic growth.
Hon. Members: Hear, hear!
Mr Magande: Sir, these developments have already started impacting on poverty levels. The statistics from the Living Conditions Monitoring Survey of 2006 indicate that poverty levels dropped to 64 per cent in 2006 from 68 per cent in 2004.
Interruptions
Mr Magande: The statistics also show that during this period, urban poverty dropped from 53 to 34 per cent whilst there was an increase in rural poverty from 78 to 80 per cent.
Interruptions
Mr Magande: Mr Speaker, these facts challenge all of us to consolidate the measures that have led to the significant reduction in urban poverty and to redouble our efforts to arrest and reduce the high levels of rural poverty.
Hon. Government Members: Hear, hear!
Mr Magande: I want to assure you, Sir, that the Movement for Multi Party Democracy (MMD) Government stands ready to meet this challenge.
Hon. Government Members: Hear, hear!
Mr Magande: An immediate programme for this year is the rehabilitation of the damaged rural infrastructure which will be done once we receive the road equipment in March. This should open up the rural areas for more viable investment to uplift the living standards of our people.
Mr Speaker, dramatic decline in urban poverty has taken place during the period in which annual economic growth has consistently been above 5 per cent. Therefore, achieving higher levels of economic growth is an important weapon in the fight against poverty. Further, the execution of the budget needs to be improved. This is particularly relevant with respect to the programmes that focus on the development of the rural areas.
Interruptions
Mr Speaker: Order!
Mr Magande: Mr Speaker, against this background, the Government’s macro-economic objectives for 2008 are to:
(a) achieve real GDP growth of at least 7 per cent;
(b) bring down end-year inflation to no more than 7 per cent;
(c) limit domestic borrowing to 1.2 per cent of GDP; and
(d) maintain the coverage of gross international reserves at not less than 3.6 months of import cover, which is one of the highest ever achieved by this country.
Sir, attaining the growth objective in 2008 demands that the private sector plays a stronger role in economic development. It is also imperative that Zambians, through the Citizens Economic Empowerment Programme, participate fully in the various economic activities. In addition, availability and access to credit will indeed need to be enhanced. On our part as Government, we will continue to focus on implementing structural reforms and providing infrastructure so as to lower the cost of doing business.
Fiscal Policies
Mr Speaker, the objective of the Government in 2008 is to continue to consolidate fiscal discipline by maintaining lower levels of borrowing and prudent budget execution. This will entail improved cash and treasury management, enhanced domestic resource mobilisation and effective co-ordination with the monetary authorities.
Budget Execution
Mr Speaker, in 2008, the Government will improve capacities of ministries, provinces and other spending agencies to evaluate and implement capital projects on time. The Budget for 2008 is being presented one week before the end of January.
Hon. Member: Aah!
Mr Magande: Mr Speaker, that is a fact. Unless somebody does not know when January ends.
Laughter
Mr Magande: Mr Speaker, this breaks our past tradition when the budget has been presented in late January or February. This demonstrates the resolve of the Government to quicken the implementation of projects execution for our people. It should not be business as usual. As the Government plans to improve the capacities of ministries, provinces and other spending agencies in project implementation, I wish to appeal that this august House also breaks a record by approving the Estimates of Expenditure for 2008 by the end of February, 2008.
Hon. Members: Hear, hear!
Mr Magande: This will clearly give us time to implement the projects that will bring development to our people.
Hon. Government Member: Bwekeshenipo.
Hon. Members: Hear, hear!
Debt and Aid Policies
Mr Magande: Mr Speaker, the Government’s long-term debt management objective will be to raise adequate levels of financing at minimum cost and risk. In addition, we will purse strategies to ensure that the national public debt is maintained at sustainable levels over the medium to long-term.
Sir, with respect, to the domestic debt, the Government will place emphasis on settlement of domestic arrears, specifically to the Public Service Pension Fund and suppliers of goods and services. On the external debt front, the Government’s strategy will be to source external funds, when required, on concessional terms and ensure that any new borrowing does not undermine the country’s debt sustainability. The Government will also intensify efforts to consolidate the legal framework governing the contraction management of debt.
Mr Speaker, the Government adopted the Aid Management Policy in 2007. The objective of the policy is to ensure that the country has a clear, systematic and well co-ordinated approach to acquire, utilise and manage aid. This will involve regular reporting, monitoring and evaluation of the aid to ensure effective implementation of the Fifth National Development Plan. Through the Joint Assistance Strategy with our co-operating partners, we shall be receiving aid in a co-ordinated fashion and in a manner that will reduce the transaction costs of such aid to the country.
Monetary and Financial Sector Policies
Mr Speaker, the overriding objective of monetary policy in 2008 will be to maintain single digit inflation for a third consecutive year.
Hon. Government Members: Hear, hear!
Mr Magande: In this regard, a key challenge will be to enhance co-ordination between fiscal and monetary policies so as to effectively manage liquidity and maintain macro-economic stability.
Sir, financial sector policy in 2008 will remain focused on maintaining financial system stability and on developing and deepening the financial sector. With regard to financial system stability, the Bank of Zambia will introduce risk-based supervision. In addition, the Government will continue with the recapitalisation of state-owned non-bank financial institutions so as to enhance the stability of the financial system.
Mr Speaker, the external sector environment is projected to remain favourable and the foreign exchange market is expected to remain relatively stable. This will support the attainment of the foreign reserve target. However, we are aware that external shocks, such as, high oil prices and adverse weather conditions are likely to present a challenge in attaining the inflation and reserves objectives.{mospagebreak}
KEY SECTOR POLICIES AND INTERVENTIONS
ECONOMIC SECTORS
Agriculture
Sir, agriculture remains a key sector for the nation’s economic development. The focus in 2008 will be on improved cash crop production, livestock and fisheries development. Programmes that enhance crop production, such as, the Fertiliser Support Programme and irrigation development will continue to be supported. In livestock development, key programmes will include active disease monitoring and control and restocking of livestock.
Mr Speaker, under fisheries development, the key strategy is to ensure compliance with fisheries regulations so as to reduce the depletion of fish in our main water bodies. In addition, aqua-culture development, especially by women, will be encouraged.
Hon. Members: Hear, hear!
Mining
Mr Magande: Sir, investment in the mining sector on the back of the high global commodity prices has been an important engine of economic growth for Zambia. This investment has involved not only the establishment of new mines, but has also attracted additional investment in mineral exploration with very promising results.
Mr Speaker, in 2008, the role of the Government in the mining sector will be to continue providing an enabling environment for private sector led investment. In this regard, as announced by His Excellency the President during the opening of the Second Session of the Tenth National Assembly, the Government will be introducing a new fiscal and regulatory framework for the mining sector.
Mr. Speaker, the mining sector under this framework will begin to adequately contribute to the advancement of the social and economic welfare of the people of Zambia.
Mr Kambwili: Question!
Mr Magande: At the same time, the new regime will secure an appropriate return on investment by mining companies. The additional revenues arising from the new mining tax regime will be set aside and a clear and transparent mechanism for their utilisation will be established. The proposed framework will also ensure transparency in the accounting and utilisation of mineral revenues and also protect the rights of all those investing in the mining sector.
Sir, another major policy intervention in 2008 will be to review the Petroleum (Exploration and Production) Act of 1985. Recent developments in this area have highlighted the inadequacy of this legislation in securing our national interests in the sector. The objective, therefore, is to lay the groundwork for the eventual prospecting and production of oil. Hon. Kakoma should cheer this.
Hon. Government Members: Hear, hear!
Tourism
Mr Magande: Mr. Speaker, the Government will continue to undertake infrastructure development in the sector so as to improve accessibility to tourist destinations. In addition, resources will be made available to enhance the sustainability and conservation of Zambia's wildlife and its eco-systems. In 2008, in particular, we will begin the recapitalisation of the Zambia Wildlife Authority so as to improve its operations.
Sir, investment by both domestic and foreign investors will also be enhanced by implementing the provisions of the new tourism legislation with respect to this sector. The legislation provides for the creation of a one-stop shop to license investors in the sector, and thus reduce the cumbersome licensing procedures.
Hon. Government Members: Hear, hear!
Energy
Mr Magande: Mr. Speaker, addressing the energy deficit is indeed a major challenge facing our nation. In this regard, expanding electricity generation is critical in order to support private sector growth and to counterbalance the expected power shortage in the country and the region as a whole.
Hon. Members: Hear, hear!
Mr Magande: Mr Speaker, I wish to inform the nation that works on the Kariba-North Bank Extension and the Itezhi-tezhi projects are due to commence this year.
Hon. Government Members: Hear, hear!
Mr Magande: Mr Speaker, it is estimated that the Itezhi-tezhi Project will be completed in December, 2010 while the Kariba Project will only be completed in December, 2011. In addition, the finalisation of the Rural Electrification Master Plan will help identify energy options in rural areas and provide a framework to increase accessibility to energy.
Mr. Speaker, in the petroleum sub-sector, the Government will continue with measures aimed at further stabilising the supply of petroleum products. In this regard, a mechanism to supply crude feed stock to the Indeni Oil Refinery over the next 2 years has been put in place and will be fully operational this year.
Hon. Government Members: Hear, hear!
SOCIAL SECTORS
Education
Mr Magande: Mr. Speaker, the Government's focus in the education sector will continue to be on the recruitment of teachers and infrastructure development.
Hon. Members: Hear, hear!
Mr Magande: As a retention strategy, the Government will develop a number of schemes to improve the environment for teachers in rural areas. Further, to increase enrolment of children in schools, the Government will construct more classrooms both at basic and high school levels.
Health
Mr. Speaker, it is critical to improve the provision of health services so as to raise and sustain the productivity of our people. The Government will, therefore, continue to invest in this sector in order to improve the supply, distribution and management of drugs and other medical supplies. The Government will focus on the recruitment of frontline medical personnel and infrastructure development. One of the key strategies in infrastructure development will be the expansion of the capacity of training institutions to increase their enrolment levels and output.
Hon. Members: Hear, hear!
Structural Reforms
Mr Magande: Mr. Speaker, implementation of structural reforms will be stepped up in order to support private sector led growth and strengthen public sector management. The slow pace in the implementation of structural reforms in the recent past has compromised the ability of the Government to effectively drive the development agenda. In addition, it has impeded the development of the private sector. Implementation of the Financial Sector Development Plan (FSDP), Public Service Management (PSM), Public Expenditure Management and Financial Accountability (PEMFA), and the Private Sector Development (PSD) Initiative will be quickened. Under the PEMFA programme, the Integrated Financial Management Information System (IFMIS) pilot sites will “go live” in 2008. In addition, the Treasury functions will be strengthened in order to improve cash and expenditure management by introducing more efficient payment systems. This will improve overall budget execution.
Hon. Government Members: Hear, hear!
Mr Magande: Sir, the Financial Sector Development Plan aims to address weaknesses in the financial sector. In 2008, a key milestone under this programme will be to obtain a sovereign credit rating for Zambia. This will, among other advantages, aid in deepening the financial market by enhancing access to the international capital markets by both the Government and the private sector. In addition, the Government is reviewing legislation in an effort to strengthen the financial sector.
PART IV
THE 2008 BUDGET
Mr Speaker, in 2008, the Government proposes to spend a total of KI3, 761.4 billion or 26.7 per cent of the Gross Domestic Product (GDP) estimated at K51, 559.0 billion. Of this amount, K9, 828.4 billion or 71.4 per cent will be financed by domestic revenues while K2, 278.9 billion or 16.6 per cent will be grants from our co-operating partners.
Hon. Members: Hear, hear!
Mr Magande: Sir, the balance of 12.0 per cent is the deficit of Kl, 654.0 billion or 3.2 per cent of GDP. This will be financed by domestic borrowing of K618.8 billion or 1.2 per cent of GDP and external financing of Kl, 035.3 billion or 2.0 per cent of GDP.
Mr. Speaker, I now present details of expenditure and revenue measures for the 2008 Budget.
Expenditure Measures
Mr Kambwili: Iyo namubomba.
Mr Magande: Mr. Speaker, expenditures under the General Public Services, Education and Health functions will remain high in 2008. As a percentage of the total expenditure, General Public Services will account for 32.8 per cent, Education 15.4 per cent and Health function 11.5 per cent. The allocation to the Economic Affairs function is projected at 16.7 per cent while that to Defence and Public Order and Safety is 7.1 per cent and 4.2 per cent, respectively.
Sir, the summary of the 2008 expenditure is as follows:
Expenditure by Functional Classification
2008 2007
% of % of
Allocation Total Allocation Total
(K' Billion) Budget (K' Billion) Budget
General Public Services 4,514.2 32.8 3,809.5 31.7
General Government Services 2,691.9 19.6 2,543.2 21.1
Legislation 655.0 4.8 451.8 3.8
Centralised Administrative
Services 535.6 3.9 493.9 4.1
Executive 361.6 2.6 320.6 2.7
Defence 981.3 7.1 798.2 6.6
Public Order and Safety 581.8 4.2 455.8 3.8
Police Services 437.0 3.2 342.9 2.8
Other (Law Courts, Prisons,
Immigration etc 144.8 1.1 112.8 0.9
Economic Affairs 2,300.8 16.7 2,370.6 19.7
Transport 1,181.4 8.6 919.4 7.6
Agriculture Forestry Fishing
and Hunting 800.5 5.8 1,064.8 8.8
General Economic Commercial 145.5 1.1 184.9 1.5
Other (Mining, Tourism, Fuel
& Energy 157.0 1.1 201.4 1.7
Environmental Protection 95.7 0.7 103.3 0.9
Housing and Community 830.6 6.0 802.7 6.7
Amenities
Water Supply and Sanitation 399.4 2.9 331.1 2.8
Other Housing & Community
Amenities 431.1 3.1 471.6 3.9
Health 1,586.6 11.5 1,289.5 10.7
Recreation and Culture 174.1 1.3 137.1 1.1
Education 2,118.5 15.4 1,807 .0 15.0
Social Protection 577.7 4.2 460.6 3.8
Total 13,761.4 100.0 12,034.4 100
General Public Services
Mr. Speaker, under the General Public Services function, the Government has made a provision of K4,514.2 billion. Of this amount, General Government Services will account for 59.6 per cent, Legislation 14.5 per cent, Centralised Administrative Services 11.8 per cent and Executive functions 8.0 per cent.
Sir, one of the key programmes under this function is debt management. As such, the Government has provided K720 billion to meet both domestic and external debt payments. A provision of K350.5 billion has also been made for payment of arrears. This is in line with the Government's policy to dismantle a substantial amount of arrears owed to suppliers of goods and services so as to free resources for developmental programmes.
Hon. Government Members: Hear, hear!
Mr Magande: Further, an allocation of KI00 billion has been provided for Awards and Compensation which arise from court judgements and litigations against the Government. Other key provisions include K309.4 billion for facilitating the constitutional review process, KI03 billion for grants to Local Authorities and K60 billion for Constituency Development Fund.
Hon. Member: Hear, hear!
Mr Magande: A further K90.7 billion has been provided for contingency reserve meant to cater for unforeseen and unavoidable expenditures. The current destruction by the unusual heavy rains will be adequately dealt with under this provision. The balance will go towards regular Government operations.
Public Order and Safety
Mr. Speaker, the Government proposes to spend K581.8 billion or 4.2 per cent of the total budget on the Public Order and Safety function. Of this amount, K437 billion will be for police services. Other sub-functions, such as, law courts, prisons, immigration, passports and national registration function will account for K144.8 billion.
Sir, an amount of K60 billion has been provided for construction of houses for the Police Force and K24 billion for prison infrastructure development and rehabilitation. Further, in order to enhance policing, the Government has provided K15 billion for the recruitment of 1,500 police officers.
Hon. Members: Hear, hear!
Economic Affairs
Mr Magande: Mr. Speaker, expenditure on Economic Affairs is projected to be K2,300.8 billion. Of this amount, the transport sub-function will account for 51.4 per cent, agriculture, forestry and hunting 34.8 per cent, general economic, commercial and labour affairs 6.3 per cent while the balance will be accounted for by fuel and energy, tourism and mining sub-sectors.
Sir, under transport, the Government has provided Kl, 181.4 billion. Of this amount, Kl,110.7 billion is for road construction, rehabilitation and maintenance.
Hon. Members: Hear! Hear!
Mr Magande: We have also budgeted K40billion for the up-grading of Solwezi and Kasama airports …
Hon. Members: Hear, hear!
Mr Magande: … and KI0 billion will go to what has not been done for a long time and this is the Chipata/Muchinji Railway Line.
Hon. Members: Hear, hear!
Mr Magande: Sir, under the agriculture, forestry, fishing and hunting sub- function, K185 billion has been provided for the Fertiliser Support Programme to small-scale farmers to mitigate the high cost of farming inputs. An amount of K10 billion has been set aside for the Food Security Pack to assist the vulnerable, but viable rural farmers and K80 billion has been provided for purchase of agricultural products by the Food Reserve Agency from outlying areas. Further, the Government has provided K24.4 billion and K38 billion for fisheries development and control of livestock diseases, respectively.
Mr. Speaker, out of the K145 billion allocated under the general economic affairs function, K50 billion has been set aside for the Citizens Economic Empowerment Fund.
Hon. Members: Hear, hear!
Mr Magande: This is to facilitate entrepreneurship development in our country. This is in addition to last year's provision, which is still available with the Fund.
Other programmes under the economic affairs function include K23.0 billion for the recapitalisation of the Zambia Wildlife Authority, K21.5 billion for Rural Electrification Fund and K6.8 billion to facilitate the development of the Lusaka South Multi-Facility Economic Zone.
Hon. Government Members: Hear, hear!
Education
Mr Magande: Mr. Speaker, under the education function, the Government has provided K2,118.5 billion or 15.4 per cent of the budget. Some of the key activities to be undertaken are the recruitment of teachers, procurement of educational materials and construction of classrooms and teachers' houses.
Hon. Members: Hear, hear!
Mr Magande: It is estimated that the Government will recruit 5,000 teachers in 2008.
Hon. Government Members: Hear, hear!
Mr Magande: Sir, in addition K350 billion has been set aside for infrastructure development. Among the major projects will be the construction of thirty-one high schools, and extra 1,500 classrooms in line with the Government's policy of enrolling all 7-year old children in Grade 1.
Hon. Members: Hear, hear!
Mr Magande: Sir, the Government will also provide resources to upgrade infrastructure and support operations at the newly established Mulungushi University. Additional resources will be provided to upgrade Nkrumah and Copperbelt Secondary School Teacher Training colleges so that they are able to offer degree programmes.
Hon. Members: Hear, hear!
Health
Mr Magande: Mr. Speaker, the total expenditure in health will amount to K1,586.6 billion or 11.5 per cent of the total budget. This allocation is essential to improve the provision of quality health care. The Government has allocated 117.5 billion for infrastructure development. Key programmes will be expansion, construction and rehabilitation of district hospitals and health centres as well as housing for the rural medical personnel. In addition, K113.5 billion has been allocated for the procurement of essential drugs. Further, K24.7 billion has been provided for the recruitment of 1,700 health workers.
Housing and Community Amenities
Mr. Speaker, the Government, has to spend K830.6 billion on the housing and community amenities function. A key element of this function is the improvement of water supply and sanitation. In this respect, the Government has allocated K399.8 billion to improve access to safe drinking water, particularly, in rural and peri-urban areas.
Hon. Government Members: Hear, hear!
Mr Magande: Other programmes, such as, resettlement, community development, street lighting and the administration of these programmes have been allocated K431 billion.
Social Protection
Mr Speaker, the Government proposes to settle all pension arrears in 2008.
Hon. Members: Hear, hear!
Mr Magande: I emphasise that the Government proposes to settle all pension arrears this year.
Hon. Members: Hear, hear!
Mr Magande: This will be achieved by increasing the allocation to social protection to K577.7 billion. Of this amount, K435.9 billion will be for the complete payment of pension arrears and meeting the current obligations to the Public Service Pension Fund.
Hon. Members: Hear, hear!
Mr Magande: The balance of K141.8 billion will go towards other social protection programmes such as the care for the aged, orphaned and vulnerable children.
Hon. Members: Hear, hear{mospagebreak}
Revenue Estimates and Measures Revenue Estimates
Mr Magande: Mr. Speaker, over the past years, the MMD Government has made significant progress in modernising the tax policy and administration. The Government remains committed to establishing a broad-based tax structure that is predictable, simpler, fairer and efficient. This will help deliver lower taxation levels while at the same time securing more resources to finance development programmes.
Sir, in 2008, domestic revenues are projected at K9,828.5 billion or 71.4 per cent of the budget. Tax revenues estimated at K9,133.6 billion represent 66.4 per cent of the total budget, while non-tax revenues at K694.9 billion represent 5 per cent.
Mr Speaker, I now wish to give the summary of the estimated revenue, grants and financing of this year.
Estimates of Revenues for 2008
(K' billion)
Total Tax Revenues 9 133.6
Income Tax 4,153.4
Company1ncome Tax 1,352.0
PAYE 2,352.3
Withholding & other 377.1
Mineral Royalty 72.0
Value Added Tax 2,641.0
Domestic VAT 358.0
Import VAT 2,283.0
Customs and Excise 2,339.2
Customs duly 945.2
Excise duly 1,394.0
o/w Fuel Levy 245.3
Non-Tax Revenues 694.9
Fees & Fines 567.7
Exceptional 105.2
Medical Levy 9.0
Dividends 12.9
Domestic Borrowing 618.7
Total Domestic Revenue
and Financing 10,447.2
Total Foreign Grants and
Loans 3,314.2
Grants 2,278.9
General Budget Support 733.3
Project Grants 1,545.6
Foreign Financing 1,035.3
Programme Loans 203.3
Project Loans 832.0
Total Revenue and Financing 13,761.4
REVENUE MEASURES
Direct Taxes
Mr V. Mwale: Pamene apo, ticenjele napo.
Mr Magande: Mr. Speaker, there has been an understandable concern that the tax burden in Zambia is high. As a responsible Government, we are mindful of the burden of taxation on our workers, especially those in the lower income groups. In order to reduce the tax burden, I propose to revise the Pay As You Earn by increasing the non-taxable monthly threshold income from K500,000 to K600, 000.
Hon. Members: Hear, hear!
Mr Magande: The following is the proposed Pay As You Earn regime:
Income bands
Sir, anybody getting between 0 and K600,000 per month will pay no tax. Anybody earning below K600,000 per month will not pay any Pay As You Earn.
Hon. Members: Hear, hear! K1 million!
Mr Magande: Mr Speaker, that takes care of all the workers that Hon. Kambwili has.
Laughter
Mr Magande: Mr Speaker, let me read out as follows:
Current System
Rate
Income Bands (per cent)
0 - K500,000 per month 0
K500,001 – K1,200,000 per month per month 25
K I, 200,001 per month – K5,200,000 per month 30
Above K5,200,000 per month 35
Proposed System
Rate
Income Bands (per cent)
0 – K600,000 per month 0
K600,001 – K1,235,000 per month 25
K1,235,001 – K4,000,000 per month 30
Above K4,000,000 per month 35
Sir, this measure will give tax relief to workers in formal employment earning below K4,535,000 per month. The measure will result in a revenue loss of K64.8 billion, which will go in the pockets of the workers.
Mr Speaker, currently, the interest paid on mortgage for residential property, is not tax deductible. The Government fully recognises the aspiration of most families to construct or purchase their own houses. I, therefore, propose to allow mortgage interest to be deductible for tax purposes to any Zambian individual who obtains a mortgage for residential property. It is envisaged that this concession will encourage home ownership.
Hon. Members: Hear, hear!
Mr Magande: Mr Speaker, I also propose to increase the low cost housing unit capital expenditure limit for tax purposes from K2 million and KI0 million to K20 million for residential property. This is meant to encourage employers to build decent housing units for their employees, particularly, in the agricultural sector. This measure will have a minimal revenue loss.
Mr Speaker, in an effort to encourage savings and streamline the collection of withholding tax on interest earned on savings and deposit accounts, I propose to reduce the withholding tax rate applicable from 25 to 15 per cent. I also propose to abolish the exempt portion of the interest, which is not subject to withholding tax. This measure has minimal revenue impact. I hope hon. Members on your left will learn to save money now.
Interruptions
Mr Magande: Mr, Speaker, last year, this august House approved the proposal to increase the tax credit applicable to persons who are differently-abled from K36,000 per annum to K144,000 per annum. The Government is clearly aware that this is no more attainable. I, therefore, propose an additional increase so that the minimum threshold will now be K600, 000 per annum.
Hon. Members: Hear, hear! You are now talking.
Mr Kambwili: Good job!
Mr Magande: Sir, I further propose to increase the allowable deduction for any employer who employs a differently-abled person from K500,000 per annum to K1 million per annum for each such person employed. There will be minimal revenue loss as a result of this measure. Mr. Speaker, all the above measures will take effect on 1st April, 2008.
Customs and Excise
Mr. Speaker, in order to support the manufacturing sector which has been making proposals, I propose to reduce customs duty on the following: (a) dyestuffs under HS code 3204 and glycerin under HS code 1502 from 5 per cent to free and (b) mechanical horses for semi-trailers from 15 to 5 per cent.
Hon. Members: Hear, hear!
Mr Magande: Mr. Speaker, in 2006, the Government reduced customs duty on pancakes in order to promote the music industry. This year, I propose to give further concessions to the industry by reducing duty on other musical instruments and art equipment falling under tariff heading 32, 92 and 96 from 15 per cent to zero and those under heading 85 from 15 to 5 per cent.
Interruptions
Mr Magande: Mr Speaker, the two measures above will result in an estimated revenue loss of K2.2 billion.
Sir, in order to encourage local value addition, I propose an export levy of 15 per cent on the export of copper concentrates and cotton seed. This is clearly in recognition of the availability of local capacity to process these products in Zambia. This measure will result in an estimated revenue gain of K148.7 billion, although we would like that the products be processed locally so that we earn much more than this. All the above measures will become effective from …
Hon. Members: Midnight tonight.
Mr Magande: … midnight tonight.
Laughter
Value Added Tax (VAT)
Mr Magande: Sir, currently books are exempt from VAT. This means that local manufacturers of books cannot claim input VAT and this makes local manufacturers less competitive. I, therefore, propose to zero rate books for VAT purposes to make the local manufacture of books less costly. The measure will result in a revenue loss of Kl.7 billion.
Hon. Members: It is okay.
Mr Magande: Mr Speaker, infant formula is a major nutritional supplement for babies. Given that infant formula attracts VAT, it makes the product unaffordable to many families who still want to have children. I, therefore, propose to exempt infant formula for VAT purposes. The measure will result in revenue loss of K2.1 billion.
Hon. Members: Hear, hear!
Mr Magande: Mr Speaker, Zambia is becoming a premier international tourist destination …
Interruptions
Mr Speaker: Order!
Mr Magande: Mr Speaker, I thank you for your protection. Zambia is becoming a premier international tourist destination offering a wide range of spectacular tourist activities. In order to attract more tourists, both local and foreign, I propose to extend the list of zero rated supplies to include new activities such as elephant back safaris, steam train excursions and walking with lions. The revenue loss is minimal.
Interruptions
Mr V. Mwale: Muzapaisa bantu.
Mr Magande: Sir, all the above measures will take effect from midnight tonight.
Mr Speaker, the issue of the 17.5 per cent standard rate of the Value Added Tax is a matter on which I have constantly received numerous representations for many years now. I have in the past promised that I will respond when the economic conditions were appropriate. As part of the Government's 2008 theme, which is "Unlocking Resources for Economic Empowerment and Wealth Creation", I propose to reduce the Value Added Tax standard rate from 17.5 to 16 per cent.
Hon. Members: Hear, hear!
Mr Magande: Mr Speaker, this is a wealth creating measure that will give the consumers K21.6 billion, which the Government will forego in revenues. The measure will take effect on 1st April, 2008.
Hon. Member: Hear, hear!
Non-Tax Revenues
Mr Magande: Mr Speaker, I propose to lift the waiver on visa fees under tour packages. This will level the playing field for all tourists visiting our country. In addition, I propose to increase the visa fees by 100 per cent. The Government will raise an estimated amount of K35.4 billion from this measure and this measure will take effect from midnight tonight.
Mr Speaker, I propose to revise the fees payable under the Passport and Citizenship Act. For the fees on passports, the current rates will continue to apply until the introduction of the new passports with extra features. This measure will result in a revenue gain of KI61.9 billion.
Mr Speaker, I also propose to revise the road user fees payable under the Road Traffic Act. This will bring the fees to appropriate cost recovery levels for providing these services. The measure will result in a revenue gain of K76.3 billion and will come into effect on 1st March, 2008. {mospagebreak}
Housekeeping Measures
Mr Speaker, I propose to amend the Customs and Excise Act, the Value Added Tax Act and the Income Tax Act so as to update, strengthen and remove ambiguities in certain sections of tax legislation in order to make tax administration more effective. The measures, at the moment, are revenue neutral.
Changes to the Mining Fiscal and Regulatory Regime
Hon. Members: Hear, hear!
Mr Magande: Mr Speaker, in my 2007 Budget Address to this august House, I proposed new tax measures for the mining sector. I also informed the nation that the Government would engage mining companies, with whom we had signed development agreements, as part of the process of introducing the new tax regime for the mining sector. Given the complexity of the mining sector, a team of experts was appointed to study this matter in great detail. The findings of the study show that:
(a) the development agreements in their current form are lopsided; and
(b) even if the mining companies were to move to the 2007 tax regime, the country would still not get a fair share from its mineral resources.
Hon. Members: Hear, hear!
Mr Magande: Sir, the Government has, therefore, decided to introduce a new fiscal and regulatory regime in order to bring about an equitable distribution of the mineral wealth between the Government and the mining companies.
Mr Speaker, effective 1st April 2008, …
Hon. Members: Aah! Now!
Mr Magande: … the new fiscal regime for the mining sector will include the following:
(a) the corporate tax rate will be 30 per cent;
(b) mineral royalty rate on base metals will be 3 per cent of gross value;
(c) withholding tax on interest, royalties, management fees and payments to affiliates or sub-contractors in the mining sector will be at the rate of 15 per cent;
(d) withholding tax on dividend will be at zero per cent;
(e) a variable profit tax of up to 15 per cent on taxable income, which is above 8 per cent of the gross income, will be introduced;
(f) a windfall tax will be introduced to be triggered at different price levels for different base metals. For copper, the windfall tax shall be 25 per cent at the copper price of US$2.50 per pound, but below US $3.00 per pound, 50 per cent at price for the next 50 cents increase in price and 75 per cent for price above US$3.50 per pound;
(g) hedging as a risk management mechanism shall be treated as a separate activity from mining;
(h) capital allowance, that is a depreciation of capital equipment, shall be reduced from 100 per cent to 25 per cent per year;
(i) a reference price, which shall be the deemed arms length price, shall be introduced for the purposes of assessing mineral royalties and any transaction for the sale of base metals, gemstones or precious metals between related or associated parties. The reference price shall be the price tenable at the London Metal Exchange, Metal Bulletin or any other commodity exchange market recognised by the Commissioner-General; and
(j) capital expenditures on new projects shall be ring fenced and only become deductible when the projects start production.
Mr Speaker, the new mining regulatory framework will be provided for in the Mines and Minerals Act. The framework will also have a modern licensing system based on transparent procedures. These measures are competitive, reasonable and should be regarded as balanced. The expected additional revenues in 2008 as a result of these new measures are estimated at US$415 million.
PART V
Conclusion
Mr Speaker, over the past few years, the MMD New Deal Government has delivered macro-economic stability and growth. We have removed Zambia's debt burden and for the first time we articulated a clear long-term economic vision with concrete plans on how this is to be achieved.
Hon. Members: Hear, hear!
Mr Magande: Further, in the detailed new measures on the mining sector, the Government has laid a firm foundation for the people of Zambia to fully benefit from the exploitation of their natural resources.
Hon. Government Members: Hear, hear!
Mr Magande: Mr. Speaker, by increasing investments in education, health and skills in 2008, we choose to enhance the capabilities and capacities of our people. By increasing and encouraging investments in infrastructure, such as, roads and communications, we choose to facilitate connectivity and the movement of goods and our people.
Mr Speaker, by developing information exchange forum under culture remodelling, we take the vital step to freely share the rich backgrounds, values and experiences of many of our role models in our nation and the immense and available opportunities. This is with a strong belief that the knowledge will assist individuals to re-orient their attitudes, refocus their actions towards results and establish meaningful relationships to create wealth and build strong communities.
Sir, in this year's budget, the Government has given fundamental tax concessions which will result in taxpayers retaining some K100 billion in their pockets.
Hon. Members: Hear, hear!
Mr Magande: In addition, the Citizens' Empowerment Fund will have over K120 billion. Furthermore, retired public workers will receive a total of K269 billion in terminal benefits.
Hon. Government Members: Hear, hear!
Mr Magande: To complement the above, banks and other financial institutions will provide further opportunities for our people to access funds.
Mr Speaker, by reducing the tax burden of individuals, clearing the domestic payments arrears, capitalising the Empowerment Fund and reducing the Government's borrowing from the banking sector, we choose to financially empower our people with funds to engage in productive pursuits.
Hon. Government Members: Hear, hear!
Mr Magande: Mr. Speaker, by these deliberate and calculated measures, the New Deal Government has chosen to create an environment that supports individual initiatives and ingenuity.
Hon. Members: Hear, hear!
Mr Magande: For the first time in a generation, we stand today with our destiny truly in our own hands. Before each one of us, including Hon. Kasongo, is the opportunity to choose and follow the path to future prosperity.
Hon. Members: Hear, hear!
Mr Magande: Each Zambian has the choice to realise their fullest potential by applying their God given talents and capabilities.
Hon. Members: Hear, hear!
Mr Magande: Mr Speaker, by listening and learning from the views, experiences and achievements of others, whether this be in the important area of constitutional reform, economic excellence or indeed how best to marshal our mineral wealth, we will together choose to build a strong and prosperous One Zambia One Nation.
Mr Magande: Mr. Speaker, I beg to move.
Hon. Members: Hear, hear!
Visitors in the galleries applauded.
Mr Speaker: Order! We do not applaud. We say, ‘Hear, hear’.
Laughter
Mr Mwanza (Solwezi West): Mr Speaker, I thank you for giving me the privilege to move a vote of thanks and Adjournment Motion on the Budget Speech delivered by the hon. Minister of Finance and National Planning …
Hon. Opposition Member: Ah! Aletutuma?
Interruptions
Hon. Government Members: Hammer mwana!
Interruptions
Mr Speaker: Order!
Mr Mwanza: … today, Friday 25th January, 2008.
Hon. Members: Hear, hear!
Mr Mwanza: Mr Speaker, allow me to congratulate the hon. Minister of Finance and National Planning for his excellent and elaborate speech on the 2008 Budget.
Hon. Members: Hear, hear!
Mr Mwanza: Mr Speaker, the Budget Speech is testimony that the MMD Government under the able leadership of His Excellency the President, Dr Levy Patrick Mwanawasa, SC is a caring and listening Government.
Hon. Government Members: Hear, hear!
Mr Mwanza: I am confident …
Interruptions
Mr Speaker: Order! I regret to interrupt the hon. Member of Solwezi West. This House must listen to the debate.
May the hon. Member for Solwezi West continue, please.
Mr Mwanza: Mr Speaker, I am confident that what has been outlined in the Budget Speech will be implemented to fulfill the aspirations of a better life for all our people.
Hon. Members: Hear, hear!
Mr Mwanza: Mr Speaker, in his speech, the hon. Minister of Finance and National Planning touched on many cardinal issues which need to be studied carefully by all the hon. Members of the august House so that we can together make meaningful contributions to the debate on the Motion of Supply.
Hon. Members: Hear, hear!
Mr Mwanza: I, therefore, beg to propose that the debate on the Motion be adjourned until Tuesday, 29th January, 2008.
Mr Speaker, I thank you.
Hon. Members: Hear, hear!
Mrs Mwamba (Lukashya): Mr Speaker, I beg to second the proposal by the hon. Member for Solwezi West that the debate on the Motion moved by the hon. Minister of Finance and National Planning be adjourned until Tuesday, 29th January, 2008.
Mr Speaker, I thank you for according me the opportunity to second the proposal. Indeed, hon. Members will agree with me that the issues presented in the budget by the hon. Minister of Finance and National Planning impact on the life of each and every Zambian, ...
Hon. Members: Hear, hear!
Hon. Member: Quality!
Mrs Mwamba: … hence the Budget Speech should be scrutinised on non-partisan lines.
Hon. Members: Hear, hear!
Mrs Mwamba: Mr Speaker, I would like to urge my fellow parliamentarians to come well prepared on Tuesday next week so that we can engage in constructive and meaningful debate on the issues that have been raised in the 2008 Budget Speech.
Mr Speaker, I agree that time is required to carefully analyse and study the eloquently presented Budget Speech in readiness for next Tuesday.
Hon. Members: Hear, hear!
Mrs Mwamba: I, therefore, stand to support the proposal to adjourn debate on the Motion to next week Tuesday, 29th January, 2008.
I thank you, Sir.
Hon. Members: Hear, hear!
Question put and agreed to.
ADJOURNMENT
The Vice-President (Mr R. Banda): Mr Speaker, I beg to move that the House do now adjourn.
Question put and agreed to.
__________
The House adjourned at 1619 hours until 1430 hours on Tuesday, 29th January, 2008.