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Sunday, 10 October 2010

The pretence can now end....

Hon Musokotwane getting carried away in the 2011 Budget :
"Mr. Speaker, 2010 has been an excellent year for copper exporting countries. The average price of copper on the international market has reached a record high of US $7,202 per metric tonne between January and September this year. Never before have prices consistently remained at such a high level. The outlook for copper prices continues to be bright for the remainder of the year, as well as for 2011"
The price trend of course is now  above $8200 per metric tonne. Minister Musokotwane's figures are therefore a little more cautious, if not shortly out of date. What is not out of date is the statement that "never before have prices consistently remained at such a high level".  It is the price consistency argument  and the fact that market analysts are all predicting that copper will breach $10,000 that makes Hon Musokwane's inexperienced decision now look like an act of day light robbery by the government against ordinary Zambians.


We have been arguing for windfall taxation before Levy Mwanawasa introduced it (only for RB to abandon it), our friends at the Economic Association of Zambia appear to have only just woken up to it :
Commenting on the 2011 national budget presented to Parliament by finance minister Dr Situmbeko Musokotwane on Friday under the theme ‘A people’s budget, from a people’s government”, Nkoma said government had made no mention on whether they would re-introduce the windfall, an omission which was very costly to the country.

“Government should have just mentioned even the intention to resolve the windfall tax issue but they have remained silent over this very important issue,” he said. “It’s not too late to make amends on the windfall tax now that prices are high again.”
Now that the "intellectual cover" has been blown with the government captured EAZ siding with economic logic for once, there's no reason to keep holding the party line. Let us all shake hands and introduce that important taxation for our people. Hon Musokotwane is no foolish economist. He knows logic favours the position we have argued for a while, what he has lacked is the backbone to challenge mining companies. A famous consultant told me that he feels such shame at how EAZ conducts itself on important economic questions. They have no backbone and therefore incapable of giving intellectual support to Musokotwane. Well, it appears they are developing some. So the pretence by Musokotwane is not necessary now.

Update : 
Thanks to YM who noted the "average" -  main text has now been altered accordingly. 

11 comments:

  1. Actually,

    You're wrong. The AVERAGE price of copper reached a record high, and between January and September. He wasn't discussing individual prices.

    Thanks,

    YM
    LSK

    ReplyDelete
  2. Ati "You're wrong"

    lol!

    On a serious note. You are absolutely right. I will make the correction. Though its peripheral to the central argument.

    Thanks!

    ReplyDelete
  3. Does any other country in the world have a windfall tax on Copper?

    Nope.

    By advocating a windfall tax, you're openly willing to say, "Hey, Zambia doesn't have the capacity to audit the mines, and never will. So instead of the variable profit tax, let's just have a blind windfall tax that doesn't need any auditing, and is brazenly unfair on a number of mines in the country."

    Sorry, but I would rather go with putting some faith into building audit capacity within the Revenue Authority to ensure that VPT collections would be equal to windfall (minus cost) collections.

    Any public economics textbook will tell you within the first chapter why windfall taxes are one of the poorest applications of tax policy. They violate many/most principles of taxation.


    Just my thoughts. Better to focus on being constructive for a better Zambia.

    I also disagree about Musokotwane's backbone. That he was brave enough to repeal it, and that he is willing to defend it using sound economic first principles amidst rampant criticism from "economists" shows that he is above politicking, and that he does indeed have a backbone. If he wanted to win votes, he could have reintroduced the windfall. But he didn't.




    YM
    LSK

    ReplyDelete
  4. Cho,

    In accordance with your title, "The Pretence Can Now End", there is also the admission that these free trade policies will not significantly reduce poverty for decades. And that should be no surpise, they are not intended to. Neoliberal economic policies are intended to concentrate wealth at the top of society (in Zambia's post-colonial case, foreign investers and the ruling party elite, in that order).

    You cannot get an egalitarian an economically just society following the precepts of Ayn Rand and Milton Friedman.

    From Lusaka Times: Zambia: We can afford to borrow – Finance minister

    And Dr Musokotwane said it might take over 30 years for Zambia, which is this month celebrating 46 years of Independence, to accomplish meaningful poverty reduction. He said it had taken European countries over 300 years to attain a sound economic status.

    The minister arrogantly assumes that the people will stand idly by for the next three decades, while they wallow in poverty. What makes him think they have 30 years. Being in power for 20 years has made them insufferably arrogant, to the point where they just don't pretend to hide anymore.

    They have no solutions for poverty reduction, for economic growth that includes the Zambian people. Nor do they have any plans for when the price of copper falls again, or when the country could run out of minerals.

    There is no sense of urgency in the MMD.

    YM,

    Does any other country in the world have a windfall tax on Copper? Nope.

    They most definitely have windfall taxes on other commodities (I don't know why copper would be different from other commodities).

    See here.

    By advocating a windfall tax, you're openly willing to say, "Hey, Zambia doesn't have the capacity to audit the mines, and never will. So instead of the variable profit tax, let's just have a blind windfall tax that doesn't need any auditing, and is brazenly unfair on a number of mines in the country."

    Zambia or the US do not have the capacity to audit transnational corporations, or keep them from writing their laws by hiring representatives and lobbyists.

    So that model has sailed. The answer is a much cruder tax on revenues, which is easy to collect. The transnational corporations only have themselves and their greed to thank for that.

    ReplyDelete
  5. Cho,

    Hon Musokotwane is no foolish economist. He knows logic favours the position we have argued for a while, what he has lacked is the backbone to challenge mining companies. A famous consultant told me that he feels such shame at how EAZ conducts itself on important economic questions. They have no backbone and therefore incapable of giving intellectual support to Musokotwane. Well, it appears they are developing some.

    What troubles me is that minister Musokotwane has displayed the same 'don't touch the mines' attitude when he was a non-executive director for ZCCM-IH. A company that owns between 20 and 30% of various mines in Zambia, and yet received no dividends. A few months ago, they received a dividend of $18 mn, and were busy arguing about how quickly they could give it back by buying more stock.

    The reason the logical minister does not see the logic of taxing the mines, is most sinister, than simply not having the EAZ on his side.

    Think of the rather flippant admission that there will be no significant reduction in poverty in Zambia if their neoliberal economic model is successful.

    That is what we are talking about. Elite economics, elite protection, elite politics. The creation of a two-tear economy and society, where foreign corporations and MMD politicians have all the advantages, and ordinary people wallow in poverty. It is a form of collaboration in keeping Afrians poor. The old colonial elite has been replaced by a new political (MMD) elite, but they are still serving the same corporations that existed during colonialism. LonRho, Anglo-American, SocGen, and a few Chinese and Indian elite corporations thrown in.

    It is neocolonialism.

    ReplyDelete
  6. To make sure everyone understands that this minister will prevent any Zambians from benefiting from their mineral resources, the minister swore the MMD will not re-introduce the Windfall Tax, calling it 'unreasonable'. See: (LUSAKATIMES) State will never re-introduce the windfall tax. His loyalty is firmly with the mining companies, confirming that there privatisation has led to complete corporate capture of the government by the mining companies in Zambia. The government DOES NOT REPRESENT THE ZAMBIAN PEOPLE, ergo, there is no democracy in Zambia.

    (Lusakatimes) State will never re-introduce the windfall tax
    Tuesday, October 12, 2010, 7:48

    ReplyDelete
  7. MrK,

    I agree that Zambia is a colonial territory both intellectually and practically.

    Intellectually because no new policies happens without foreign influence, whether it's young graduates from ODI placed in our key ministries or missionaries from
    China.

    Practically because we have, as Sanou puts it, "a slave ethos". We do not recognise that development involves transforming the production side of the economy. We cannot do that with a poor fiscal regime. Revenue is vital. 

    ReplyDelete
  8. Cho,

    I agree that Zambia is a colonial territory both intellectually and practically.

    I would expand that. Look at the USA. 70% or more of the people want single payer healthcare. It is an extremely popular proposal. But the commercial health insurance corporations say no, because it would mean they are out of business. Result: the politicians say no to their own constituents, because the health insurance corporations are paying for their campaign donations.

    The exact same thing is going on with the Zambian mines, making this a global phenomenon, which is very closely related to the concept of globalisation and the Washington Consensus. This model gives massive powers to transnational corporations, which is a direct attack on democracy itself.

    As Benito Mussolini said, when the state takes over the corporations, you have communism. When the corporations take over the state, you have fascism. I would go even further, because I think there is no real difference between fascism and colonialism. In many ways, fascism came out of colonialism.

    Practically because we have, as Sanou puts it, "a slave ethos". We do not recognise that development involves transforming the production side of the economy. We cannot do that with a poor fiscal regime. Revenue is vital.

    I think colonialism crossed a lot of wires when it comes to authority, and 'tribe' and the state, and traditional vs administrative authority.

    However, what we are seeing is a slow descent into a world run by transnational corporations - they determine the terms of trade, they decide the level of democracy that is allowed, they determine who you can vote for and what their platform is, and when they determine that it is more profitable for people to be continually poor (low wages plus high unemployment levels result in no wage pressure). They determine that there will be no switch from road transport to rail transport, because they don't have to pay for the upkeep of the roads. And of course, paying taxes would be horrifying.

    This is a global phenomenon. Look at the ascent of 'New Labour' in the UK. Or the capture of the ANC in South Africa (Naomi Klein has an entire chapter on how that happened in The Shock Doctrine).

    And now of course the PF has come out and stated that they are against the Windfall Tax too. So what choice does the Zambian electorate have?

    ReplyDelete
  9. Mr K

    I'm agree with you !

    "The government DOES NOT REPRESENT THE ZAMBIAN PEOPLE, ergo, there is no democracy in Zambia."

    The government represent only the members of this government...and the shareholders of the foreign mining groups !

    ReplyDelete
  10. Enkorbingo,

    And it doesn't seem to matter which party is in office. MMD or PF-UPND, they will defend the mining houses.

    The choice should not be MMD or PF-UPND, or Banda or Sata or Hichilema. The choice should be - are you for non-taxation of the mines or against it?

    Perhaps it should be put to a referendum, so the people can by-pass the bought and paid for politicians. But then who would enforce an outcome that would favour taxing the mines? What guarantee do we have that whatever party comes to office would not simply side with the mines?

    So I would suggest a taxpayers revolt. Why would anyone in the country pay one cent in taxes, when the mines are not paying anything at all? And of official $50 million they pay is probably dwarfed by the 'contributions' they make to the MMD and possibly the PF or UPND.

    ReplyDelete
  11. I am also doubtful about MMD or PF-UPND, because I think that the corruption is present at all level of the country ...
    I do not understand why the opposition does not speak of this scandal in the press
    why the opposition does not mention the $ 800 million that the mines have to give to zccm?
    with some million kwacha foreign groups save billions of $ ...
    corruption is not for people of zambia, but against these people !
    The people of Zambia don't know this mess
    The country, the people are robbed because some people have personal interests

    ReplyDelete

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