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Monday, October 2, 2023

The Budget: reconciling economic buzzwords with fiscal allocations

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By Lamino Lang Comma

It is often said that one cannot change history. Well, philosophically, if history repeats itself, then it can perhaps be changed. The country is undergoing trying times under very similar aspects of governance and institutional arrangements of the past. One thing has changed though – there is so much interest in the national budget. The debate has been both extensive and somewhat intense – generally, an encouraging performance of National Assembly.

A national budget simply lays out the intentions of government of what it wants to do with the money obtained from taxes, loans and those obtained as a gift to the nation. It is the national purse like a ‘kalpeh’ controlled by the head of the household.

At the national scale, the head (government) decides on how much will be spent on travel aboard to visit friends (conferences) and seeking handouts, organize dinners (workshops), pay the various members of the household (salaries and allowances), spend on building a new house or even fixing the pavements (roads) in the yard. These spending activities and the mode of acquiring the income to support them naturally affect the economic welfare of the household.

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Historically, national budgets have evolved to what they look like today. They used to be a resource mobilization venture by kings and rulers to finance their own ventures, such as their household lifestyle. Then came an important milestone in the development of budgets when citizens demanded the right to be consulted – commonly known as “no taxation without representation”. That later gave birth to the functions of Parliaments or National Assemblies in a democracy.

Parliamentary control over the budget has always been important in democracies. Government can only spend money if Parliament authorises. Parliamentary functions over the budget also evolved with time from being a mere approval of expenditure to the function of controlling the sources of revenue such as loans and taxation to aligning the budget with the realities of the economy. Parliament exerts this seasonal function when the budget is placed before it annually.

Budgets are important to the development of the national economy because both the levels and manner of spending and borrowing have direct implications on the demand and supply of money circulating in the entire economy. In other words, inflation and economic growth are factors to be considered in preparing budgets because they are directly affected by a budget.

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In this regard, budgets have now been used as a tool to achieve certain economic policy objectives. Governments have become aware that spending more than the revenue collected implies a high level of taxes and increased borrowing and begging.

Government spending puts more pressure on the demand for goods and services. In simple economics, the higher the demand and the lower the supply of goods, the higher the price of goods and services which may lead to a shortage of such goods and service.

The budget is thus a tool to stabilize the economy by inducing production and employment and by controlling inflationary pressures through its fiscal or spending and taxation policy.

In other words, how a government spends, and how and how much it gets as revenue matter a lot to the performance of the economy. In this regard, the interest of the people, being represented in Parliament, must be taken into account by holding the government accountable to its fiscal policy that is implied in the budget. That is the role of Parliamentarians – to act responsibly to protect the interest of those that voted them in.

In more developed democracies, bipartisan politics is an important element of budget scrutiny in Parliament. It must go beyond the game of crosses and circles where one party presents an argument only to be “naturally” rebuffed by the other, no matter how spurious and unintelligent the counter argument may be.

Coming closer to the current debate on the national budget 2023, it may be observed that it has been introduced with certain specific goals in mind – to continue the “recovery program” and to build on an “inclusive and resilient economy”. How are these addressed in the budget as per the speech of the Minister of Finance – i.e. the Statement by the Minister of Finance on the laying of the Estimates for 2023 before the National Assembly.

According to the speech, it is intended that this budget will achieve these objectives through the strengthening of domestic resource mobilization, support to key sectors of the economy such as agriculture, education, health and infrastructure and a sustained growth in the construction services and tourism.

However, it is also indicated that the performance of the economy in 2022 was not that rosy. Revenue declined from basically all the traditional sources. Grants were down 70% and tax collection over a nine month period was as low as 48%. Some development partners out rightly failed (perhaps refused) to provide anything at all for the year.

As admitted by the Minister, there was a lower than anticipated outturn of tax revenue due to a drop in international trade taxes for imports which required tighter budgetary controls (emphasis). The Minister further iterated that debt interest will overshoot the revised budget by the end of 2022 due to the appreciation of the dollar and that the balance of payments will continue to deteriorate as a result of an increase in imports of energy, food items and vehicles.

The solution or approach proffered and promised is to build a resilient economy, provide an agile and responsive planning model to exogenous shocks, stimulate economic recovery and provide practical tangible support to all sectors of the economy. Quite eloquent, isn’t it?

Generally, this is more or less a generalized expression of confidence in the assumptions for a good result for year 2023 in terms of tax revenue outturn, anticipated grants and a general performance of the economy but without providing any tangible evidence that things would be different from this year.

However (and however again), he mentioned a caveat that the budget is based on certain assumptions which he never outlined in detail. These assumptions could be assumed to be aligned with the aspirations of a good performance of the key elements of the budget – overall revenue from taxes, loans and grants. Finger must be tightly crossed.

Ironically, 2023 seems to be just another year of business as usual – increased expenditure (not tighter budgetary control) with high spending on travel, little or virtually nothing on the productive sectors that promotes an increase in revenue for a good outturn of tax revenue – such as import tax through the port and border activities and tourism but rather it is a budget designed for more borrowing and a renewed and increased anticipation from grants. Interestingly, the Minister was able to explain away some observations that were raised in the National Assembly.

Quite frankly, it is more like supporting the same lifestyle in governance as in the previous years – pay salaries, allowances and incentives to those upholding the system, borrow more and leave the rest to hope. Realistically, the economy is a friend to no one. One must play ball according the dictates of its laws or fall a victim of them.

The past economic performance is already admitted to be one with a not so good record. A persistent sweeping blame on the Ukraine crisis and COVID is being uncreative and becoming monotonous without providing any contingency plans for food security through support to production and providing savings from overall spending on capital and recurrent expenditure.

A prudent budget should provide funding for capital projects from grants and foreign borrowing and not from local funds – especially for an economy with a very narrow revenue base.

Furthermore, under any recovery program expenditure in general is severely curtailed. The budget cannot be expansionary in nature under circumstances of a recovery program. That is simply unrealistic and not at all prudent. Prudence would have dictated a postponement of an untimely opening of new embassies and the curtailment of demand on loans and other areas of existing recurrent expenditure.

It seems the function of the National Assembly was more like an arduous task of reconciling the economic buzz words of budget justification with its fiscal allocations. Where it has failed, it becomes the case of the proverbial ostrich – burying the head in the sand.

In the end economic reality will always prevail and then the caveat alluded to will kick in other buzzwords of explaining the shortcomings.

In circumstances that fail to promote a realistic solution to a struggling economy and where Parliaments cannot enforce tighter budgetary controls, then down the road, the Breton Woods giants lay in wait for more severe and politically unpalatable doses of the medicine of a recovery program.

Just thinking aloud

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