201415 Budget and the Search for Balance

Finance Minister Maria Kiwanuka last week opened her 201415 budget briefcase and showed us a vivid, if puzzling, picture of the country’s immediate economic future.

Although the economy did not grow as robustly as projected, although tax revenues are Shs 475bn short, although we only had capacity to use half of the external budget support, Ms Kiwanuka’s budget reflected a fairly stable state of affairs.

The thematic focus on investing in the infrastructure required for Uganda’s transformation – and the notion that we must tighten our belts to raise much of the money for that – is sound economics. The country’s macro-economic stability also seems impressive, with both inflation and the exchange rate apparently under control.

One of the less-talked-about government initiatives has been the rural electrification programme, under which Ms Kiwanuka reported the laying of 1,630 kilometres of transmission lines and connection of some 42,000 rural users. It is projected that by 2016, all districts will have been connected to the national grid. This would be a remarkable step in the right direction.

After two years of labour unrest and persistent pay-related grumbling from teachers, it is good management that the government has finally found the money to boost the wages of civil servants. However, the puzzling bit came from some of the taxation choices Ms Kiwanuka made.

As noted above, there is no doubt that the country needs to raise more revenue. Still, the removal of tax exemptions on agricultural inputs and supplies could prove counterproductive. For a country desperate to modernize and commercialise a perennially under-funded sector which employs the big majority of impoverished people, introducing new fiscal burdens on agriculture cannot be the most prudent way to broaden the tax base.

Granted, the minister must get the taxes from somewhere. But the country needs a creative balance between broadening the tax base and helping a critical sector such as agriculture to stand and start walking.

As we and other Ugandans have pointed out, the government needs to focus not just on raiding every taxable-looking cent, but also on reining back costly, consumptive public administration expenditure.

Source : The Observer

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