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How Ugandans pay for govt’s spending indiscipline

Isa Senkumba

How Ugandans pay for govt’s spending indiscipline

Every Ugandan is busy lamenting over huge taxes

 

Every Ugandan is busy lamenting over huge taxes. It is evident that government is on a mission to squeeze even the last coin from its citizens. It is possibly out of pressure to meet its wild budget. The government has found itself in a tight corner; the budget has ran wild and the only way to tame it is to raise revenue at all costs including heavy taxation. All this is pegged to the government’s fiscal indiscipline, the most pernicious and expensive being labeling spending as “emergency,” and therefore spending off-budget or avoiding budgetary rules.  Government has used this technique to spend abusively.

We all understand that emergencies do exist but not everything qualifies to be an emergency.  What is supposed to be an emergency should fulfill the following conditions; Necessary (essential or vital, not merely useful or beneficial), Sudden (coming into being quickly, not building up over time), Urgent (requiring immediate action), Unforeseen and not permanent.  In order to restore fiscal responsibility and accountability, government needs to adhere to this standard, both to reduce spending and to account for spending that exists better.

There is need to increase transparency by posting all government accounts and contracts online.  In the age of the Internet, there is no reason that every single check written by state, and government department should not be available for every taxpayer to read in real time.  Every contract entered into should be online.  Government budgets are always full of exaggerations and ghost expenditures and all these should be monitored on line by any willing citizen.  

Government agencies should demonstrate their commitment to greening and environmental responsibility by having staff members turn off their computers when they are not in use.  Reduce foreign travel budgets.  Also reduce additions to auto fleet. Each year, government acquires additional vehicles to accomodate new staff and replaces aging vehicles. This should be controlled.

Government departments should consider teleconferencing. This is to reduce expenses incurred in business travels, workshops in expensive hotels, obscene travel allowances, meals and accommodation. Teleconferencing only demands reliance on computer web cameras and other video teleconferencing equipment, including instant chatting.

As long as government still believes that taxation is the only way to go, we are doomed.  Conventional economics teaches us about the effect of a large tax burden.  We should expect low wages when levies so many taxes on businesses such that “taxes” is the highest budget items on the ledger sheets of most businesses. These taxes take away some of the money otherwise used to pay wages. So employers can’t pay good wages. Businesses have to raise prices to get money to pay these taxes. So product prices go up. This leads to inflation

 With high taxes we should only expect shoddy products. This is because taxes take away money otherwise used to improve quality. Instead, businesses must cut corners to make the products and pay the high taxes.  Many businesses go bankrupt, because they can’t afford to operate after government takes its cut. Other businesses flee the country, to escape the high taxes. And still other businesses must cut their payrolls to stay within their incomes.

The result in each case is the loss of jobs those businesses The high taxation takes so much away from the economy that it enters a permanent form of recession. If government tries to boost the economy with increased government spending, the result is stagflation (simultaneous high inflation and unemployment) instead of prosperity. The only cure for stagflation is to cut both taxes and government spending. But this takes time to happen, keeping the effects of over taxation in place for a time after the over taxation ends.

The permanent recession and losses of jobs caused by the high taxes cause a drop in government revenue, as economic production drops. If government then raises tax rates to recoup the lost revenue, production drops again, and the revenue drops even more. In addition to this, the increase in prices caused by the increased taxation prevents government spending from purchasing as much. So high tax rates cause lower real tax revenue collection. Government should wake up!

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