Supply side fiscal policy

A government budget usually reflects the priorities chosen by the ruling party. The Democratic Progressive Party (DPP) government has placed agriculture at the top of the priorities, followed by education and health.

In developed countries budgets give priority to such macro-economic problems as inflation, employment and interest rates. The key slogan is stabilisation, prices must stop rising, an approach must be made to full employment, a growth rate of about three percent is an achievement for which a ruling party gets re-selected. What about poor developing countries like ours?

Growth and development must be the first objective. Development creates employment, provides income for education and health. For the first time in many years, a budget has been prepared that does not anticipate donor support. We, Malawians and most fellow Africans, are not used to lives of austerity. But this financial year and perhaps thereafter, we will have to live according to the slogan ‘No pain, no gain’. No sweat no sweet. There will be no spoon feeding by donors.

In practice, what does zero-aid budget require of us citizens of the countries? Paying new and higher taxes while living frugally at the household and national levels.

The government will have to go carefully about taxation for both economic and social reasons. If extra taxes are imposed on corporations, this might make Malawi unattractive to foreign direct investors. These investors scrutinise patterns of taxation in all the Sadc or east and central African countries. They will choose for their capital investment destinations where taxes are not extortionate.

Even for local businesspeople ever excessive taxation can be inimical to enterprise especially where small businesses are concerned. Office rents, business licence are already too high for small and medium enterprises. Taxing them even high might be unbearable.

Burdensome taxes have been the cause of social and political instabilities. Day of King Solomon of Judea started as a wise and popular monarch. Later he embarked on ambitious building pregnancies. To this end, he raised and spread out taxes, people began complaining. When he died, the people pleaded with his son successor Rehoboam for a less oppressive rule. When Rehoboam replied that he was going to tax them more severally some tribes seceded and set up a State of their own.

It was taxes which brought a rift between Britain and its America colonies. When King George III and his secretary of State Lord North refused to cancel some of the taxes the colonies in 1776 united and declared themselves independent.

The French Revolution of 1789 was preceded by wrangle over budget and taxes. What is said there is not an advocacy of a government that does not tax its people. No such a government exists anywhere these days. However, the government must mount strong public relations and try to convince the people we cannot survive in any other but pay the taxes and the live within our means.

The temptation to borrow from the money market, especially through the Reserve Bank of Malawi (RBM) will be difficult a resist, yet too much borrowed money by the government will pitch up interest rates too high for the private sector. Due to excessive circulation of bank notes, inflation will be difficult to contain.

Whatever money is borrowed preferably it should be for supply side expenditure. That is for producing goods rather than consuming them. Wealth is made up of goods and services, bank notes are more a reflection of wealth. We can survive in a situation where essential goods like food and water exist, even if there is no money. We cannot survive in a situation where we have no bank notes and coins but no food and water.

Unless there is mutual sympathy and understanding between the government and people, especially civil servants, the zero-aid budget may prove impossible to implement. Someone observed long ago that the road to hell is paved with good intentions.

The news that neither civil servants nor members of the Teachers Union of Malawi (TUM) will accept 24 percent increase forebodes ill for the immediate future. One can understand a child who cries for toys and extra food during days his father is either on half pay or unemployed. Grown up members of the family should learn to adjust to hard times.

In times like the present when the economy of our country is growing at a snail’s pace compared with its neighbours, and when donors have withheld their largesse is not the best for confrontation between employees and employers.

Despite opting for the zero-aid budget our leader should maintain sound diplomatic relationships with the donors, step by step weaning from donor aid is more likely to succeed than abrupt change. This budget requires willingness to go by the Krobe Edusei maxim ‘you chop small, I chop small’. Some Malawians prefer ‘you chop small, I chop big’.

It will require self-sacrificing leadership for the nation to accept austerity measures. The civil servants will not listen to plead for restraint when the government continues the policy of paying ghost workers, those it has replaced by its own favourities, and yet has not removed from payrolls. Economy and frugality are tough, but without them, the zero-aid budget will flop.