Finance minister Mathia Kasaija read the 2023/24 budget last week. For decades now the budget reading is not an event that brings Kampala to stand still.
In a liberalized economy
where government does not control prices of anything, the entertainment value
of the budget reading is that much reduced. Believe it or not there is a time
the finance minister had power over the price of fuel, milk, sugar and even
bread.
By letting price be determined by market forces prices have
found their natural level according to the forces of supply and demand. Low
supply leads to higher prices which lead to more investment, which increases
supply and lowers prices, but overall, a state of dynamic equilibrium is
achieved that no government can manage by announcing prices from time to time.
As a result, and its plain for all to see we have hardly no shortages in anything
to speak of.
"In my mind that will be the biggest legacy of the NRM when history is written. With this single stroke they liberated us from the shenanigans bureaucrats would get up to, in playing around with market prices, and unleashed the individual efforts of businessmen which has proved the doubters wrong. The beneficiaries of price controls complained loudly to anyone who would listen that the liberalisation of the economy would lead to higher prices, hoarding by the business community and general pain and suffering for the population. Thank God government had the cojones not to listen to the populists but to follow the science.
But you know if you are going to do something you better go
the whole way or your halfhearted attempts will negate all the good you have
achieved.
What everyone kept harping on was that nearly half of the sh52trillion
budget – sh25trillion would be going to debt servicing. And this debt servicing
would account for 86 percent of all revenues collected domestically.
If you are falling deeper and deeper into debt the way to
extricate yourself is to negotiate yourself out of the debt or for easier terms
or to raise your income so servicing the debt is not so painful.
The best route for you and your furture credit worthiness is
maintain the current contracts but raise your revenues to pay meet your
obligations.
The assumption is that the debt you contracted has helped
you increase incomes, in the case of a nation it has facilitated the growth of
the business community, who create jobs and pay taxes. Essentially you want to
be good to the private sector.
"But what do we see? A government intent on taking from the private sector with both hands, not only is government chasing businessmen down the streets to pay taxes, which is as it should be but is also not paying them for goods and services delivered...
There is a deafening silence in the budget speech about the
extent of the domestic arrears, about sh8trillion.
A strategy to slow the accumulation of these or to draw them
down urgently does not feature in the government’s key objectives on page 10 or
the section on “Supporting private sector growth” on p13, where they seem to
have shifted to ignoring businesses that supply them and focus on small and
medium size enterprise. There is however, passing mention on page 38 that government
has ringfenced sh215b to pay domestic arrears.
You don’t know whether to laugh or cry. There are no expletives
a businessman, watching his life work going down the tubes, can hurl at government
at this state of affairs.
From a purely arithmetic perspective, this means that if I have supplied government with one million worth of goods I can expect sh26,875 this financial year, in payment from government. That is not an error. The math is beyond reproach, if I may say so myself.
Government is the biggest consumer of goods and services, so
when government refuses to pay there will be hundreds of businesses affected
directly and thousands affected indirectly. And the saddest thing is that many
of these businesses whether government pays or not have to do business with
government anyway. But for how long?
It is so bad now that lenders are looking with jaundiced eye
at any government purchasing orders. Previously, (must have been in the 1960s),
government was good for the money, so you could take your order to the bank and
the lend you money to fill the order. Not anymore.
So how will government get the taxes it needs to pursue its
development agenda?
URA can only squeeze so much, before tax evasion or outright
protests begin. A classic case of shooting the messenger.
"Government needs to hold officials accountable who contract services when government can not pay. But more urgently government must steal, beg or borrow and pay off our business people as a way to save them from collapse at a micro level and at a macro level to ensure the economy keeps ticking along...
Even if government did not contract anymore debt at the
current rate of payment it would take 37 years to clear this debt.
It boggles the mind that our government thinks this is a
sustainable situation.
