Shit Out Of Luck

Like Peter Msigwa‘s June 20th, 2012 passionate comments during the discussion of last year’s budget, I too think the opposition’s purpose is to criticize government’s implementation of policy. Our democracy can only become increasingly vibrant and resilient if the opposition is strong in this regard. And I agree with the honorable gentleman from Iringa Urban that (1) we cannot expect the same people who bring us into the problems we find ourselves to be the same ones to help us out of them and that (2) in quoting Albert Einstein that insanity is “doing the same thing over and over again and expecting different results.” However, this logic also applies to the opposition. It cannot expect to simply continue its criticism of government over and over again and expect different responses from government.

The opposition must go beyond just criticism to providing an alternative policy path, which is why I was very pleased to see Zitto Kabwe‘s June 18th Facebook wall post, where the Kigoma North’s Member of Parliament, provides a 18-point alternative to the government’s 2013/2014 budget. In it are a few great ideas, a few not-so-great ideas, a few not-so-clear ideas and one very bad idea.

For the reader’s sake, I paste the complete wall post below:

Alternative 2013/14 Budget proposals

1. No commercial loans
2. Allocate 41% of internal revenue for development
3. Introduce special tax for promoting sports, all taxes charged currently on sports entry fees to be a sports development levy, eg VAT on entry fees to stadiums.
4. Ammend income tax legislations to make a mandatory for all Tanzanian residents to fill tax returns. 
5. Introduce Railways development levy on exports (0.5%) and imports (1%).
6. Regulate the use of Tax havens by local companies and multinationals to curb tax evasion and tax avoidance through mandatory transparency of use and not signing tax treaties with tax havens.
7. Reform VAT legislation by deleting First Schedule which allow zero rating.
8. Ammend EPOCA legislation to mandate TCRA to audit investments costs by telecommunications companies in order to curb tax avoidance.
9. Pay pension to all citizens over 60 years
10. Lower income tax for lowest income bracket to 9%
11. Reduce unnecessary expenses by cutting 30% of ‘other charges’ for ministries and departments
12. More independent budget based on 75.8% internal revenue
13. Reduce tax exemptions to 1% of GDP. All exemptions MUST be transparently published and audited by CAG and audit made public.
14. Control price increase for important consumer goods
15. Increase minimum wage to TSH 315,000
16. No tax increase on diesel and petrol
17. No tax increase for wheat to avoid price increase for bread etc
18. No tax increase for mobile phone use

I really liked (2), (4), (6), (7), (9), (10-13), and (15-18).

Allocating 41% of internal revenue for development sounds like a great idea and I would love for ZK to iron out the details. For instance, how much is this expected to positively impact development?

Ammending income tax legislations to make it mandatory for all Tanzanian residents to fill tax returns also sounds like a great idea, although I am cautious on this, because I don’t know whether this is one of those lame-duck policies that really won’t affect many people or an actually great proposal. Am inclined to think the latter.

Regulating the use of tax havens by local companies and multinationals to curb tax evasion and tax avoidance through mandatory transparency of use and not signing tax treaties with tax havens is just beautiful. Nothing to add. It’s that good. And on that note reforming VAT legislation by deleting First Schedule which allow zero rating is something I know nothing about but if it will reduce tax evasion, then count me in.

Paying pension to all citizens over 60 years sounds fantastic. I have one remaining surviving grandparent, who’ll like this. And of course, my only surviving parent, who is steadily approaching this eligible age will also love this, so a definite yes from me on this, given that her ability to increase her bequest to me (and my sisters, I suppose) will go up with this policy.

Lowering income tax for lowest income bracket to 9% certainly must be a great thing, as it will surely benefit the poorest among us. I hope. Reducing tax exemptions to 1% of GDP and making all exemptions be transparently published and audited by CAG and audit made public has also got to free up some more tax revenue, hopefully benefiting the poorest among us, not to mention increasing the minimum wage to Tshs. 315,000. Now, although Berkeley‘s David Card and Princeton‘s Alan B. Krueger found that the minimum wage does not necessarily lower employment, as economic theory would suggest, I am still a bit cautious to applaud this outright. But I am leaning towards agreeing that this is a great thing.

Reducing unnecessary expenses by cutting 30% of ‘other charges’ for ministries and departments? Not clear what these ‘other charges’ are, but I think ZK meant this in a satirical jab at the ruling administration. I dig it.

More independent budget based on 75.8% internal revenue, sounds more like a declaration than a game plan. Perhaps ZK provides specifics elsewhere, but am too busy (or lazy) to find out where exactly these details are buried. After all, a Facebook wall is not necessarily the most suitable platform to provide details on policy recommendations.

ZK saves the best for last with my personal favorites, below:

• No tax increase on diesel and petrol
• No tax increase for wheat to avoid price increase for bread etc
• No tax increase for mobile phone use

I don’t want to bore the reader too much here. The key clause is of course is No tax increase. For symmetry of my argument, let me say also that I do not like the introduction of special tax for promoting sports nor the introduction of a Railways development levy on exports (0.5%) and imports (1%). The key phrase here is introduce tax. Introducing a tax on something and calling it a “tax for promoting sports” or a “Railway development levy” camouflages the fact that a tax is still a tax.

It assumes our ignorance and perhaps is a reflection of the depth our electorate is willing to go in understanding policy proposals by either side of the aisle. Nevertheless, regardless of what you call it, a pig is still a pig, even if you put lipstick on it. If it weren’t, then I would of course feel much better about paying income taxes, if they were suddenly called help-eradicate-poverty-tax, rather than just plain boring income tax or import duties on cars being called protect-local-nascent/non-existent-car-industry-import duty. But alas, my payment of these taxes and their names have no relationship whatsoever, except perhaps just increase my frustration during filling in the relevant tax forms, with such long names.

Frequent readers of VijanaFM will of course note my continuing battle against government intervention in the way of too much and/or too complicated taxation. Because as we know, government almost always spits on Marshall, and price-fixing and arbitrarily deciding tax rates is never too high, too low, but just right, like Goldilocks. Some might counter that these proposals come from the opposition and thus encompass a whole different animal than the one currently at the helm. My rebuttal would be of course, are they really different, or are they just zebras with spots and leopards with stripes?

Having no commercial loans from government is a bit unclear to me and I hope that ZK doesn’t mean to despise commercial loans for their own sake. After all, the Tanzanian tax payer should get the cheapest loan possible, as to alleviate the most amount of debt-servicing burden on future generations of Tanzanians. Commercial loans, save development assistance loans guaranteed by say, the United States government, are probably our best bet, so am not sure what Mheshimiwa means here.

Ammending EPOCA legislation to mandate TCRA to audit investments costs by telecommunications companies in order to curb tax avoidance seems like a great thing. I know next to nothing so I can’t say for sure, but once again, with my aversion to government meddling, I am cautious on this. And it seems that it might go contrary to the spirit embodied in ZK’s 18th point that there be No tax increase for mobile phone use. This latter point promotes greater communication, and given cellphone’s ubiquitous role in today’s Tanzania, I would be cautious about regulating the industry much, if at all. Consumer welfare should be the ultimate consideration. If it is reduced by such a move, then I say nay. If not, then trudge along Sir.

For the grand finale, I argue that the worst and thus definitive idea in ZK’s proposal is number 14 or Control[ing] price increase for important consumer goods. On the one hand, government pretty much has little or no power to actually do this and on the other hand, even if it did, it would be costly and wasteful of its time and resources. Take currency, for instance. Trying to lower the dollar value means selling dollars in the currency market. But that means losing valuable dollars in our reserve that are used to buy important imports, such as refined oil, that pretty much runs our economy. Now, don’t get me wrong, there is a conflict of interest here for me. I have a huge stake in a strong dollar because I get paid in dollars, but live in a shilling-denominated world, so a strong dollar maximizes my income. But in  my defense, this conflict of interest is only recent. Before, my salary was in madafu, and I still had obligations in dollars, thereby rendering my income smaller with every uptick of the dollar value, against the shilling. Even then, I still argued that manipulating currency prices by selling or buying dollars (mostly selling dollars, trying to offset its rise against the shilling) is not a sustainable monetary policy.

I have written at length on the dangers of such government interventionist policies and although I wish this year be our lucky number 13, I can’t but help but caution readers to the dangers of price controls, again.

ZK’s proposals are, by a long shot, great alternative ideas that I can fall firmly behind on. His ideas are exactly what makes for great politics that ultimately benefits the people. And it is this type of politicking that Tanzanians should demand of their government, and ultimately of any political party in power, be it CCM today, or CHADEMA in the future. However, all of the above proposals are completely negated by number 14.

Examples of the negative effects of price controls are plentiful but I will leave the reader with the most recent and colorful exhibit (and one that I use as title to this piece). In Venezuela recently, there has been a shortage of toilet paper. Why would such an everyday item be missing in the market stalls, you might ask? Well, it is exactly because of price controls and other heavy government command-control policies that have made this item scarce in Venezuela. The government cannot incorporate what people want any better than the market. The government is not as omniscient as God.

This quasi-omniscient power of the market, what Adam Smith coined the invisible hand, can be seen everyday in Dar es Salaam’s streets. The recent entrance of Kentucky’s famed chicken restaurant chain, KFC into Tanzania is testament to the power of the market to reallocate resources. The building that KFC operates out of in Dar es Salaam’s Mikocheni used to host another business. That business might not have been profitable because it no longer exists, but the space was quickly converted into the fast -food chain from the great state of Kentucky. The space was not wasted, but converted into another business venture. This is true of the many car-showrooms around the city. They rise and they fall depending on their ability to survive in the market. Government cannot respond as quickly as individual entrepreneurs can in deciding who should occupy what space, for what price, and at what time. A recent trip to Immigration to renew a passport is testament to government’s sluggish pace in doing things.

I concur with Zitto Kabwe on many of his alternative points to the budget, but I strongly beg to differ with him on number 14. Controlling prices is not a good thing for the people. Please Mheshimiwa I ask that you reconsider lest we become shit out of luck. Like the Venezuelans.