Home » Governance » Govt Expenditure Should Produce Measurable Returns

On November 27 2014, the Finance and Economic Development Minister presented the 2015 National Budget. To be sure, an annual National Budget, as typically set out and presented by a Finance Minister, lays out : a) the strategic socio-economic objectives and hence activities of its citizens for the coming year as orchestrated by its Government and

b) how the activities will be financed. The strategic objectives are the citizens’ expression of their aspirations regarding how best they would like to share the limited resources of the country to achieve their ideals regarding consumption of goods and services.

The ideals may be at a personal level, social, communal or otherwise, while such resources include people (human resources), land, minerals, other raw materials, water, among others.

Government is the agent that the citizens appoint (via its democratic institutions), as the most competent in efficiently allocating the resources to realise citizens’ objectives and ideals.

In the latter, regard such budgets are set out to be specific, measurable, achievable, realistic and time-bound, thereby requiring accountable and transparent Government management regimes.

It is important to assess whether indeed the 2015 National Budget is really an expression of the aspirations of Zimbabweans for the year 2015.

Without doubt, Zimbabweans primarily expected a 2015 National Budget that will create gainful employment, thereby enabling them to put food on the table. New start-up businesses, existing businesses, and Government itself, provide the employment – the latter Government employment, pursuant strictly to allocating resources efficiently via appropriate budget policies and activities thereof.

In Keynesian economics, the employment levels offered by businesses and Government (or equivalently the level at which businesses and Government produce goods and services) are dependent on a number of fundamentals, not least, the relative balance of goods and services produced by Government and those by private sector businesses, the overall population of the country, the overall level of money supply in the economy, consumer consumption levels, level of investment, and level of exports versus imports.

Rationally, a given fixed population is expected to produce goods and services at a specific capacity level (potential output) for a given fixed money supply level, and if all other things are equal.

With regards to the relative production of goods and services by either Government or private sector businesses, private sector businesses can be forced to produce much less of goods and services if Government decides to do more of this production.

For any production levels below full capacity output, and for a given level of money supply in the economy for instance, employment levels will fall if prices of goods and services increased.

In economic conditions, when supply of goods and services is matched by demand of the goods and services, and when other economic fundamentals such as interest rates, money supply, employment levels are in their long-term full capacity levels, undisturbed by external forces, national budget policies known to be most effective in creating employment, limit the financing of Government activities only from tax revenues, while new start-up businesses, and existing businesses are propelled by nurturing both domestic and foreign investment.

The latter borrows from empirical evidence that private sector through markets, is best able to allocate resources, under appropriate effective Government regulation aimed at stamping any market participant incentives to act unfairly.

Such established policies direct the size of Government and hence its production of goods and services, to that which can be supported by taxes that it can collect.

Zimbabwean citizens’ employment aspirations and hence those about consumption of goods and services, are rationally expected to be shaped by budgeting procedures in the context outlined above.

Assuming (within the context of the above national budgeting principles) that there are no apparent inherent procedural budgeting irregularities in the minister’s just-presented National Budget, the budget is in estimated deficit of $15 million (point 436 of the budget), i.e. 2015 taxes alone cannot finance Government expenditure.

Notwithstanding the estimated deficit, the minister aises the nation that the National Budget has been rolled out against a background of ” . . . under-performing revenues on the back of an economic slowdown and. . .” an unsustainable public service wage bill (points 895-898 of the Budget).

The unsustainable public service wage bill suggests an unjustifiably large Government that is making private sector redundant in the efficient production of goods and services that Zimbabweans would want to consume at fair prices in 2015.

In these circumstances, Zimbabweans will not meet their consumption ideals as private sector will not be able to create employment over 2015.

The economic slowdown in circumstances when Government is potentially using the large public service to do all the production from a small overall money supply base, suggests a Government driven “full capacity”.

In these circumstances, the investment necessary to improve industry capacity utilisation as intimated by the minister (points 127-130) will be difficult to realise as investors are intimidated by the difficulties of competing with Government in the production of goods and services.

But perhaps the insinuations of civil servants inefficiencies in the production of goods and services, in the minister’s statement about an unsustainable public service wage bill suggest a waste of taxes into a gaping hole.

Evidence of such public service inefficiencies show up in apparent contradictions and lack of specificity in some parts of the Budget. Points 264-267, for instance highlight continued expansion of the pensions and insurance industries, while points 1036-1049 highlight the apparently urgent need a) for insurance industry players to be adequately capitalised, and

b) for pension funds to be up-to-date with their monthly pension fund contribution obligations, this against a background of a looming Commission of Inquiry into suspect activities of the pensions and insurance industries. Apart from an apparent lack of coherence in these budget statements, the latter dashes away any suggestions that anything is right in the two industries.

There is no mention of what civil servants in charge of pensioninsurance service provision are specifically set out to achieve in 2015 to help Zimbabweans meet their consumption ideals, and how exactly they will achieve it, and thus warranting the expenditure that Government is to incur on the civil servants in question in 2015.

On account of this apparent lack of Budget specificity, the 2015 expenditure estimates in the last part of the National Budget cannot be traced to specific economic sector programmes detailed in the rest of the budget, and to respective civil servants in charge of the programmes.

Consequently, it may be difficult for Government to check what civil servants are doing to meet consumption ideals for Zimbabweans for 2015, and hold them to account.

It is aisable for the National Budget to be set out in accordance with established macroeconomic principles, and for all Government expenditure to be targeted to produce measurable returns to Zimbabweans.

Martin Tarusenga is general manager of Zimbabwe Pensions amp Insurance Rights. Email: martin@zimpirt.com telephone +263 (0)4 883057 Mobile +263 (0)772 889 716. Opinions expressed herein are those of the author and do not represent those of the organisations that the author represent

Source : The Herald