GOVT REVENUE DIVERSIFICATION

It is a fact that government needs money to be able to meet its social obligations to the public.

At the bare minimum, government has to provide basic infrastructure such as roads, schools and hospitals, as well as make provisions for regulating trade and business to ensure social and economic maintenance. It is no secret therefore that government needs money to provide for its people and to make the economy tick. Volatility of government revenue, as we have seen with the SACU revenue, which our government is dependent on, is a major constraint in managing the economy. It increases the difficulty of realistic and effective fiscal management and sustainability, most critically in planning, budgeting and budget implementation. If a government wants to gain autonomy and take pride in taking care of its people as well as its developmental path, a large chuck of the government revenue streams has to be generated internally and the reality is that governments all over the world depend on tax as a major source of revenue.

As Eswatini progresses towards achieving its developmental goals, the obligations on government’s wallet broaden and increase in total monetary value thus exerting pressure on government to diversify and broaden its revenue streams. Eswatini’s economy in 1968 and the public demands on government expenditure at that time are totally different to the Eswatini of 2022 and the price tag on the standard of living in this modern time. Whether government wants to hear it or not, extreme dependency on tax revenue to fund government expenditure just won’t cut it anymore. Government needs to engage itself in new ways of generating income in order to stop punishing and burdening the current tax base, that is, the people who religiously wake up every morning and go to work to provide for themselves and their families. The economic base is the foundation for all sorts of revenues for government. A high income level and diverse economic base stands a better chance of providing for the needs of its citizens as well as better protect itself against economic shocks.

An economic base refers to the different components that make up the economic structure of a country. It refers to the variety of businesses, industries and employers found in the country and their relative proportions. Government wants to diversify its economic base as much as possible because the extent to which its revenue streams can be diversified depends on the wide range of economic activities available in the economy. However, a diverse economic tax base in not to be taken as a silver bullet that will solve government’s cash-flow challenges and budget shortfalls. For instance, government can increase VAT rates, can increase user fees, and can charge tax on as many economic activities as it likes, can even borrow from the local businesses, but if there is lack of fiscal transparency, continued mismanagement of fiscal funds, rampant corruption, and if there are poor internal controls, on top of lackadaisical attitude towards government service provisions, then all the additional money collected by government will simply go to waste.

Government will still find itself owing E3 billion or more to its suppliers despite increasing VAT, despite increasing licence, passport, among other user fees. A diverse economic base with diverse government revenue streams does not in itself ensure government the ability or flexibility to manage all of its financial obligations. The amount of money government generates from tax revenue is predetermined by the tax rate and the range of the tax base. In other words, the categories of taxes and their relative proportion make up the tax or revenue structure of a government. A diverse economic base is only able to provide stable revenue to government coffers when the country’s tax structures are compatible with the overall structure and size of the economy. Just as a minor example, the 33 per cent paid by the high income earners is currently too high. We pay other taxes besides income tax. Unfortunately, Eswatini’s tax effort (the ratio of tax revenue to GDP) is now over 25 per cent and is above the average for Sub-Saharan Africa (16 per cent), lower middle income countries (16 per cent) and small states (20 per cent). In essence, Eswatini has raised its tax effort to a level roughly matching those of OECD countries, emerging economies such as Singapore and regional economies such as Namibia, South Africa and Botswana.

Yes, in Norway, you can expect to give half of your pay cheque to the government: personal income tax rate in Norway border 55 per cent, VAT a whopping 25 per cent, and corporate tax ranging from 28 per cent to as high as 78 per cent! But this is Eswatini for crying out loud! Our standard of living is nowhere close to the benefits of living in Norway, and so by in large, we are becoming a victim of our own tax system which is now crippling the economy. Government can diversify revenue streams as much as it wants, but if it does not spend the money on taking care of the people, the economy and reducing poverty in the kingdom, it will simply be digging more pits to throw away our hard earned money.

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