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| Columns |
| Economic and Business Forum |
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by
D.D Phiri, 21 October 2005
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08:01:34
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On subsidies, taxation, Admarc
In the present Parliament the opposition wields unprecedented power in the history of independent Malawi. What is happening there reminds one of Lord Acton’s famous dictum. Power tends to corrupt, absolute power corrupts absolutely.
Using threats in place of persuasions is miniature dictatorship. The minister of finance is a professional economist with decades of field experience. He knows when the opposition is pressuring him to make concession here and there that this could have undesirable economic repercussions. But there is the unsavoury politics to reckon with.
MPs who press for universal fertiliser subsidies just like people who demand the Senate and the Recall Clause share one common tendency to shy away from talking about money and opportunity costs. They seem to think the government has a cornucopia from which to pay for any range of services.
I can see only four or five possible methods of raising the money to pay for universal subsidies, the Senate and the Recall. The first of these is to retain the overall budget at its present level, make reduction on certain votes and transfer the amounts to the services the MPs and other people are clamouring for.
During colonial days when I used to take keen interest in House of Commons debates, I used to notice that members of opposition parties usually asked the Chancellor of the Exchequer (Minister of Finance) either to cancel certain service or make cuts on the amount proposed. It was unusual for members of the opposition to press for increases in budgets because this entailed extra taxes. Alternatively when an MP demanded more provisions for a particular vote he or she proposed a reduction on another service.
Some of us learn what is happening in Parliament from media reports. May journalists seek an audience with the opposition leader to find out from him which of the services budgeted for should have their provisions transferred to the universal subsidy vote.
The second method of finding the extra money for the universal subsidy would be to introduce new taxes or increase the percentage of taxation whether income tax or sales taxes. Will raising of taxes encourage foreign direct investors to come to Malawi? How do our present tax regime compare with those in neighbouring countries which are in competition with us for investors?
The third method is internal borrowing from banks. We have already been told that too much borrowing by the government crowds out private borrowers. We know that if private entrepreneurs do not expand or introduce new projects for lack of capital the economy stagnates. Besides, it is perpetual borrowing that in the last 20 years or so has burdened this country with double digit inflation. Such level of inflation impoverishes us all and aggravates the plight of those who live on a dollar a day.
Someone somewhere thinks the money can easily be obtained from donors. He is over sanguine. Why have they all along been pressing our government to privatise even utilities? Is it not because they are getting tired of subsidising our government? Let us not think and reason like spoilt children.
If subsidies are a form of social services to the deserving poor they must be subject to means tests. Only those people who cannot afford the unsubsidised fertiliser should be allowed to buy the subsidised one.
Are the MPs’ demands for universal subsidies motivated solely by concern for their constituencies? From the past behaviour, while some of our MPs have permanent political enemies and political friends others do not. What is certain is that they all seem to have permanent financial interests.
From time to time when suggestions are made to increase the salaries or allowances of the MPs you find no disagreement between them. They all welcome the suggestion. Is the universal subsidy being advocated by most of the MPs because they too have farms and want to obtain the fertiliser at a lower cost?
If the government is to provide crop subsidies annually there must be provision for raising revenue by taxing the bumper yields. Since the abolition of the poll tax, one remaining method of reaching low income people in agriculture is by taxing their produce.
Herein comes the necessity of giving back to Admarc one of its former functions as a channel for compulsory savings. As a sole buyer of smallholder produce Admarc used to fix prices at which it bought the produce. It managed to make substantial profits which it later invested in local firms.
One of the characteristics of the Far Eastern countries (Taiwan, S Korea, Singapore, Thailand) is their high rates of savings, Mr Lee Kuan Yew former Prime Minister of Singapore makes it plain in his autobiography how his government introduced compulsory savings to achieve what he calls a ‘fair’ in place of a ‘welfare’ state.
The majority of the people of Malawi won’t hear any suggestions to privatise Admarc. Their views should not be ignored. When Admarc is privately owned Adam Smith’s invisible hand might be too effectively invisible to do any good to the poorer segment of our society.
What is not in dispute is the call to make Admarc a going concern, a self-supporting entity. Is this possible even if Admarc remains a state enterprise?
On October 7, 2005 I attended a prize giving ceremony of the Universal Postal Union conducted by the Malawi Posts Corporation (MPC) at its conference centre. One of the most interesting pieces of information I got there was that the MPC has managed to get out of the red and realised a surplus.
This the MPC management has achieved by being more entrepreneurial. They have diversified the MPC’s business by providing transportation for bulky goods like computers and acting as agents for mobile phone firms.
So Malawian managers given a measure of autonomy can bring lease of life to a public utility tottering on the brink of bankruptcy. |
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