Many African States have agreed to international frameworks that set minimum standards for public spending in health, education and agriculture. These sectors affect vulnerable groups, especially children. Tax Justice Network Africa (TJNA) and Save the Children East and Southern Africa did a study on how Uganda, Tanzania and Zambia invest in children. Contrary to what some might expect, these countries meet the minimum budget requirements in health, education and agriculture. However, their spending does not always match the budget allocation or help children. This article is our take on how African governments can improve children’s access to schools, health and food.
1. Aim for highest public spending standards
The countries studied did not meet the minimum public spending target for food, school and health. These sectors affect vulnerable groups, especially children. In April 2001 in Abuja, the African Union countries agreed to allocate at least 15% of their national budget to improve their health sector. They also committed to invest at least 15% of their resources in education through the Incheon declaration “The Education 2030 Framework for Action”. And they planned to devote 10% of their public spending to agriculture in the Maputo Declaration on Agriculture and Food Security (Assembly/AU/Decl.4- 11 (II).
An analysis of the budget percentages for these sectors based on the last five years’ budget speeches shows that on average:
- Tanzania allocated 7.62% of its budget to health, 16.42% to education and 5.05% to agriculture. The country only met the education target.
- Uganda spent 8.36% of its budget on health, 11.82% on education and 3.44% on agriculture. It missed all three social spending targets.
- Zambia spent 9.24% on health, 18.04% on education and 3.02% on social protection. It missed the education and health targets.
These figures show that meeting the target is not enough. Quality spending is also important. For example, Tanzania implemented free basic education across the country, while Zambia spent its education budget on university infrastructure, which does not help the poor. Tanzania spent most of its health budget on primary health care, while Zambia spent money on drugs, medical supplies, infrastructure and equipment.
2. Reduce the reliance on debt to finance budget deficit
Governments lack the resources to meet their development needs. They use debt to finance the shortfall. The tax to Gross Domestic Product (GDP) ratio in Uganda is 11% below its neighbours in the East African Community and the 16% Sub-Saharan average. The country’s public debt has almost tripled in the last ten years, from USD 2.9 billion in 2006 to USD 8.7 billion in 2016. In 2018/19, the budget deficit rose to USD 2.0Bn, which is nearly half of the total tax revenue.
Tanzania gets 2/3 of its budget from domestic revenue. But its tax to GDP ratio of 11.85% is below the 13% average for low-income economies (LIEs). This shows that it can still raise more revenue through taxation. Uganda and Tanzania also have a tax to GDP ratio that is below the average for LIEs. A low tax to GDP ratio often means less domestic revenue for national spending. In Uganda, the rise in budget deficit led to more public debt. In March 2018, it was US$ 10.53 billion (38.1% of GDP). In Tanzania, in April 2018, external debt was 71.71% of the country’s total debt.
Indirect taxes are more regressive than direct taxes. They target the value of goods, services and assets, not the ability of people to pay. Uganda depends a lot on these taxes (excise duty, VAT, customs). They make up 2/3 of total tax revenues. In Tanzania and Zambia, indirect and direct taxes make up almost the same amount of tax revenues.
3. Fight harmful tax incentives, key drivers of revenue losses
High debt and indirect taxes make up a large part of tax revenues. Meanwhile, tax evasion, incentives, exemptions, and illicit financial flows cause huge revenue losses in Uganda, Tanzania, and Zambia. Closing these gaps will boost domestic revenue and resources for children’s investments.
The tax systems of these countries face challenges such as weak tax administration, a big informal sector, tax evasion, harmful tax incentives, and a narrow tax base. In 2008, Tanzania lost an estimated USD 1.23 billion in tax exemptions and incentives, with USD 174 million given to companies in 2008/09-2009/10. If Tanzania had spent the same amount on education and health, both budgets would have risen by more than a fifth and two-fifths respectively. Illicit financial flows (IFFs) from Zambia between 2008 and 2012 amounted to 24.1% of its total trade. A study showed that high IFFs are linked to high inequality and poverty.
A clear policy on tax incentives and exemptions, based on a cost-benefit analysis, is essential to reduce the money lost. Better governance and anti-corruption measures in customs can also help curb IFFs. Moreover, they can tackle tax evasion by formalising the informal sector, strengthening the tax administration, managing and lowering debt levels. Budgets should align with policy goals to fund social services. Budgeting should be programme-based rather than line-item based.
Read or download the study report here.
