Reforms and Fiscal Policies

Fiscal policy concerns the government's decisions on taxation and public expenditure. The assessment of the reform period is critical of how the reforms affected the government's fiscal position, especially its ability to spend on development and welfare.

Limits on public expenditure:

Economic reforms have placed limits on the growth of public expenditure, especially in the social sectors. In practice this means less scope for the government to increase spending on areas such as education, health and other services that matter most to ordinary people.

Tax cuts that did not raise revenue as hoped:

The tax reductions of the reform period were introduced with the aim of yielding larger revenue and curbing tax evasion — the idea being that lower, more moderate rates would encourage compliance and expand the tax base. However, these reductions have not resulted in an increase in tax revenue for the government, so the hoped-for gain did not fully materialise.

Reduced scope for customs revenue:

The reform policies also involved tariff reduction. Lower tariffs, while good for opening up trade, curtailed the scope for raising revenue through customs duties, since customs collections depend on import duties that were now being cut.

Tax incentives to foreign investors:

In order to attract foreign investment, the government provided tax incentives to foreign investors. These incentives further reduced the scope for raising tax revenue, because concessions given to attract capital mean less tax collected.

The overall consequence:

The combined effect of limited expenditure growth, tax cuts that did not raise revenue, reduced customs duties and tax concessions to foreign investors has been a negative impact on developmental and welfare expenditure. With revenues constrained on several fronts, the government's capacity to spend on the development of the economy and the welfare of its people was weakened.