One of the reasons cited by the MOF for the proposed tax hikes is to restructure the state budget to ensure that the nation’s finances are safe and sustainable. The effort will focus on fine-tuning the tax policy and expanding the tax base, especially new sources of revenues in line with international practices.
As revenues from international trade activities are declining due to tariff cuts as a result of free trade agreements, the search for new sources to offset the shortfall is a necessary and urgent task.
However, a budget has to cover both revenue and spending. Measures to increase revenues are being proposed and implemented aggressively while those aimed at restructuring expenditure have received inadequate attention. A problem in the spending structure which is yet to be resolved, is the immense proportion of recurrent spending.
In the first quarter of 2018, regular spending accounted for more than 76% of total expenditure, while spending on investment and development accounted for just 12%.
It is apparent that recurrent spending can be significantly reduced immediately by streamlining and downsizing the cumbersome administrative apparatus, as well as by practising thrift and preventing waste in state budget spending.
Despite this, a government report suggests that many ministries, agencies, and local authorities have not yet formulated their own programmes on reducing spending.
While these units are inattentive to the issue and make little effort in its resolution, it is unlikely that the budget deficit will be reduced. The spirit of thrift in recurrent spending should be propagated among the leaders of all units funded by the government budget.
Budget restructuring is an imperative to guarantee the stability and sustainability of the nation’s finances. Therefore, in addition to measures to increase revenues, it is necessary to take action to cut back on recurrent spending.
