Effectiveness of Public Budgeting and the #Tax System to Improve Basic Services in #Tanzania
Effective provision of basic services is critical for poverty reduction in Tanzania as in many developing countries, and contributes to state legitimacy. Failures in service delivery are a key reason that people fall into poverty, for example through ill health, and good service provision helps people to transition out of poverty, for example through education. There is therefore a clear need to strengthen service delivery systems in developing countries to improve quality and expand access and public budgets are critical in ensuring that this happens.
The last decade in Tanzania has seen considerable improvements in service delivery. During the decade 2001 to 2011, we have seen the infant mortality rate decreased from 157 deaths to 81 deaths per 100,000 births, and the net enrollment rate in primary schools increase from around 66% to 94% and in secondary schools from 6% to 35%. Despite these gains, there are still considerable gaps and challenges. Access to health services by the majority of poor people is low, quality is poor and the costs are prohibitive. A recent survey showed alarmingly poor numeracy and literacy skills among primary-aged children (Uwezo 2011). Less than 50% of the population in rural areas has access to clean and safe water.
Funding service delivery requires revenue generation by the government, a struggle that cannot be downplayed in a developing country such as Tanzania. The Tanzanian government has taken measures to widen the tax base, including the introduction of Electronic Fiscal Devices, which have contributed to an increase in VAT collection of 63% in two years. However, while widening the tax base, which results in an increased tax burden on the poor through consumption taxes, billions of shillings of potential tax is in turn lost through tax evasion/avoidance by MNCs and tax incentives given to the same and to corporate bodies in general.
Consider the following: Tanzania lost USD 2.9 billion between 2008 and 2011 through illicit financial flows; USD 1.2 billion in the 2011/2012 fiscal year through tax exemptions; and USD 305 million through uncollected customs revenue. All of this would have been more than enough revenue to finance the health, education and water service gaps highlighted above. However, although more revenue is a necessary condition for improved service delivery, it is not enough on its own. We have seen the education sector budget as a proportion of GDP double from 3.8% in 2002/03 to 6.9% in 2011/12, but the quality of education has continued to plummet.
The answer? Accountability.
Recent evidence supports the need for accountability in ensuring increased service delivery and better management of public funds. Take for example the ongoing agricultural input subsidy scheme. Tanzania runs a scheme to provide input subsidies for seeds and fertilisers to poor farmers in order to increase food security in the country. Due to the lack of an accountability mechanism built into the scheme, World Bank and CAG reports indicate that 60% of the funds/vouchers end up in the pockets of a few individuals. On the other hand, the USD 59 million refund from BAE Systems channelled to the provision primary school textbooks across the country has been successful to date because of the accountability measures set into the process. 85% of the books have reached primary schools and citizens can trace the delivery of the books through a designated website. PAC contemplates advising this model to be used for the ‘capitation grants system’, which has been riddled with corruption and mismanagement in the past.
Another successful example is the provision of social security to smallholder farmers. 3 coffee growing villages in Kigoma region have introduced social security to its members, through the Agricultural Cooperatives Union, by joining the National Social Security Fund (NSSF). The fund provides a health insurance scheme which allows households to have a choice of the hospital they want and can change if services are poor. Hospitals also benefit from an advance paid to them and hence improve services including the availability of essential medicines. There are efforts to copy the Kigoma model to other regions where agriculture is cash crop based and with cooperatives. The impact of the potential expansion will be great, considering that there are currently 600,000 members of agricultural cooperatives in Tanzania.
Looking at both the examples of service delivery failures and successes, three key lessons are evident. First, reforms in tax legislations are urgently needed in order to curb illicit financial outflows, minimize tax incentives and build the capacity of revenue authorities to collect badly needed taxes. International cooperation on the same is key, through country-by-country reporting transnational cooperations, review of tax treaties and non-reciprocal automatic exchange of information for tax purposes. Second, social security needs to be further extended to the poor through government program ‘matching’, which will increase access to health services, improve the quality of service delivery, and cultivate a culture of saving. This will in turn improve domestic savings and domestic resource mobilisation to enhance investments in rural based projects like irrigation infrastructure and private sector development.
Lastly, accountability remains crucial. Empowering citizen to track expenditure and increased transparency will remain vital. The power of oversight bodies such as parliamentary committees must be strengthened. Monitoring has to be results-oriented expenditure tracking with a strong, effective and innovative auditing mandate that moves away from the post-mortem model.