Wednesday, July 27, 2011

If we want 2003’s taxes, we have to accept 2003’s spending

Back in 2003, our fiscal deficit was 2.5% of our GDP. We did not have the GST from the tourism sector, we did not have the income tax, or the corporate tax (except from banks). Our total expenditure for 2003 was Rf3.4 billion, which is more than what we spend only on wages. In 2011 we are spending more than Rf4 billion only on wages. In 2004, our deficit was only 1.2% of GDP.

In 2010, our expenditure was Rf9.7 billion, while the revenue collected was Rf6.6 billion, giving us a fiscal deficit of 12% of GDP.

So, we can still get away without more taxes, provided we accept to keep our spending at 2003 level. That way, we will be able to build our fiscal reserves. But now, with a cumulative debt of about Rf17 billion since 2003 (due to the cumulative deficits every year), we are spending about a billion even on debt repayments and interest payments. We still have the opportunity to remain a tax-free haven. But for that, we all have to accept our previous spending levels.