creating and sustaining fiscal space for expanding social protection nard huijbregts...
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Creating and Sustaining Fiscal Space for Expanding Social Protection Nard Huijbregts [email protected] Policy Research Institute (EPRI), Cape Town, South AfricaArusha, December 2014
Overview
• Domestic Resource Mobilization– Tax Revenue– Non Tax Revenue
• ODA• Efficiency gains and reallocation• Deficit financing/borrowing
Sustaining fiscal space
Crea
ting
fisca
l spa
ce
Domestic Resource Mobilization Percentage of GDP collected as revenue
Nigeria
Central African Rep.
Sierra Leone
Rwanda
Sao Tome and P.
Benin
Tanzania
Namibia
Togo
Senegal
Egypt, Arab Rep.
Mauritius
Liberia
Tunisia
Botswana
Angola
Equatorial Guinea
Cameroon
Chad
Congo, Rep
Eritrea
Guinea
Lesotho
Mauritania
Somalia
Sudan
Zimbabwe
0 10 20 30 40 50 60
Source: World Development Indicators 2014
Tax Revenue
Broadening the tax base
Tax exemptions
Tax evasion
Tax Revenue
Broadening the tax base
Tax exemptions
Tax evasion
50 entities pay 80 percent of all tax
Large informal sector
Tax Revenue
Broadening the tax base
Tax exemptions
Tax evasion
VAT (38%)
Companies and individuals (5%)
Mining (23%)
Tanzania Investment centre (20%)
Tax Revenue
Broadening the tax base
Tax exemptions
Tax evasion 1 percent in 2009
Tax Revenue
Broadening the tax base
Tax exemptions
Tax evasion
New taxes, potentially ring-fenced
Non Tax Revenue
• New sources– 0.2 percent of GDP
• Collection leakage– 0.5 percent of GDP
• Great potential coming from natural resources– Gas only is already between
8 to 17 percent of GDP– However
• Uncertain• Existing contracts
New sources
Non-tax revenue gap
Natural resources
Overseas Development Aid
• Increasing commitment to Social Protection• Although increasing in absolute value,
decreasing as share of government revenue
19951996
19971998
19992000
20012002
20032004
20052006
20072008
20092010
20112012
0
500000000
1000000000
1500000000
2000000000
2500000000
3000000000
3500000000
4000000000
4500000000
Years
US$
Source: World Development Indicators 2014
Deficit Financing
• IMF aim 4.5 percent of GDP• In light of high returns on investment and low interest
rates, sustaining deficit could be justified
All together, substantial room for increased domestic revenue mobilization
Sustainable?
Sustainable?
Sustainable?
Sustainable?
Dependency Ratios
19901993
19961999
20022005
20082011
20142017
20202023
20262029
20322035
20382041
20442047
20500
102030405060708090
100
Child Dependency Ratio
19901993
19961999
20022005
20082011
20142017
20202023
20262029
20322035
20382041
20442047
20500123456789
10
Older people dependency ratio
19901993
19961999
20022005
20082011
20142017
20202023
20262029
20322035
20382041
20442047
20500
20
40
60
80
100
120
Full Dependency Ratio
Dependency Ratios
19901993
19961999
20022005
20082011
20142017
20202023
20262029
20322035
20382041
20442047
20500
102030405060708090
100
Child Dependency Ratio
19901993
19961999
20022005
20082011
20142017
20202023
20262029
20322035
20382041
20442047
20500123456789
10
Older people dependency ratio
19901993
19961999
20022005
20082011
20142017
20202023
20262029
20322035
20382041
20442047
20500
20
40
60
80
100
120
Full Dependency Ratio
Dependency Ratios
19901993
19961999
20022005
20082011
20142017
20202023
20262029
20322035
20382041
20442047
20500
102030405060708090
100
Child Dependency Ratio
19901993
19961999
20022005
20082011
20142017
20202023
20262029
20322035
20382041
20442047
20500123456789
10
Older people dependency ratio
19901993
19961999
20022005
20082011
20142017
20202023
20262029
20322035
20382041
20442047
20500
20
40
60
80
100
120
Full Dependency Ratio
Expenditure Trend
• Social Protection expenditure declining– Percentage of GDP– Percentage of GDP per capita
2014 2015 2016 2017 2018 2019 2020 2021 2022 20230.00%
0.10%
0.20%
0.30%
0.40%
0.50%
0.60%
TASAF by modelTASAF by MoFo/w on transferso/w on public works
Expenditure Trend
Cost as percentage of GDP
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 20300.00%
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
1.40%
1.60%
1.80%
2.00%
TASAFChild BenefitOld Age Pension
But it doesn’t stop there
Consequence of change in inequality on cumulative GDP growth
Source: OECD 2014
Growth Dividend - Low
Cost as percentage of GDP
Growth Dividend - Medium
Cost as percentage of GDP
Growth Dividend - high
Cost as percentage of GDP
Conclusions
• Substantial room for domestic resource mobilization– Tax reform– Gas revenue– Political will is key factor determining whether this can
and will also be allocated to social protection spending• Demographic and economic dividend safeguards
sustainability – Investing in child sensitive social protection likely
further optimizes sustainability
