By Alexander Nkosi
Took time to listen to Sean Tembo on Diamond TV when he was interviewed by Coster Mwansa. An interesting interview it was, it went down to interpretation of economic concepts. When you are interviewing Sean, you need to go prepared because he knows how to use numbers and concepts to his advantage, even in a wrong way.
So his argument was that his alternative budget will be funded through increased domestic revenue. He went on to explain that this increased domestic revenue won’t come from an increase in tax rates but a reduction because when you reduce tax rates you increase compliance and total tax revenue goes up. Is this correct? Yes it is but there is a catch. A reduction in tax rates does encourage compliance but this process doesn’t happen at once, we wouldn’t expect a huge jump in revenue in 2022 but it would be an incremental process. So while overtime, low tax rates do result in increased tax revenue, this reduction initially results in an immediate huge drop in revenue so if implemented with the hope that we will collect more revenue in 2022, we risk collapsing the budget.
Technocrats in government work with economic models that are used to estimate the impact of every revenue measure taken. Different options are weighed before a decision is made.
So Sean Tembo did a quick one on Coster, he correctly interpreted the theory but deliberately misinterpreted its application. You cannot build 2022 budget on this foundation as the results of such a tax rate reduction measure are incremental hence we would end up with a record high budget deficit and a near total collapse of the budget.
Thank you.