The recently the government has announced its plans to subside electricity cost to consumers by availing N$365 million (as reported but different media houses).
In the same vein, the Minister of Finance announced is tax relief planned for implementation in October 2024. The earlier reduces pressure from consumers as they no longer have to pay for the increase in electricity prices announced by Electricity Control Board (ECB). Likewise, the latter increases disposable income as a reduction in tax is availed to workers to spends.
However, such interventions have a potential to increase fiscal deficit and eventually public debt. In order words, subsidies imply an increase in government expenditure while tax relief implies a reduction in revenue; hence widening the gap revenue and expenditure.
Although consumers are contemporaneously relieved by subsidies and tax reliefs. There will eventually be a point where government will extent the debt pressure to tax payers by increasing taxes. Thus, current expansionary fiscal policy implies postponed/future tax increases.
This means that benefit to be enjoyed by tax payer now is likely to offset by future increases in taxes, depending on the magnitude of such increases. There is a lesson that Namibia can learn from the current debt status in Kenya.
While still acknowledging the efforts of the government to counter effect the high cost of living, it is recommended that target interventions are used instead of universal interventions in order to reduce the fiscal pressures.
For instance, subsidies should be provided to certain segments of the population especially those considered to be more vulnerable. This will reduce the amount need by the government for subside.
Similarly, the tax relief should target the lowest income groups as opposed to all income groups. By so doing, the magnitude of the revenue to be lost through tax relief is reduced.
If funded through long term debt, such interventions have implications on intergenerational equity hence, debt need to be spent on sectors that have future positive externalities.
*Lukas Kumonika is a National Development Advisor (NDA) at the National Planning Commission (NPC) .Disclaimer: These are my own views but not necessarily for my employer (NPC).
