Position Statement: Budget 2016/2017


Today the National Assembly starts discussing the National Budget for the Financial Year 2016/17 and this will be the first session under the new administration of President John Magufuli. It is also the first year of the Second Five Year Development Plan (FYDP II) 2016/17 – 2020/21. As a base year, we the members of the Policy Forum Budget Working Group would like to contribute to this key process by sharing our views on the performance of the previous budget and our expectations in the forthcoming budget.

The 2016/17 national budget aims to implement the 2015 Ruling Party Election Manifesto of the Fifth Phase Government and the recently adopted United Nations Sustainable Development Goals (SDGs). The central theme of the budget as per the budget guidelines is to nurture an industrial economy which if well implemented, can contribute to reducing unemployment and thereby lead to improved livelihoods and economic growth.

In spite of these noble goals, there are budgetary challenges that include inadequate revenue collection and delays in, and sometimes non-disbursement of, approved funds. These result in underperformance in the execution of various development projects. For example, looking at the revenue trends from July 2015 to February 2016, it is apparent that donor funding is becoming more unpredictable. For this period, collection of domestic resources stood at 97% whereas contribution by donors stood at Tsh. 1.017 trillion (62.5%) of the committed Tsh. 1.6 Trillion. In recognition of the efforts by the current regime to mobilise more domestic resources and emphasize on spending diligently, we put forward the following policy recommendations:   

Domestic Resource Mobilisation
The 2016/17 budget estimates as presented recently by the Minister for Finance and Planning, Dr. Philip Mpango differ significantly from budgets of previous years. Oftentimes, annual budgets have tended to differ slightly. The 2016/17 budget sees an increase of 23% from Tsh. 22.5 trillion in 2015/16 to Tsh. 29.5 trillion in 2016/17. This difference is quite noteworthy. Most interestingly, is the fact that this time round, we observe the development budget enjoying 40% of the total budget unlike the previous two financial years (2014/15 and 2015/16) that saw this category being allocated 32% and 26% of the total budget respectively. Figure 1 indicates this trend.
During the financial year 2016/17, the government intends to improve its revenue collection. Of the Tsh. 29.5 trillion, the government aims at collecting Tsh. 18.5 from its internal sources including collection from the local authorities. This represents 62.5% of the total budget. Revenue tax is expected to be Tsh. 15 trillion which is 82% of the total domestic revenue. Non tax revenue and revenue from the councils on the other hand are estimated to be Tsh. 2.7 trillion and 0.7 trillion respectively.
Figure 1 Budget trend 2014/15 to 2016/17

Tanzania’s vision of reducing donor dependency and external financial support by 80% as revealed by the Prime Minister, Kassim Majaliwa, is a welcome and positive development with regards to efforts to increase domestic resource mobilization. This remains, however, a mammoth task given that the government rid itself of corruption and misuse and abuse of public funds, scourges that have seen public services in the country deteriorate over the years. This calls for the government to continue strengthening its financial regulations and systems both within the Ministry of Finance (including the Bank of Tanzania) and the Tanzania Revenue Authority as well as other institutions acquiring and managing monies from levies and fees.

The increase in revenue collection by the Tanzania Revenue Authority between November 2015 and March 2016 has been very satisfactory and encouraging. This has set a new reference line by which to judge itself as far as the ability of the government to increase domestic resource mobilization through tax collection is concerned.
The Tanzania Revenue Authority hit a record high of revenue collection to total of Tsh. 1.4 trillion a month up from 850 billion shillings in December 2015. It is reassuring that TRA has maintained its collection rate above the Sh1 trillion mark as evidenced by the Tsh. 1.07 trillion and Tsh. 1.04 trillion that was collected in January and February respectively.
This determination by the government is well-recognized. The following recommendations, nonetheless, will buttress the efforts by the Government of Tanzania to collect more revenue:
i.    Full implementation of Tax Administration and VAT Acts: The two Acts if properly implemented will have impact on revenue collection, progressively creating opportunities for the government to widen its tax base and collect revenue through the reduction of tax exemptions and increasing tax compliance in business transactions. The legislations also provide for independent scrutiny of tax incentive decisions by parliament and the public through the publication of annual tax exemption reports.

ii.    Widening the tax base:

Widen the tax base instead of raising tax that will affect the low income earners by targeting Highly Wealthy Individuals (HWIs) and Multi-National Corporations benefiting from dubious tax preferences, and those evading tax through transfer mispricing, manipulating tax laws, not adhering to the arm’s length principle and corruption, all leading to base erosion and profit shifting (BEPS).

In the financial year 2016/2017 we aspire for the budget to reflect the following;

On Health
Several achievements have been registered in the health sector for the past years. In the last financial year, we have witnessed construction and renovation of referral hospitals. This includes the completion of a specialized hospital – Benjamin Mkapa Ultra Modern Hosptial in Dodoma. During the year 2016/17, the government intends to improve referral hospitals as well. There is allocation of Tsh. 5 billion to finance blood banks in Kigoma, Mwanza, Simiyu, Mara and Geita, renovation of health facilities in 5 new district hospitals, installing a digital radiation system in 2 referral hospitals and 7 regional hospitals. A total of Tsh. 4 billion is allocated to purchase medical supplies and constructing preventive system in Muhimbili National Hosp. Further to that, Tsh. 5 billion, Tsh. 3 billion, Tsh. 2 billion and Tsh. 876 million are allocated for purchasing medical supplies for Ocean Road Cancer Institute, Muhimbili Orthopaedic Institute, Bugando and Kibong’oto hospitals respectively.

Despite these developments in the sector, the government has hardly reached the target set 15 years go by the Abuja Declaration which requires that governments allocate at least 15% of their national budgets to health. The current allocation is less than 10% and the FYDP II indicates this 15% share as its target in 2020. We call upon the government to rethink this and reinstate this commitment and invest further in the sector as it has a multiplier effect in other sectors.

On Agriculture
According to the Second Five Year Development Plan (FYDP II) 2016/17 – 2020/21, the agricultural sector employs about 70% of the population, contributing 28% of GDP, 30% of exports and 65% of inputs to the industrial sector. Until June 2014, agriculture growth stood at 3.4% far beyond the target set in MKUKUTA II and FYDP I which was 6% in 2015.
During the 2015/16 budget, some of the prioritized interventions included; Tsh. 7.1 billion has been allocated for strengthening irrigation infrastructure; Tsh. 7.2 billion has been allocated for construction of warehouse and markets in different areas; Tsh. 96.1 billion has been allocated for agricultural inputs and chemicals; and Tsh. 5.1 billion has been allocated for construction of 78 irrigation schemes. These allocations were meant to improve production and storage of the farm produce.
Amongst the achievements registered during the implementation 2015/16 budget includes the construction of 8 ware houses (4 in Mbarali, 2 in Iringa Rural and 2 in Kyela); also improvements in 30 irrigation schemes have contributed to increased rice production from 4.1 tonnes to 5 tonnes per hectare.
Despite the progress, as stakeholders we are still concerned over the meager budget that goes the agriculture sector. We call for the government to honor its commitment to allocate at least 10% of its budget to the agriculture sector as highlighted in the Maputo Declaration. With the current allocation of less than 10% government budget to the agriculture sector, we are worried that most of the set targets may not be realized.

On Education
Fee free basic education  
The new Education and Training Policy (ETP 2014) followed by the Education Circular No. 5 of 2015, gave order to abolish secondary education fees and any parent’s contribution to primary schools. The meaning of this order is that public schools from now will no longer depend on contributions and collection of school fees as sources of income to support schools to run themselves. By virtue of this statement the government has declared to cover all the costs of primary and secondary schools to facilitate learning and training.     

Despite the fact that prior to the order of fee free education and the termination of parental contributions, contributions towards education in public schools were done in cooperation with the government and parents, even then financial accessibility in schools was problematic. The situation of disbursing grants to schools was so poor that the government was able to disburse an average of Tsh. 4,000 to 5000 only out of Tsh. 10,000 for primary schools and between Tsh. 12,000 to 15,000 out of Tsh. 25,000 required for secondary schools.  The government also failed to disburse development funds to schools especially monies required for construction of infrastructures and repairs of classrooms, toilets, laboratories etc. These costs were compensated to a large extent by parental contributions and community participation. For this reason, for the government to be able to cover the cost of free education it must in its forthcoming budget plans and starting with the next year budget for financial year 2016/17 allocate funds to cover the following:   

The government should consider compensating monies spent on fees that was initially being contributed parents, the cost of food (porridge) at least for children in pre-schools for whom it is necessary to have a meal in schools, and to compensate for the cost of improvement and construction of infrastructures needed for the year. According to the analysis done by HakiElimu, considering the data on the number of students, schools and requirements, every year the government will have to allocate not less than Tsh.  852 billion aside apart from other sector needs in order to cover the cost of free education. We advise the government that it is of utmost importance to ensure that the mentioned amount is added to education sector budget for financial year 2016/17 in order to implement effectively its policy commitment regarding the provision of free education.

Education budget planning and allocation
There have been challenges for a long time in allocating expenses for the education sector. Most of the times, budget allocation to the sector has failed to achieve acceptable ratio between recurrent expenditure and development expenditure. During the past five years, the average of development budget for education sector has been between 11-16 percent only while that of recurrent expenditure was between 80-90 percent. The amount allocated for the development activities in education sector is very low compared to development challenges such as construction of classroom, teachers’ houses, dormitories, toilets and laboratories.

For instance, during financial year 2015/16, budget the whole education sector was Tsh. 3,887 billion however; development budget for the education sector was Tsh. 604 billion only (16%) of the whole sector budget, whereas budget for recurrent expenditure was Tsh. 3,282 billion (84%) of the whole education sector budget.
Another weakness is that a large amount of funds claimed to be for development in the education sector are directed to cover the cost of loans for higher education students which are interest free.  For example, in the development budget for financial year 2015/16, about 50% of the funds (Tsh. 306 billion) were for loans for higher education.  Therefore the actual budget for development activities in the education sector was Tsh. 298 billion only.  The effect of planning for loan funds within the development budget includes phishing the actual budget, superficially the development budget may seem substantial and adequate but in reality it is only a small amount that does not meet the needs.  

We advise the government to take caution against this type of budget planning, since in reality funds allocated for development expenditure are much less than those for recurrent expenditure and in the end leading to non-implementation of many development projects in the education sector.
We urge the government to follow the guidelines for budget planning provided within the framework of Five Years Development Plan (2015 -2010) that require recurrent budget and development budget to have a ratio of 60 by 40 percent. It is our expectation that in the next year’s budget (2016/17) development budget of the education sector will rise and reach an average of 40 percent. This will facilitate implementation of government’s commitment to improve training and learning environment.

We also urge the government to shift funds for higher education student’s loans from development budget of education sector to the recurrent budget. This will help provide the real picture of the actual amount of development expenditure within the education sector.

Deficit Quality assurance budget to schools
One of the reasons that contribute to deterioration education quality in public schools is poor inspection and monitoring of public schools. According to Basic Education Statistics of Tanzania (BEST 2015) only 19.1 percent of primary schools and 21.4 percent of secondary schools are inspected per year. This implies that the government takes five years to inspect all public schools. In other words, each public school is inspected once after every five years.

The major reason for the above failure, according to schools inspectors, is lack of sufficient funds to guarantee inspection of all 16, 538 and 4,753 public primary and secondary schools respectively. Despite meager budget allocations for inspection, inspection funds have been used to cover expenses that are not directly related to actual inspection; such as salaries. For example, in the 2015/16 fiscal year budget a total of Tsh. 22.4 billion was allocated to inspection department whereas Tsh. 20.2 billion out of that sum was for wage bill. Therefore only Tsh. 2.2 billion was actually allocated to cover inspection costs such as fuel for vehicles, allowances for inspectors, vehicle maintenance, communications and capacity building programmes.    

We urge the government, through its ministries responsible for the education sector, to review the amount of budget allocated for public schools inspection. The government should take note that effective implementation of various education programmes in schools, including the free basic education programme, depends on the effectiveness of inspection and monitoring of schools every year. It is important that in the coming fiscal year (2016/17) the government should allocate special and adequate funds to warrant inspection of at least 80% of education institutions due for inspection.

2016/17 education budget estimates
On account of the above reasons, it is our hope that the education sector’s budget for the financial year 2016/17 will be increased. If the government is to cover the costs of educational delivery without payment of fees or parental contributions, allocation of the budget for inspection, and increase the development budget, it will be essential to increase the budget allocation for the education sector. Tanzania’s current investment in the education sector ranges between 11% and 16% of the national budget.

In accordance with the Charter for Education for All (EFA 2000) through the Dakar Framework for Action, countries should allocate at least 6% of their respective GDPs for education, or as has been acknowledged in many parts of the world, countries should allocate at least 20% of their national budget to education sector. Therefore, in accordance with the EFA goals and procedure agreed upon internationally, Tanzania is yet to invest enough in education. This is not only violation of the EFA goals which Tanzania signed but also does not match with the challenges that have in reality hindered the provision of quality education in the country for many years.

On Gender
In the recent years, there have been deliberate efforts by the government to integrate gender into its various plans and policies including the national budget. The inclusion of budget lines that address the marginalized groups in the society serve as evidence that some gender aspects are being considered while preparing the budget. There are today budget lines that address groups like pregnant women, children and the disabled.

The budget guidelines urge all public entities to make budgetary allocations for implementation of priorities for cross cutting interventions, including gender issues, and construction of user friendly infrastructure for physically challenged people. In the 2016/17 budget, the government commits to continue supporting economic empowerment initiatives through Economic Empowerment Fund, Youth Development Fund and Women Development Fund.

The intention by the government to allocate Tsh. 50 million for every village in order to support employment and economic empowerment at community level is a good initiative. It is however a challenge on the part of the village governments on how they make use of these funds to help empowering their people. These funds could for example be used as loans to small groups at the village level that for years have been finding it difficult to access loans from our financial institutions.

As stakeholders we trust that the budgetary estimates for 2016/17 if well executed will contribute significantly to improve the lives of the local community as well as the lives of youth. The move to allocate Tsh. 6 billion to improve small industries in Dar es Salaam, Mbeya, Morogoro and Mwanza will surely create room for employment to a number of the youth population.

The allocation of Tsh. 250 million to fund Mkongo – Rufiji Youth Camp indicates government’s willingness to help out the youth with employment opportunities. Under this programme, the funds will be used to prepare a 220 acre land, building irrigation schemes and training to youth on entrepreneurship. If this is well implemented, it can help in raising the economy of the youth population as well as that of the nation.

The initiatives by the current administration of mobilizing more and more domestic resources need to be appreciated. Given the funding terrain today, it is becoming apparent that the only way that the government can surely be able to implement its different programs is through raising its own resources. Revenue collection trend in the last few months shows green light that it is possible to get adequate resources from within.
It is also recommended that once resources are in place, the government should use them diligently so as to ensure efficiency. Timely disbursement and proper use of funds can guarantee some quick wins in our various development programmes.

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