Fixing tax headaches and chills
Neo-classical economics are founded on the notion that labour and capital are key ingredients of economic growth. Economic growth often in the context of gross domestic product (GDP), though the critique of the notion find comfort in its limit. The limit being growth in GDP does not translate into prosperity. Variants of the capital-labour thesis add in technology. This is to say that labour and capital are not enough. They can be made very effective if workers have the assist of technology.
Similarly, labour is not just a matter of some head count of people working in some office. It has to be productive and the average worker must know exactly what they are supposed to do. But this is one story. There are other stories too. We can look at where this labour or capital comes and its various contributions to national development, progress and prosperity, including other sexy terms we have all got accustomed too.
A picture emerged this week of hundreds of young and old people trying to get jobs at some hotel in the capital city, Lilongwe. It is a picture that must haunt any person that cares about the unemployed or is tasked to get people jobs. Each one can view it from the comfort of their narrative and I can add mine too. One picture came out clear. There is high unemployment in our country and people have become so desperate to get jobs. Unemployment does not just happen overnight. It is something that starts slowly and breeds to crisis levels. It costs are very high too.
What are the high costs of unemployment? Well, the obvious one is that government loses out on potential revenue. Such revenue could in terms of pay as you earn (Paye) taxes and value added taxes (VAT). A jobless person whose purchasing power is compromised cannot be spending any way. By not spending, governments everywhere lose out on revenue.
However, there has to be some compensation somehow. It is a government responsibility and politicians on the continent love it too. It wins elections. It is provision of free lunch in its variants. But that free lunch has to be financed somehow and someone has to pay. Two categories of people pay such kind of things, the domestic taxpayer and the one beyond the border, in the political correctness, the development partner.
The jury is still out with the verdict on development partners. Precisely, it a strong argument that has been there that money does not grow on trees. This is the message that the taxpayer beyond the border is not some extravagant rich person, but rather an average person. It is sales agent, a reception or a hair dresser. That is why we adopted the zero-aid budget or whatever you would want to call it. In the end, it leaves the domestic taxpayer that has to foot the junk. The only problem now is that the average able-bodied man or woman is unemployed. So the tax burden in trying to help out the most vulnerable gets worse. The few have to stop investing but organise themselves to barely live.
So, it becomes taxes and taxes. Such has been the trend since the 1960s. Come next year, new tax measures will be introduced. And so the cycle goes again and hoping things will change.
Like we have argued on this column, the devil is in the tiny numbers. Those are the ones that one needs to pay attention to. Every year, approximately 200 000 young people turn 18, the age they finish high school and few get into university or tertiary institutions. At the end of every presidential term, we have a million youths trying to get into the job market.
Turning this into a decade makes it two million, basically the population of Lilongwe and Blantyre but of young people desperate for jobs. It sounds alarmist since some have to go and study, yet it is a powerful narrative of how a huge population boom in our tiny, land challenged country is affecting us all. Those young people on the line for jobs are a candid illustration.
Like the neo-classical brains, there is no meaningful growth if we cannot get most of productive citizens into the job market. And in the process, every year we run the same experiment of playing taxes around to beef up central coffers, not necessarily creating employment. A tax burden on a tiny workforce is a result and tax collectors have to spend some good time in courts fighting off defaulters.
It is a same cycle with predictable results, just like approaches to fixing it are well known, often crafted in a five-year horizon yet the lifespan is somewhere in the 50s.
What creates jobs? Or do you reckon that in this cycle, a path to creating jobs has been cleared? I have no others but we can save that for another day. Happy Ramadan.
