Creating and Sustaining Fiscal
Space for Expanding Social
Protection
Nard Huijbregts
[email protected]
Economic Policy Research Institute (EPRI), Cape Town, South Africa
Arusha, December 2014
• Domestic Resource Mobilization
– Tax Revenue
– Non Tax Revenue
• ODA
• Efficiency gains and reallocation
• Deficit financing/borrowing
Sustaining fiscal space
Creating fiscal space
Overview
Domestic Resource Mobilization
Percentage of GDP collected as revenue
Zimbabwe
Sudan
Somalia
Mauritania
Lesotho
Guinea
Eritrea
Congo, Rep
Chad
Cameroon
Equatorial Guinea
Angola
Botswana
Tunisia
Liberia
Mauritius
Egypt, Arab Rep.
Senegal
Togo
Namibia
Tanzania
Benin
Sao Tome and P.
Rwanda
Sierra Leone
Central African Rep.
Nigeria
0
10
20
30
Source: World Development Indicators 2014
40
50
60
Tax Revenue
Broadening the tax base
Tax exemptions
Tax evasion
Tax Revenue
Broadening the tax base
50 entities pay 80 percent
of all tax
Large informal sector
Tax exemptions
Tax evasion
Tax Revenue
Broadening the tax base
VAT (38%)
Tax exemptions
Mining (23%)
Tanzania Investment
centre (20%)
Tax evasion
Companies and individuals
(5%)
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
Overseas Development Aid
• Increasing commitment to Social Protection
• Although increasing in absolute value,
decreasing as share of government revenue
4.5E+09
4E+09
3.5E+09
3E+09
US$
2.5E+09
2E+09
1.5E+09
1E+09
500000000
0
Years
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?
1990
1993
1996
1999
2002
2005
2008
2011
2014
2017
2020
2023
2026
2029
2032
2035
2038
2041
2044
2047
2050
Child Dependency Ratio
100
90
80
70
60
50
40
30
20
10
0
Full Dependency Ratio
120
100
80
60
40
20
0
1990
1993
1996
1999
2002
2005
2008
2011
2014
2017
2020
2023
2026
2029
2032
2035
2038
2041
2044
2047
2050
1990
1993
1996
1999
2002
2005
2008
2011
2014
2017
2020
2023
2026
2029
2032
2035
2038
2041
2044
2047
2050
Dependency Ratios
Older people dependency ratio
10
9
8
7
6
5
4
3
2
1
0
1990
1993
1996
1999
2002
2005
2008
2011
2014
2017
2020
2023
2026
2029
2032
2035
2038
2041
2044
2047
2050
Child Dependency Ratio
100
90
80
70
60
50
40
30
20
10
0
Full Dependency Ratio
120
100
80
60
40
20
0
1990
1993
1996
1999
2002
2005
2008
2011
2014
2017
2020
2023
2026
2029
2032
2035
2038
2041
2044
2047
2050
1990
1993
1996
1999
2002
2005
2008
2011
2014
2017
2020
2023
2026
2029
2032
2035
2038
2041
2044
2047
2050
Dependency Ratios
Older people dependency ratio
10
9
8
7
6
5
4
3
2
1
0
1990
1993
1996
1999
2002
2005
2008
2011
2014
2017
2020
2023
2026
2029
2032
2035
2038
2041
2044
2047
2050
Child Dependency Ratio
100
90
80
70
60
50
40
30
20
10
0
Full Dependency Ratio
120
100
80
60
40
20
0
1990
1993
1996
1999
2002
2005
2008
2011
2014
2017
2020
2023
2026
2029
2032
2035
2038
2041
2044
2047
2050
1990
1993
1996
1999
2002
2005
2008
2011
2014
2017
2020
2023
2026
2029
2032
2035
2038
2041
2044
2047
2050
Dependency Ratios
Older people dependency ratio
10
9
8
7
6
5
4
3
2
1
0
Expenditure Trend
• Social Protection expenditure declining
– Percentage of GDP
– Percentage of GDP per capita
0.60%
0.50%
0.40%
TASAF by model
TASAF by MoF
0.30%
o/w on transfers
o/w on public works
0.20%
0.10%
0.00%
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
Expenditure Trend
Cost as percentage of GDP
2.00%
1.80%
1.60%
1.40%
1.20%
TASAF
1.00%
Child Benefit
0.80%
Old Age Pension
0.60%
0.40%
0.20%
0.00%
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
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