We agree government has a huge budgetary problem. Between what the government is receiving and what it's spending there's a huge gap.
Concerning the 16 per cent VAT, it's a knee-jerk reaction that will not solve nor bridge the budget deficit. It's like government milking a cow one time extra, though it already has problems producing milk — what you get are more problems. The levies will increase the cost of living and even multiply it.
For instance, a matatu will not charge you exactly 16 per cent but will add more to cater for other costs, increasing fares up to 20 per cent.
To impose that on the general public at this time is reckless and dangerous and will have serious consequences. To suddenly impose this when we have been through considerable inflation, with living standards dipping last year, will hurt the economy.
It will have a ripple effect on the whole economy as people's purchasing power will decrease. They will buy less, so manufacturers and retailers will sell less. This is a recipe that will drive the economy into recession.
Personally I have already started cutting back on expenditures and I guess everyone else is doing the same, which will slow business and create inflation.
Already employees have started saying they need to be paid more to cater for the rising cost of living. This will cause immense social problems and lots of upset. I doubt if the government thought through the risks before rolling this out.
There is no doubt we need to raise more money and cut our costs. The VAT has to be withdrawn and reinstated in stages and phases. If we start off with five per cent, we won't like it but it won't be this painful. Gradual implementation would have been best.
As a long-term measure, we need to prune government expenditure, meaning salaries and wages. I don't see enough evidence of cutting the costs of running government, though this is a background issue.
The economist and public policy analyst spoke to the Star