OPEN ECONOMY: Inter-period equity: Principle for Govt accountability

Inter-period equity is a principle practiced in governmental accounting. It infers that accountability entails government’s use of resources, which belong to citizens, to satisfy the present generation’s needs whilst being prudent and cognisant of future generations.

The principle addresses the implications of fiscal decisions a government makes today, but that may be felt well into the future. Basically, the present generation should derive benefit from what it pays for today, and future generations should not be burdened by irresponsible actions of present-day governmental institutions and enterprises.

That being said, our Comptroller and Auditor-General released a report on State institutions and enterprises.

It is very grim reading.

The report exposes fund misappropriations, mismanagement, governance negligence and rampant corruption in our institutional structures.

The audit, amongst other things, revealed variances of up to US$170 million between collections recorded by Treasury and amounts collected by ministries. The report states that State funds are being diverted towards unauthorised uses and, in some instances, procurement procedures are leading to purchase of defective or substandard products and services.

Likewise, council audits found management granting themselves perks without following the necessary procedures, and payments made to ghost workers.

Now, common speech is that the Government is losing money.

This is not Government money being stolen.

Let’s be precise.

The Government makes money from taxes charged to citizens.

In the first half of this year alone, taxes accounted for as much as 93, 9 percent of total Government income.

So, this is citizens’ money being stolen.

In response, as this unaccountability and pervasive waste of funds carries on internally in State institutions and enterprises, our policy-makers remain adamant on more aggressive fiscal policy.

What does all this have to do with the aforementioned inter-period equity principle?

Well, in a progressive country, or one that intends to be, the common citizen’s most guaranteed investment occurs in the form of tax payments.

Tax payments to government are, in essence, payments for a sustained standard of living, service delivery for health, education or professional development.

This is the most correspondent investment portfolio for our way of life.

As a result, when this investment falls into waste or, in our case, is stolen, there are generational effects to consider.

The fundamental economic problem faced by this present generation is the decrease in the majority of citizens’ wealth; for the few still on a positive projectile, a considerably low velocity of wealth creation.

This is the problem of our time; not low industrial productivity, not liquidity and not a lack of savings or bank deposits. These are merely the consequences of our generation’s declining wealth.

According to the Confederation of Zimbabwe Industries (CZI), industrial utilisation is now at 36 percent. That means consumer demand has fallen 64 percent from what it once was; an implication that over the years citizens have lost more than half their disposable wealth.

A liquidity crunch becomes direr in an environment where citizens involved in economic activity have no assets for themselves, representative of wealth, to guarantee creditworthiness for transactions or loans.

Wealthy citizens have a higher propensity to save, and a savings glut is indicative that fewer numbers of citizens are achieving such a financial space to be able to save money.

We should be careful of accepting comforting economic misinterpretations and, instead, seek to accept the veracity of our economic circumstance with objective clarity.

Wealth is declining.

Assuming your agreement that decreasing citizen wealth is crippling this generation, I can only offer the cause as being that our mandatory investment of tax payments has become a financial sinkhole. Taxes have become a wealth deflator, not a wealth creator.

So, what are the implications for future generations as our current fiscal situation stands?

Three points to ponder.

First, we are at least US$7 billion in debt as a country.

This means that up to US$7 billion of our future cash receipts, if we ever find a way of generating revenue outside of taxes, are already in arrears to external creditors before they are likely to be used for infrastructure development and service delivery for future generations.

Perhaps it is premature to consider the risk of pledging future cashflows or securitising State assets or resources, but if we continue to ignore this lack of fiscal accountability, that is the avenue we are trying.

What kind of inheritance would that be to leave for our children?

Second, as most of our Foreign Direct Investment pursuits are led by the State, our continued debt burden makes us less appealing as an investment attraction. With a low guarantee of cashflows promised to potential investors, future generations will lose out on the information exchange, technical training and increased standard of living that come from integrating supply chains into our borders through FDI.

They will be deprived of the exposure and involvement in global markets, which will be a necessity for their economic competitiveness in the future. Thus, our fiscal misappropriation is leaving future generations shortchanged in terms of global competitiveness.

Zimbabwe is already attracting less than five percent of FDI entering the Sadc region alone.

Third, in what is fast-becoming an environment that is very rewarding to unethical behaviour, how do you pass on the principles of honest hard work, sweat equity, and contributory efforts to national development for future generations?

As the corrupt continue to amass obscene amounts of wealth, with no stern repercussions seen by the public, it will prove very hard to teach the young otherwise.

I suppose the principle of inter-period equity resonates in a society where citizens acknowledge their mortality and temporary benefit of the resources and economy of their country.

Of course, I cannot say where we are in regards to such reflection.

However, what is clear for all of us to see is that this generation is already feeling the effects of corruption.

Maybe we still have time to attend to the future.

Immediate action would be necessary.

There’s no time to chill.

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