The goodness of taxation

Diana Cammack, PhD
Local Governance Team Leader,
Africa Power and Politics Programme 


No one likes to pay taxes. The uproar in Malawi since the Minister of Finance delivered his zero-deficit budget speech, which imposed new taxes on some items and raised them on others, is evidence of that. But there is an up-side of government demanding and citizens paying taxes that needs to be made explicit because signs of its existence are more obvious each day.

What we are seeing in Malawi now is that making people pay taxes to support a government’s policies inspires them to focus more closely on how their money is being raised and spent. This is good news for governance.

The Social Contract

For decades Malawi has been heavily dependent on aid. This sets up an ‘accountability relationship’ where government has to answer to donors and meet their conditions in return for their money. Now, setting donors aside the government must depend on its voters for funds, and this strengthens the social contract between ruler and ruled.

At its most basic the social contract is an implicit agreement between a state to provide security, economic well-being and public services to its people in return for their loyalty, support and obedience to the law. If a government gets a large percentage of its income from foreigners or from resources like oil or minerals it does not have to be responsive to its own people.

History’s Lessons

In other countries the bargain negotiated between government and the people around taxes has been instrumental in making the state more democratic – i.e., giving the people a greater say in policy-making and spending. For instance, a government at war has to get its people to pay for it, and taxpayers have grouped together and used this to make sure their voices are heard. 

Elsewhere direct bargaining over specific taxes has led to particular episodes of political reform. Also, campaigning about changes to tax systems has strengthened NGOs and other groups of activists and mobilized civil society to work on broader governance and economic issues.
On the other side of the equation, government structures in communities must be strengthened to calculate and collect taxes. This will increase the presence of the state at local levels and the interest that government takes in society’s well-being. It will pay greater attention to facilitating wealth-creation too.
Connecting the Dots

In Malawi the focus on taxation has given rise to a whole set of questions that donors have been asking for years. Now these topics are hitting the front pages of the local media and being debated in minibuses: should money be spent on helping the poor or on promoting growth, and how to balance the two? How big should the cabinet be? Are taxes on basic foods a good idea? Do government’s taxation policies and its use of tax earnings promote outside investment or chase it away? How do they help me earn more money? Soon people may connect the dots between paying taxes and spending, and ask detailed questions about government priorities, corruption, efficiency and waste.

New Public Demands?

With the exception of a handful of skilled Malawian NGOs, few people followed (or could understand in detail) discussions about budgets and government spending. People were satisfied with opposition politicians condemning a government’s budget in broad and relatively meaningless terms.

Now though, people are becoming informed: the new budget is on the internet and widely reported in the press. Soon they may demand that shadow ministers stop giving airy speeches and instead, provide details about how their own parties will tax the nation and spend the proceeds.
In the past national elections have centred on personalities, with only token attention being given to issues. There is hope that this new focus on spending might influence how people choose their leaders in 2014. With the right sort of organisation, it could even lead to candidates being questioned about their taxation and spending plans, and about their economic and social policies in detail.

Though it is likely that donor aid will continue to play a major role for years, history tells us that this new focus on taxation will help consolidate democracy in Malawi.