Overspending, not loss of revenue, is cause of budget deficit: economists
The Ministry of Finance’s (MOF) plan to raise taxes has been facing fierce criticism from economists who believe that the real reason behind the plan is not tax reform, but just money to cover expenditures.
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Economists have warned about the high expenditures needed to maintain the bulky state apparatus which puts pressure on the state budget. 11 million people now receive salaries from the state budget, including over 2.4 million civil servants, retired officers and others.
The economists all agree that the budget deficit in recent years is caused by overspending, not by loss of revenue as MOF’s reports all show an increase in revenue from tax collection.
The regular expenditures have increased from nearly 60% in early 2000 to 70-80% of total budget spending. The spending to feed the state apparatus is much higher than the spending for investment and development.
The Vietnam Institute for Economic and Policy Research (VEPR) in late 2015 completed research on the costs for public organizations in Vietnam and found that the total cost to maintain the system is VND45.6-68.1 trillion. Meanwhile, the State budget expenditure is about VND14 trillion.
Despite reduced spending plans, the regular expenditures always account for the largest proportion of the state budget spending.
MOF’s latest report shows that in the first eight months of the year, only VND137 trillion was spent on investment & development, and VND68 trillion was spent on debt and loan interest, while VND585 trillion came for regular expenditures.
As such, regular expenditures still accounted for 74% of total state budget spending.
High spending and budget deficits have become a big concern for the economy. The overspending in 2011 was 4.4% of GDP and soared to 6.6% in 2013. The proportion decreased slightly in 2015 to 6.28% of GDP, or VND260 trillion.
Though the proportion was 4.95% in 2016, or VND192 trillion, this is still a high figure, according to economists.
To get money for spending, borrowing money from domestic and foreign sources are the measures taken. The government report to the NA last March showed that total state budget revenue was not high enough for regular expenditures and debt payments, while spending for investment and development is now reliant on government borrowing. The public debt has increased.
However, the official from the MOF’s Budget Department said it is very difficult to cut civil servants because of the rapid population increase. He said there is about one civil servant to every 100 people.
MOF asked agencies to cut spending on meetings, festivities and the procurement of unnecessary equipment. However, this cannot settle the root of the problem.
