In her 2007/2008 budget statement in June, Finance Minister Mrs Zakhia Meghji stated that she would not borrow from the domestic market this year through Treasury bill and government bonds. The East African described this as the most ambitious fiscal target by a finance minister in years. She must have felt under some pressure to do this because large government deficits make it difficult for the private sector to obtain credit and contribute to inflation. Interest rates on Treasury bills are 16% in Tanzania compared with 12% in Uganda and 6% in Kenya. In the previous year the Government took TShs 35.92bn from the Bank of Tanzania.
Mrs Meghji indicated that next year’s revenue should be enough to enable the government not to borrow locally as weather forecasts appeared encouraging. She will be relying on considerable support from the donor community however to do this. Some 42% of the budget would come from donors – up 3% on 2006/2007.
Many of the other measures she announced attracted strong criticism especially a proposed increase of almost 9% on diesel and petrol and also more tax on kerosene which would have seriously affected the poor. Some opposition MP’s described the budget as the worst since independence. Eventually, under heavy pressure from MP’s, she deleted the kerosene tax increase from the budget, and reduced the proposed increase in vehicle licenses for smaller vehicles and increased them for luxury cars.
Priorities for expenditure were: education (18%), roads (12.8%), health (10%) and water (5.1%). She was criticised by MP’s for allocating only 6.2% to the agricultural sector.
Funds were also provided for the identity card scheme which is aimed at facilitating tax collection, accessing bank credit and to help in the war against crime. Income tax for low income earners was reduced from 18.5% to 15%. The budget also had a ‘green’ element. Tariffs for low energy consuming bulbs and solar energy panels were zero rated.
In summary, the Government expects to spend TShs 6.06 trillion, an increase of TShs 1.20tn on the previous year.
Meghji praised the efforts being made in revenue collection and estimated that GDP would grow at 7.3% this year.