Imposing higher taxes on struggling economies is like squeezing the lifeblood out of an already fragile system. Most African countries are trapped in a relentless crisis, with no help for their suffering people. These nations have lost their value and credibility due to perpetual poor and corrupt leadership. Each new leader comes with a promise of change but turns out to be worse than the last, deepening the despair of the people.
When higher taxes are levied on individuals, their disposable income decreases. This reduction means that people have less money to spend on goods and services, leading to a contraction in consumer demand. In struggling economies, where every penny counts, this can significantly hamper economic activity and slow down recovery. President Ruto of Kenya comes to mind; the more the people of Kenya cry, the more he insists on milking them dry.
Higher taxes on businesses reduce their profits and available capital. This discourages investment and expansion, as businesses are left with fewer resources to reinvest in growth initiatives. In an economy that desperately needs job creation and innovation to thrive, stifling business growth can lead to higher unemployment rates and reduced economic dynamism.
High taxes divert money away from productive use. Instead of businesses and individuals investing in innovative projects, education, or infrastructure, the money is channeled into government coffers. Governments are often less efficient in allocating resources than the private sector, leading to suboptimal economic outcomes. For instance, President Bola Tinubu of Nigeria is more focused on providing a lavish house for the Vice President while the Naira crumbles and inflation rises.
Rather than focusing solely on increasing taxes, reducing unnecessary government expenditure should be prioritized. President Akufo Addo of Ghana is on my mind; the more the economy deteriorates, the more he insists on maintaining his non-performing ministers. Some ministries have three deputy ministers who practically do nothing other than drive from one TV and radio station to another explaining what they have done. Who does that? There are state enterprises with three deputy chief executive officers, all running at a loss. Which private organization would keep their CEOs in place when they are running at a loss?
Higher taxes often incentivize tax evasion and avoidance. Individuals and businesses seek ways to reduce their tax burden, sometimes resorting to illegal means. This not only reduces the actual tax revenue collected but also increases the cost of tax enforcement.
A high-tax environment can create negative sentiment among existing and potential investors. Businesses may relocate to more tax-friendly regions, and new investments may be deterred. In a struggling economy, attracting and retaining investment is crucial for job creation and economic growth.
Relying on high taxes can be seen as a lazy approach to economic management. It avoids the hard but necessary work of reforming and optimizing government operations. Effective economic management requires creativity, efficiency, and a focus on long-term growth strategies rather than short-term revenue maximization.
Higher taxes in struggling economies do more harm than good. They reduce disposable income, stifle business growth, incentivize tax evasion, and create negative business sentiment. A more effective approach involves cutting unnecessary government expenditure, optimizing public sector efficiency, and fostering an environment that encourages investment and economic activity. By doing so, struggling economies can pave the way for sustainable growth and prosperity.
By Desmond John Beddy
Higher Taxes Kill Struggling Economies
