Optimum trail for posterity (Part 2)

DODOMA: IN our last discussion, we took a deep dive into the relationship between tax policy and government spending—two forces that can either push a nation forward or pull it into financial chaos.

We explored how poor management of these key areas leads to budget deficits, wasteful spending and a loss of public trust.

The harsh reality? Fiscal mismanagement is still holding Africa—Tanzania included— back from real progress.

But that was just the surface. Now, we’re going deeper into the real challenges stopping change from happening.

The big question is: Can we finally break the cycle, or are we stuck repeating the same mistakes? Today, we continue right where we left off, diving into the significant challenges governments face in driving meaningful fiscal change.

From political pushback and outdated systems to weak institutions and rising debt, we’ll examine the roadblocks that hinder governments from achieving stable, sustainable economic growth.

These issues have long held African nations back, and now we’re addressing the critical question: Can true fiscal reform happen, or are these systems too broken to repair? Achieving meaningful change in tax policies and government spending requires a well-structured, phased approach.

This ensures immediate improvements while setting the stage for long-term fiscal sustainability.

A thoughtfully planned strategy minimises political resistance, boosts compliance, and strengthens economic resilience.

Below, we present a framework outlining a progressive reform process that begins with achievable, high-impact measures and evolves toward deeper, structural transformations requiring strong institutional and legislative commitments.

In doing so, it charts the optimal path for future generations. Immediate, High-Impact Reforms Analysts, including economist Mr Dlamini Amogelang from Pretoria, South Africa, agree that the initial phase of tax reforms should focus on enhancing transparency, improving revenue collection efficiency, and rebuilding public trust in fiscal management within the first 6 to 12 months of implementation.

Amogelang highlights that digital transformation offers one of the most cost-effective and impactful interventions, with artificial intelligence (AI) and machine learning playing a central role in revolutionising tax administration.

These technologies can detect tax evasion patterns, identify non-compliant taxpayers, and significantly improve audit efficiency.

Additionally, blockchain technology can be deployed to track public expenditures, ensuring budget allocations are used as intended.

Amogelang cites the success of Estonia’s e-Government system, which has reduced administrative inefficiencies and cut public sector corruption by over 30 per cent through real-time digital monitoring of financial transactions—a model that has proven effective and transformative, as supported by multiple analysts including Amogelang.

An anonymous economist and banker from the EU Tanzania Office emphasised that strengthening independent oversight mechanisms is crucial for ensuring fiscal accountability.

He advocated for granting greater autonomy to supreme audit institutions and making real-time expenditure reviews mandatory for all government agencies, citing the successful approach of USAID as a valuable example.

An economist from Arusha, Caleb Ngozi, echoed this sentiment, highlighting the effectiveness of participatory budgeting, where citizens are directly involved in budget allocation decisions.

He referenced Brazil’s experience, where this approach resulted in a 20 per cent reduction in corruption-related expenditures, while boosting public trust in government spending.

Such reforms not only minimise financial mismanagement but also reinforce the legitimacy of tax collection, ensuring a more transparent and accountable fiscal system.

Hamisi Aweso, from Mwanza Region further said that optimising tax collection without raising tax rates could lead to significant revenue gains.

He advocates for simplifying tax codes and eliminating bureaucratic hurdles to foster higher compliance, particularly among small and medium-sized enterprises.

Mr Aweso highlights Rwanda as a successful case, where the integration of digital tax filing and tax registration with national ID systems boosted tax compliance from 53 per cent to 78 per cent in just three years.

He suggests that expanding these initiatives across revenuecollection agencies would not only help bridge the existing tax gaps but also reduce administrative costs, ultimately strengthening the entire tax system.

Medium-Term Reforms A lawmaker from Dodoma, speaking on the condition of anonymity, said that after the initial transparency and efficiency reforms are in place, the real challenge lies ahead—restructuring government spending and optimising revenue allocation in the critical 1–3-year period following implementation.

He advocates for a transformative approach: embedding performance-based budgeting at the core of government operations.

Under this model, ministries and agencies would no longer operate with open-ended budget requests but would be required to justify every expenditure through clear, data-driven key performance indicators (KPIs) that assess both costeffectiveness and the tangible return on investment.

Citing Singapore as a prime example, he argued that this method has proven essential in maintaining not only fiscal efficiency but also a low debtto-GDP ratio, positioning the nation as a global leader in sustainable public finance.

This, he insists, is the blueprint that Tanzania must adopt if it hopes to break the cycle of inefficiency and create a truly accountable government.

A member from the Confederation of Tanzania Industries (CTI) stressed the need for sector-specific tax reforms to drive economic growth and promote equity. He argued that the government should reduce the tax burden on high-employment sectors like manufacturing, agriculture, and technology, while implementing stricter compliance measures for industries with historically low tax contributions, such as the extractive and digital services sectors.

His colleague, who preferred to remain anonymous, pointed to Ireland’s strategic corporate tax policies as a prime example of how targeted taxation can fuel economic expansion. By offering competitive tax rates to multinational corporations while ensuring rigorous compliance enforcement, Ireland saw its corporate tax revenue surge from 4.0 billion euros in 2010 to 22 billion euros by 2022.

This highlights the critical role of aligning tax policies with a nation’s economic priorities for sustainable growth.

A thought-provoking discussion with an anonymous World Bank colleague uncovered a critical insight: to safeguard Tanzania’s long-term fiscal health, the government must implement robust legislation to enforce fiscal responsibility and debt control measures.

The idea of codifying budget deficit limits into law, coupled with provisions for automatic expenditure reviews and corrective fiscal policies when deficits exceed set thresholds, could prove transformative.

Not only would such steps bolster fiscal discipline, but they would also strengthen public confidence, ensure debt sustainability, and promote economic stability nationwide.

However, the potential political hurdles—particularly the necessity of implementing unpopular spending cuts—cannot be overlooked.

Our conversation then pivoted to Germany’s groundbreaking “Black Zero” policy, hailed as a beacon of fiscal discipline.

By keeping its national debt below 70 per cent of GDP, in stark contrast to over 100 per cent in neighbouring France and the UK, Germany offers a powerful lesson in sustainable public finance.

Adopting a similar framework could be the key to breaking the cycle of unsustainable borrowing and stabilising Tanzania’s economy for future generations.

Structural and Institutional Reforms The final and most intricate phase of reform centres on aligning tax and expenditure policies with long-term national development objectives, a process that could be evaluated between years three and ten of the implementation cycle.

Andrei Mikhail, a corporate strategic planner and economist based in Nairobi, emphasised that tax revenues should be earmarked for essential public services—such as healthcare, education, and infrastructure— rather than being absorbed into general budgetary allocations.

Mr Mikhail argued that Tanzania must introduce constitutional mandates that establish minimum spending thresholds for critical sectors, ensuring continuous investment in human capital and long-term economic competitiveness.

Drawing from Sweden’s success, where high taxation is directly linked to high-quality social services, Mikhail said that this model has earned Sweden a 78 per cent public approval rating for its fiscal policies, showcasing the potential benefits of such an approach.

A senior executive from The Moroccan Inter-Professional Retirement (CIMR) underscored the critical need for comprehensive pension and public wage reforms to ensure longterm fiscal sustainability.

Many African governments, he noted, are grappling with unsustainable pension obligations due to aging populations and declining labour force participation.

Citing research, he explained that transitioning from traditional defined-benefit pension schemes to contributionbased systems could ease fiscal pressures while still providing adequate support to retirees.

He pointed to Italy’s pension reform, which raised the retirement age to 67, as an example of how such measures can stabilise pension expenditures, which had previously consumed over 16 per cent of GDP.

The discussion further concluded that economies facing similar demographic challenges should consider adopting similar reforms to safeguard fiscal stability.

Additionally, the executive aligned with other Tanzanian experts, all stressing the need for public sector wage reforms to prevent overspending on salaries, ensuring that adequate funds are available for critical services instead of excessive payroll costs.

Manish Ishaan, an alumnus of the prestigious McDonough School of Business at Georgetown University and currently based in Ghana, emphasises the urgent need for Tanzania to prioritise economic diversification and revenue stability to reduce its dependency on volatile income sources, particularly commodity exports.

He argues that the current administration must consider the creation of sovereign wealth funds, reinvesting any surplus tax revenues into initiatives designed to fortify the country’s long-term economic resilience.

Drawing from his extensive research, Ishaan highlights the success of Norway’s Sovereign Wealth Fund, which, valued at a staggering 1.4 trillion US dollars, acts as a fiscal shield against fluctuations in oil revenue.

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By diversifying their revenue streams and establishing similar funds, resource-rich yet economically vulnerable nations like Tanzania can safeguard themselves against budgetary crises during periods of commodity price instability, ensuring more stable and sustainable government spending.

Reform Roadmap Achieving sustainable tax and expenditure reform requires a methodical approach that balances immediate revenue gains with long-term economic stability.

Governments must begin with quick, high-impact measures such as digitisation and improved oversight before progressing to structural changes in budget allocation, tax policy alignment, and debt management.

The most challenging but ultimately transformative reforms involve institutional restructuring, pension sustainability, and economic diversification, which require strong political will and long-term commitment.

This phased strategy provides a technically sound roadmap for policymakers, ensuring that fiscal systems become more transparent, efficient, and aligned with national development goals.

Successful implementation depends on the integration of digital technologies, legal frameworks that enforce fiscal discipline, and continuous public engagement.

By following this structured reform process, governments can create tax and expenditure systems that foster economic resilience, equitable growth, and long-term financial sustainability.

Epilogue Tax and expenditure reform is not a topic for endless debate—it requires decisive action.

Countries like Estonia, Singapore, and Germany stand as proof that aligning tax policies with responsible spending is not just possible but crucial.

Through digital innovation, strict fiscal discipline, and wellstructured tax frameworks, these nations have set a benchmark for others to follow.

For policymakers, the path forward is clear: begin with modernising tax systems and implementing rigorous audits, before progressing to deeper structural reforms like cutting inefficient subsidies and redesigning tax brackets. Building strong institutions and fostering public oversight are non-negotiable for sustaining these efforts.

The role of citizens, businesses, and civil society cannot be overstated. It’s time to demand transparency, advocate for fair taxation, and push for inclusive budgets that prioritise longterm national growth.

The era of half-measures must end—only swift, data-driven reforms can avert future fiscal crises.

We deeply appreciate the invaluable support and collaboration of all contributors, whose insights have played a pivotal role in shaping this crucial conversation form when we began the series up to date, not only Tanzanians who participated but also our friends across the globe – which has made this series very successful and impactful.

As we eagerly await the official release of the Tax Reform Commission’s final report, we shall construct a special edition to carefully evaluate the strategies outlined by the commission that will pave the way for the next steps in Tanzania’s fiscal journey.

With that, we bring this series to a close. A big thank you to everyone who has participated in this important discussion.

While we’ve mentioned some names, many have chosen to stay anonymous, but every contribution has played a crucial role in shaping what we’ve shared.

We wish you all the best moving forward. On the 28th of this month, we’ll publish one last article to recap our journey from start to finish.

Let’s keep the conversation going across other platforms and make sure to share our recommendations through the avenues outlined by the commission. God bless Tanzania, God bless Africa.