Overview:
He says available research indicates that tax cuts will have negligible impact on aggregate prices of commodities, while subsidies will largely benefit the well to-do.
In Uganda, we are currently experiencing what we call galloping inflation, a technical term that refers to the rapid rise in of general prices of commodities.
However, available research indicate that tax cuts will have negligible impact on aggregate prices of commodities, while subsidies will largely benefit the well to-do. Yet, government has limited fiscal space for revenue collection.
But still, it is possible and urgent for government to enact laws for protection of consumers against exploitation by unscrupulous business persons. One could argue that government should cut taxes or introduce subsidies.
The reason is that these commercial banks are privately owned entities, pursing their private interests and therefore cannot be controlled by government.
The economy is liberal and it is not possible for government to set prices of any product.
Even the interest rates of commercial banks have remained high when the Central Bank Rate (CBR) had been set at just 6%, (now raised slightly to 7.5%). The assumption was that commercial banks would accordingly reduce interest rates, but this has not happened.
It is not possible to prevent shocks but the most robust means of controlling inflation pressures is to address the supply side: enhance production and export sector performance, while reducing import invoices.
Nuwagaba is an international consultant on economic transformation. He is a wealth creation expert in Africa.