Social Services Over Defense in New Budget

Tax Revenues Up in $651.6M Draft Law

The government plans to spend more money on social services than defense and security next year, reversing its recent pattern of budget expenditures, according to the proposed na­tional budget for 2001.

Funds for the $651.6 million spending plan will be raised through tax collection, other revenue items and cash donations from international donors, accor­ding to the draft budget law approved by the Council of Ministers last month. That is a $31.9 million increase from this year’s collections.

The government plans to spend $375.3 million on day-to-day operating costs. The rest is itemized for capital expenditure that will be used for public investment projects in infrastructure and loan repayment.

More than one third of the daily operating budget, or $127.1 million, will go to social services, including health and education, while defense and security will receive $110.8 million, or 29.5 percent of the operating budget.

In the past several years, the government has budgeted more money for defense and security than social services, spending more than half the national budget on the military and police until 1998, when 48.5 percent of total budget went toward defense and security.

“The government is making a strong commitment to its fiscal reform in order to build long-term economic growth and sustainable development,” Finance Minister Keat Chhon wrote in his fiscal report as part of the draft budget.

To achieve fiscal reform, he noted, the government must focus on reducing defense spending and increasing budget allocations for social affairs and public investment.

According to the proposed budget, the government expects to receive $217.1 million from international donors next year, down 2.9 percent from this year’s $223.6 million. The rest will be generated domestically and is expected to represent 11.9 percent of the national gross domestic product.

National income from daily operations is projected at $427.9 million for 2001, a 9.5 percent increase from this year. About 73 percent of this will come from taxes.

The proposed budget also shows improved tax collection and management.

The government plans to collect $212.6 million from domestic taxes, including taxes on income and business profits—which accounts for more than two-thirds of all tax revenue. It is expected to offset a 23 percent reduction in revenue from international trade taxes due to compliance with the Asean Free Trade Agreement.

Collection of excise duties, or “sin taxes,” imposed on tobacco, alcohol and petroleum, will apparently be enforced more strictly as the government expects to collect $65.3 million next year, nearly tripling this year’s figure.

Revenues from garment export licenses and tourism are expected to significantly increase government income, while revenue from state property leases and civil aviation will drop by more than 40 percent.

Of the $110.8 million earmarked for the defense and security sector, about $73 million is budgeted for the Ministry of Defense.

While this still takes up the largest percentage of the operations budget, defense expenditures are slated to drop by a tenth next year. The security budget, most of which goes to the Ministry of Interior, will remain at $37.8 million.

Education spending will in­crease by 22 percent to $58.8 million. Health will receive $37.4 million, about 10 percent of the daily operations expenditures.

The ministries of Agriculture, Rural Development and Water Resources—all important to the country’s economic development—will see more than a 30 percent increase each in budget allocation next year. The tourism and commerce industries, res­ponsible for promoting Cam­bo­dia and its products, are also receiving a funding boost.

Economists and international observers have commended government and donor efforts to improve fiscal management in the proposed budget, especially the favorable reversal of defense and social sector spending.

“On paper, it looks terrific,” said Paul Freer, economic observer with the International Manage­ment, Investment and Consul­tants.

He said the improvement might be attributed to external pressures by donors, especially the International Monetary Fund and the World Bank. He credited the soldier demobilization program for the cut in defense spending.

“Clearly you want to see continuous reduction in defense spending every single year,” he said.

Mario de Zamaroczy, the IMF’s country representative, said the proposed budget gets closer to the target set by the IMF on both better revenue collection and improved budget allocation.

“It’s a fairly healthy proactive budget,” he said. “There are tremendous needs in social services, so nobody would disagree to reduce defense spending and transfer that money to social sector.”

But Freer cautioned that the good-looking plan does not guarantee good results in the end, citing the government’s history of disbursing money for defense much faster than other sectors.                                                                                                                        “The issue is if the government can stick to [the plan],” he said. “If it is put into practice, it would be a sign that the reform starts taking effect.”

(Additional reporting by Ana Nov)

Editor’s note: dollar figures are calculated based on the projected exchange rate: 3,800 riel per dollar.



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