How National Budget eats into your finances

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By Dorothy Nakaweesi & Christine Kasemiire

James Kitenda is a research consultant and a father of four. Two of these are attending primary school and one is in Secondary School.
With his salary, slightly above Shs5m plus allowances, he tries to make a comfortable life for his family. To him, the high cost of living plus the new taxes show that life is getting tough.

Currently, with fuel prices skyrocketing to between Shs4,000 and Shs4,120, Kitenda’s weekly expenditure has increased to Shs150,000, up from Shs120,000 last year.
This means monthly, he spends Shs600,000 on fuel, indicating a 20 per cent increase from the Shs480,000 it cost him last year.

Because of this, Kitenda has resorted to limiting movement with his vehicle, to only picking and dropping his children to and from school and his workplace.
“I fuel once on weekends (almost full tank) so that as I drive around, I control my movements. We also chart our routes clearly from dropping and picking the children. We do one shopping of groceries and foodstuff over the weekend to last a week,” he confesses while further explaining that he has no way around educational costs for his children.

Like an ox ploughing the wrong direction, the strain, he says is revolting, for instance, water. The monthly water bill has gone up despite using more or less than the same quantity of water.
He says the multiplier effect in a year is big. This prompted him to invest in a 10,000 litre capacity rain water tank that pumps water straight to the house. The move was to curtail the cost of water incurred on a monthly basis, which now allows him to indulge in other needs.

Low income earner
Ms Prossy Kanyike, a mother of three and a Secondary School teacher in Wakiso, is one of the millions of Ugandans struggling to survive on a Shs500,000 ($131) pay-cheque in this tough economy.

“Our meals, breakfast, lunch, supper, used to cost us about Shs25, 000, but now to be able to have all the meals in a day, I have to part away with Shs50, 000 yet my pay-cheque has remained the same for years,” Ms Kanyike shares.
Like many with a fixed earning, Ms Kanyike says it is hard to make a trade off about what to spend on current consumption needs and save for her children’s school fees or as well as health and accommodation needs.

Middle-income earner
Life is not any better for Mr Robert Musana, an accountant in one of the corporate companies in Kampala. He is living on a Shs2.5 million monthly earning, which has not been revised upwards since he was given this job five years ago.
“Before life was fine. When I started a family, my expenditure went up, still I could survive. But two-years ago the cost of living has more than doubled,” Musana shares.

In order to cope, he has resorted to rationing on what to spend on, putting his focus on basic necessities at least until he finds an additional income generating activity.
In accounts offered by three-salaried earners ranging from a manager who earns between Shs5 and Shs6 million, a middle income employee (accountant) who takes home about Shs2 to 3 million and a teacher whose pay-cheque ranges from Shs500,000 to Shs700,000 shows that their pay-cheques have been reducing because of the high cost of living.

Cost of living
The high cost of living is largely amplified by the budget which eats into these employees’ earnings.
Ideally, on average the basic necessities that the three salaried earners spend on include, food, fuel, school fees, utility bills (water, electricity, Pay TV) and airtime/mobile money.
Uganda Bureau of Statistics (UBOS) shows that Uganda’s rich spend most of their income on transport (luxury vehicles), the middle class on utilities and rent while food takes the bulk of the poor’s budget.

Economic experts say life is going to go downhill, especially with the introduction of new taxes in the coming budget; government is encroaching further on everyone’s pay-cheque to finance its activities.
Coping

In a Twaweza’s survey –‘Sauti za Wananchi’- a nationally-representative, high-frequency mobile phone panel survey findings released in February revealed that when a household’s income comes up short, various coping strategies are used, including borrowing money or obtaining food and other supplies on credit (43 per cent), cutting back on consumption (26 per cent), or asking for assistance from family or friends (15 per cent).

As a researcher, Kitenda spends many nights contributing to the revenue of outside accommodation.
Now, implementation of local service tax has increased his stipend on hotel accommodation. He has resorted to optimising special offers given by different service providers, if it means lax costs.
“For my hotel bills, I use same hotels in specific locations to become their regular customers and benefit from discounts,” he says.

Equally, Excise Duty on air time meant he had to spend more money on the same duration of call than the previous cost.
Managing director Wholesum consultants, Ms Ann Muhangi advises that for Ugandans to cope with these new reforms and budget implications, critical scrutiny of indulges should take charge.

Prioritise expenses
To cope, people must prioritise expenses especially in instances like the social media tax. Average middle class Ugandans, Muhangi says have tendencies of minimising small monies deeming them irrelevant, yet when added, gain value.
“They usually think Shs10,000 or Shs5,000 is little. Yet when you keep it 10 times, it becomes Shs50,000. So most Ugandans will look at the Shs200 for social media tax as depressing. This should take us back to prioritising on items you need,” she says.

She asks that prior to spending on data bundles, ask yourself: Do you need to be in that Whatsapp group? Do you need to watch and download all videos sent to you, even those that do not add value to you?
“It is a rethink factor, do I want what I am going to get? The budget is key but prioritize things from the fixed cost you have, going down to other small things so luxuries come later,” she says.

She said a consequence of the new reforms, is that social media now is reflected as a luxury in some cases.
Without hesitating, Muhangi shuns the 1 per cent for mobile money saying this is going to deter financial inclusion which has for years, been highly advocated for by the public.

To cope with that, Muhangi says Ugandans are mostly without choice since it is an easy and quick form of transacting for faraway places. However, for nearby ones, people could opt to take the money direct. Consequently, others will resort to old methods of holding onto money in their homes, under their beds in fear of the cost of withdrawing.
“Monitoring the trail with the money sent right from the source to the final receiver, for example, I send money to my worker who also sends it back to the village, the 1 per cent becomes a substantial amount,” she says.

BREAK DOWN
Using the data analysis from an economist’s eye, Dr Fred Muhumuza says increased taxes may raise the price.
“However, in some cases, the increase in the tax does not translate into an increase in the price as the service provider can absorb the tax – impact of tax falls on the provider. (This is the case of the telecommunication and transport sectors),” he shares.

Subsequently, the budget should increase production and productivity and control the increase in prices that would result from insufficient quantity of goods and services.
The data analysis is based on the effect of changes in prices between 2015/16 and April 2018 assuming a person’s income has not changed over that period.
“The low income earner in Kampala has lost value worth income of Shs22,695 (Shs22,700) between 2015/16 and April 2018. Unless their income was increased to compensate for the loss in income,” he explains.

Looking at the overall loss/gain due to price changes, Muhumuza says the a teacher whose income falls under Shs500,000 lost Shs22,695 an equivalent of 4.5 per cent of income; while the accountant earning Shs2m lost Shs350,311 or 17.5 per cent of income; and person earning Shs5m lost Shs875,778 or 17.5 per cent of income.

“Not that these are not the only losses in income as they are computed on the few basic necessities,” Mr Muhumuza noted.

Monitor.co.ug

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