Living within your means: what effect has the increase in budget expenditures in recent years had

In his message to the people of Kazakhstan, President Kassym-Jomart Tokayev stressed that living within your means is the only possible recipe for stability of public finances, reports inbusiness.kz .

"Therefore, excessive spending on tasks that are not inherently priority and strategic should be excluded. It is necessary to restore order in inter-budgetary relations. The decision to keep tax revenues from small and medium-sized businesses in the regions was correct and timely. It gave a significant impetus to the development of entrepreneurship, increased the independence of akims. However, some regional leaders, having received an additional source of income, began to use it sparingly, without practical benefit to the state, for secondary tasks and projects. In order to find sources to cover the budget deficit, the government should develop rational compensation mechanisms," the president said.

In recent years, the Government of Kazakhstan has been increasing its expenses, primarily due to inflation, which requires cost indexing. However, according to Askar Kysykov, director of the Talap Center for Applied Research, most of the funds go to current needs, especially social benefits, healthcare and education.

In his comment for inbusiness.kz he noted that the structure of government spending shows that only about 20% of the budget is allocated for development, while the remaining funds go to current needs. Most of the budget is spent on purchases, capital expenditures and construction, while investments in the future remain low.

"Moreover, the increase in spending on social benefits, healthcare and education is associated with an increase in salaries for teachers and doctors, as well as an increase in the number of recipients and the amount of pensions and benefits. This is reflected in the dynamics of the budget. In the draft budget for 2025, the increase in spending on social benefits amounts to more than 600 billion tenge. Nevertheless, government spending relative to GDP remains stable and amounts to about 17-18%.

A further increase in spending will require an increase in tax collection, this is one of the tasks that the new Tax Code should solve. However, with rising costs, it is important to ensure a balance between current needs and investments in the future, it may be worth reviewing the structure of expenditures and increasing the share of funds allocated for development," the economist notes.

In general, in his opinion, one of the main problems is the low efficiency of investments. Many investment projects are insufficiently developed and their payback is questionable. An example of such a project is Astana LRT, which in the future will require significant subsidies from the budget. This indicates the need for a more thorough analysis of projects before their implementation, he continues.

"Another problem is the inefficient use of a number of government expenditures. Business support measures such as subsidies or financing of the quasi-public sector do not always bring the expected results, and their effectiveness is not monitored. But it significantly loads the budget and, in addition, creates a lot of market distortions. As a result, the state does not receive the proper return in the form of an increase in the tax base. If you look at the revenue execution plan, it is not being executed this year. According to estimates, non-fulfillment of the income plan may exceed KZT 3 trillion. This, in turn, will require additional transfers from the National Fund or an increase in the budget deficit and, as a result, the public debt," Askar Kysykov emphasizes.

To solve these problems, we can pay attention to the mechanism of public-private partnership (PPP). Attracting private investment for the implementation of social and infrastructure projects can be one of the ways to optimize costs and find alternative sources of financing. Setting market tariffs and ensuring the payback of projects is a key aspect for the successful development of PPP in the economy, the speaker concluded.