By Kebour Ghenna
Most people believe they pay taxes so the government can spend money. Nonsense. That’s not how it works.
It might work that way for the Addis Ababa City Administration, the Tigray Region, or any local authority in Ethiopia. They rely on the taxes they collect to fund their budgets. But the federal government? That’s a whole different ballgame.
The vast majority of taxes people pay go straight to the government in Arat Kilo. But here’s the twist: when the federal government wants to spend, it doesn’t need your taxes. It simply increases its overdraft with the National Bank of Ethiopia (NBE).
And guess what? The NBE has no legal right to say no. Why? Because the government owns the NBE. It can extend the overdraft as far as it pleases, no matter what officials or politicians might tell you. In practical terms, the government creates money whenever it decides to spend, as long as Parliament has approved the budget.
But, of course, there’s a catch. The government can’t keep printing money forever without consequences. If too much cash chases too few goods, you get inflation. And that’s where taxes come in – not to fund the government, but to pull money out of the economy to keep inflation in check.
Think about it: if you had to pay taxes in Ethiopian birr, where would you get it if the government hadn’t already spent it into existence? The government spends first – paying civil servants, buying goods, funding projects – and only then does it collect taxes.
In other words, taxes are not a revenue-raising tool for the federal government. They’re an inflation control mechanism. And they can do more than just fight inflation. Taxes redistribute wealth, fund public services, and address inequality.
Once we understand this, we can see why the government doesn’t need to balance its books. In a growing economy, more activity means more transactions – and that requires more money in circulation. The government achieves this by running deficits, spending more into the economy than it takes back in taxes.
The bottom line? The federal government isn’t like your household or even a regional government. It owns its bank. It creates and controls its currency. And it’s not here to “balance the books.” It’s here to ensure there’s enough liquidity for an economy that works for everyone.
Editor’s note : The article appeared first on the personal social media page of Kebour Ghenna
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