Where will the revenue come from?

by PROF. MUHAMMED ALI TASLEEM

The country is going through unusual circumstances. There is an economic crisis. The budget has certain proposals to address this. It speaks of ways to tackle the high price of commodities. It speaks of several social safety nets such as an increase in the elderly persons allowance and other allowances.

There is stress on doing something about the power sector. Allocations have been made accordingly. Then there has been increase in allocations in the agriculture, education and human development sectors. The government is hoping these measures will bring some discipline to the economy by next year.

On the other hand, there is the revenue crisis. Where will the revenue come from? Before taking any measures, one must first determine where the funds will come from. The revenue is not sufficient. To increase the revenue there has been an attempt not to increase the income tax rate, but to extend the income tax net. Then there has been an imposition of tariff on several items like capital machinery, on certain raw materials and so on. The overall tariff will not increase much. Despite of all these measures, there still is not enough revenue being generated.

There will have to be some borrowing to meet the shortfall. There is bank borrowing and non-bank borrowing. The government has directly taken over the huge deficit of the Petroleum Corporation. It won’t have an immediate impact as it is bonds, but the problems will arise in future. It is a huge debt to pay with a large amount of interest. The interest alone, that is 12 per cent, will be nearly 1000 crore taka in one year. Then when there is bank borrowing, that too will create pressure.

So they have tried to tackle the situation in various manner. It is to be seen how successful they will be. We invariably see that the plans are not implemented. We have to see whether they will be able to implement this budget plan.

I do not think the measures they have undertaken to tackle the prices of essentials will be very effective. One must first determine the reason behind the high prices. I do not think they have a very clear idea about this. So I have my doubts if the steps they are taking to control prices will actually be effective.

Our budget in comparison to many countries is very small, only 15 percent of the GDP. The revenue is hardly 11 percent. It’s an extremely small budget. If you look at the European budgets, come are more than 50 percent of the GDP, very few below 40 percent. The American budget is about 20 percent, but then their economy is vast. In those countries, the budget is so huge, but there is hardly any discussion about it. I lived 18 years abroad but never saw any news in the newspapers about the budget. I never heard any discussions on television about the budget. But in Bangladesh there is such a hue and cry over the budget. The budget is a account of the government’s income and expenditure. It is not a serious matter. But in our country the budget often changes the parameters of economy, each budget sometimes coming up with radical changes in tariff and so on. The Finance Ministers have changed things at their whims. There is no accountability. For example, why was capital machinery freed of tariff? And now why is tariff being imposed? There is no justification. But these things can affect business seriously. Sudden tariff can wipe out a business or make it profitable. Because the basic parameters are changed, everyone looks at the budget to see if they will benefit or lose. But these are weaknesses in the budget. The basic weakness of an economy is its unpredictability. Unpredictability leads to poor performance of the economy. And our budget introduces the element of unpredictability in our economy.

All this leads to the flurry of comments on the budget, some hardly making any sense. For example, there was a comment that the budget had no provision for increasing employment. But the fact is that the function of the budget is not to create employment. This is a matter of government policy.

In the budgets of other countries, taxes normally go down, not up. Only in exceptional cases do the taxes increase. For example, when I was in Australia, they introduced the Goods and Services Tax, like our VAT. But this was only introduced after almost 10 years of debate. So they don’t take any sudden decisions.