Budget proposal not aligned with AL’s election manifesto

Since the AL government has had the chance to frame several successive budgets—and going by the party's own rhetoric over the past years, especially prior to the last elections, the party had expected to remain in power—it had plenty of opportunity to design a long-term vision of how to best steer the country forward using budgetary policies. That it hasn't done, by the looks of it.

The new budget, like the old ones, is short-sighted. It doesn't take into account the faults of previous budgets pointed out by experts, concerns expressed by the majority and the solutions to all of that, which are easy to identify should one look through the lens of just common sense. Additionally, the budget is incoherent even going by the party's own election manifesto.

While the government has been justifying not raising the minimum taxable income claiming it wants to bring more people under the tax net, it has failed to get the ultra-rich to pay theirs. But that has not dissuaded it from further proposing an increase in the surcharge-limit of net assets of Tk 2.5 crore by Tk 50 lakh, doubly favouring the rich.

The AL, in its election manifesto, had promised to eradicate poverty in the country. Yet, allocations to health and education, which play a big part in supporting middle- and low-income groups, have remained the same. As has minimum taxable income at Tk 2.5 lakh per year, despite inflation and the possibility of further inflation in the near future because of the implementation of the new VAT law, as some have argued. While this argument may be up for debate, it is a fact that indirect taxes such as VAT always affect middle- and lower-income groups the hardest. This is because expenses take up a much greater share of the income (or wealth) of lower-income groups than they do for richer groups, which means people from lower-income groups will be paying a much higher percentage as a share of their income (or wealth) as VAT, compared to rich people. This is why to make taxation more progressive, the government should collect the bulk of its tax revenue through direct taxes. But unfortunately, over 68 percent of total tax in FY2017-18 came from indirect taxes.

In the meantime, while the government has been justifying not raising the minimum taxable income claiming it wants to bring more people under the tax net, it has failed to get the ultra-rich to pay theirs. But that has not dissuaded it from further proposing an increase in the surcharge-limit of net assets of Tk 2.5 crore by Tk 50 lakh, doubly favouring the rich.

Increasing the minimum taxable rate could have helped with another pledge the AL made in its election manifesto—that of creating 1.28 crore jobs for young people—by increasing people's disposable income to drive up domestic demand. The lack of jobs being created in the country should be among our highest concerns. To the government's credit, it has proposed some steps in the budget to address this.

First, it has proposed increasing the tax-free turnover limit from Tk 36 lakh to Tk 50 lakh, which should benefit small and medium-sized enterprises. Second, it has set aside Tk 100 crore for startups which could prove to be a great initiative, provided it is disbursed transparently to recipients based on merit rather than partisanship. Still, these initiatives will not be enough. Unless private investment, which has been stuck at around 21-23 percent, increases, it is difficult to imagine how job creation can be boosted significantly. The massive government borrowing to make up for the budget deficit will only get in the way of this by crowding out the credit market, which is already struggling with banks suffering from a liquidity crisis because of rising non-performing loans.

The proposal to include money-whitening opportunity in the budget was apparently brought in to offset the poor private investment growth. However, this will again create the grounds for economic moral hazard to kick in. And lest we forget, it is a similar kind of government leniency against financial fraud and corruption that has brought banks to the verge of instability. And so, there is no reason to expect this new stance of extreme tolerance against holders of black money to benefit the country in any shape or form in the long run.

The decision to allow the whitening of black money completely goes against another promise the AL made in its election manifesto: zero-tolerance for corruption. In fact, according to many reports as well as businessmen in the country, one of the greatest drawbacks they face in doing business (and when it comes to investing) is corruption. In spite of widespread calls to address this, especially through banking reforms, the government has not included any concrete measures in the budget to achieve this.

Promises of such reforms have been made many times in the past. But they have not been followed through. It is difficult to take such promises at face value (i) in the absence of an authentic plan that jots down in detail how those reforms will be brought about and (ii) until and unless we see some movement towards the implementation of genuine reforms.

Ultimately, it is important to remember that the government doesn't give anything that it doesn't take first. All the benefits that are provided through the budget come at a cost—borne by taxpayers. This budget not only fails to properly recognise that but also fails to remain true to the pledges made by the ruling party in its election manifesto—thus breaking the promises it made to its own voters.

Eresh Omar Jamal is a member of the editorial team at The Daily Star. His Twitter handle is @EreshOmarJamal.

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