Budget gives positive signals, but misses integrated reform agenda

From my reading of the FY27 budget speech delivered in parliament today (11 June), one of the central aspirations of the elected political government is the creation of a humane and welfare-oriented society. Alongside that, the government appears to be advocating for a democratic and inclusive economy. These intentions are evident in the budget speech.

The important question, however, is how these objectives – democratising the economy and strengthening the humane character of society – will actually be achieved. Since this is a budget, the key issue inevitably becomes financial management. In other words: from whom will resources be collected, who will receive them, and if those resources prove insufficient, how will the remaining gap be financed through borrowing?

A related question is whether those with greater capacity to contribute will be asked to contribute more, and whether those facing greater hardship will receive greater support. From that perspective, I find the government's revenue projections highly unrealistic. The revenue target appears almost miraculous – or, to put it differently, illusory.

If we compare the projections not only with the revised budget but also with actual revenue collection, a substantial shortfall remains. Since the National Board of Revenue accounts for roughly 80-85% of total revenue, achieving the new target would require an increase of more than one-third over current performance – indeed, over 40% in some cases. Such a leap within a single year is extremely difficult.

The second issue concerns where additional revenue will come from. Much of the projected increase appears to rely on indirect taxation, particularly through the expansion of VAT. Although the government has provided some relief in certain areas, the overall dependence on indirect taxation remains. That raises an important concern: how does this align with the goal of social justice? Why are we not collecting more from those with greater wealth, from those who have benefited disproportionately, from major loan defaulters, or from those who have transferred assets abroad?

On the expenditure side, there are certainly positive developments. Education, health, and social protection have received some of the largest allocations, which is commendable. However, a closer examination reveals that many allocations are lump-sum provisions. Similarly, increases in government salaries and allowances are embedded within broader allocations rather than explicitly presented. This raises concerns that if revenue targets are not achieved, these areas may become vulnerable to future cuts.

In other words, while the budget's stated philosophy is attractive and progressive at first glance, a more detailed examination gives rise to important questions and uncertainties.

We have consistently argued that global experience demonstrates that inequality cannot be effectively reduced through income taxation alone. Nor can redistribution funded solely through income tax provide sustainable support to disadvantaged groups. For that reason, we have long advocated the introduction of a transparent wealth tax. Although a form of wealth surcharge already exists, it is not structured in a way that adequately reflects actual market values.

We have also supported the introduction of an inheritance tax. Wealth inherited without personal effort is essentially unearned income, and sharing a portion of it with society can ultimately benefit everyone. The government has chosen not to move forward with either of these proposals.

On a more positive note, the government has not provided a direct avenue for legalising illicitly earned wealth – commonly referred to as "whitening" black money. That is a welcome departure from past practices.

Another critical issue is institutional reform. The long-discussed separation of policy formulation and implementation within the revenue administration remains incomplete. Similarly, while the government intends to borrow heavily from commercial banks, meaningful reforms in banking governance have yet to materialise.

This creates concerns about whether private-sector borrowers will face disadvantages in accessing credit. Government borrowing through treasury bonds may also crowd out private investment.

The same challenge exists on the expenditure side. Efficiency gains remain elusive. Large development projects continue to receive repeated funding increases, yet there is little evidence of a radical effort to eliminate waste or poor-performing projects. Although the finance minister spoke about strengthening project appraisal, improving implementation, and introducing monitoring mechanisms – including a dashboard to track project progress – these ideas have not yet been integrated into a comprehensive reform framework.

The issue is not merely administrative efficiency. Social accountability is equally important. Whether the focus is on farmers, vulnerable households, or school feeding programs, mechanisms to ensure quality and accountability remain weakly defined. Institutional strengthening must therefore extend beyond government agencies to include broader social institutions.

One of my frustrations is that the finance minister articulated the philosophy of the budget quite effectively. He emphasised efficiency, deregulation, predictability, and even proposed a five-year tax projection framework rather than a one-year horizon. These are all positive signals. However, the integrated reform agenda required to translate these aspirations into reality is still missing.

Particularly in two crucial areas – financial sector reform and energy security – the budget offers few concrete commitments. For example, recapitalising bankrupt banks is unlikely to solve the problem if some institutions are effectively beyond recovery. Yet the government has not clarified whether it is prepared to declare certain banks clinically dead and proceed accordingly.

Likewise, while legislation related to capacity payments in the energy sector has been repealed, significant financial obligations remain. The budget does not provide a clear roadmap for addressing these liabilities.

The write-up is based on excerpts from an interview with TBS.