Aspiring for a good budget
The budget for the next fiscal year comes at a critical juncture as the government has targeted higher economic activities to create synergy. On the other hand, the economy is faced with several challenges
How do you define a good budget? Should it be all-inclusive? Should it be too large? Or should it only focus on the possible future of the nation and allocate more to education and healthcare?
One may also argue for creating more space for the people belonging to the bottom of the pyramid by expanding the social safety net. The introduction of Family Card or forthcoming Farmers Card as well as possible Health Card might have made it more necessary either to expand it or squeeze it for some others.
With significant pressure on our revenue earnings as well as threats to earnings from external sources, we may need to apply more caution. While delineating fund deployment or allocation strategies through budget formulation and resource management, caution is needed. This is so though it is the first budget of a popularly elected new government.
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PQ: The tax structure should also be made progressive and reliant more on direct tax rather than indirect tax, which impacts the poorer section largely. Most professionals as of today pay up to 30% income tax plus 30% wealth tax on top of it (depending on overall stated wealth). Besides, depending on the consumption pattern, they end up paying 5–15% value added tax (VAT). Even a start-up or a small distribution company is subject to 1% minimum turnover tax (raised from 0.60%).
Senior citizens and development partners are already talking about maintaining austerity in government expenditures. In a country facing a revenue shortfall and a lot of undesired geo-political challenges with possible overseas aid reduction, there is no doubt that an all-out drive should be given to revenue generation.
However, as many agencies have recommended, given inflationary pressure, the ceiling for tax-free individual income should be increased. This, on the face of it, may deprive the government of some tax revenue, but this can easily be made up by efficient taxation and management and reconsidering the tax exemption parameters.
First, tax collection should be improved by adopting methods used in similar countries. Second, some sectors have been getting tax exemptions for many years. There should be no doubt that this must end. A sunset clause should be introduced for such tax exemptions.
This will also help the government to prepare for its graduation from the least-developed country category due this year, if not extended. Following graduation, such discretionary tax exemption will not be possible.
The tax structure should also be made progressive and reliant more on direct tax rather than indirect tax, which impacts the poorer section largely. Most professionals as of today pay up to 30% income tax plus 30% wealth tax on top of it (depending on overall stated wealth). Besides, depending on the consumption pattern, they end up paying 5–15% value added tax (VAT). Even a start-up or a small distribution company is subject to 1% minimum turnover tax (raised from 0.60%).
The other part of the budget is expenditure. Given high inflation, the budget for fiscal year 2026–2027 should be contractionary. This calls for prioritising projects that are critically important and employment-generating. Policy-makers should pick only a few high-impact projects and smaller or less important projects should get less attention. This is not the time for popularity races.
The operational cost should be kept to a minimum by looking more diligently at the wastage side of it. Next comes the mostly politically motivated block allocation. Though I do not have a correct recipe, the time has possibly come to rethink the use of public offices or resources for personal wealth-building or siphoning off money abroad.
As mentioned, enough allocation must be kept for social safety net programmes for the downtrodden people but that too should reflect proper validation exercise and audit trail management.
Choosing the right projects with well-trained project managers and getting those revalidated by the expert groups have been discussed for a long time. We need to walk the talk now. It is for the greater interest of public good and better utilisation of hard-earned public money.
The budget for the next fiscal year comes at a critical juncture as the government has targeted higher economic activities to create synergy. On the other hand, the economy is faced with several challenges, including high inflation, low revenue collection, much higher energy cost, the volatile foreign exchange earnings, and declining reserves.
Therefore, the budgetary measures should show the way to overcome these challenges. It is not the time to experiment with too many avenues or to be too hung up on growth phobia.
Like corporate bodies, the government may also try to follow the norm—earn money, spend money and spend more money to generate investment and thereby employment. Any penny saved should go for future nation-building through education and healthcare.
Whether we like it or not, this may be a time for unpopular economics for our popular government.
Mamun Rashid is an economic analyst and chairman at Financial Excellence Ltd.
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.
