Inadequate steps to combat soaring inflation: CPD

The government has not taken adequate initiatives to combat soaring inflation in the proposed budget for FY23 while social safety allocations will not help low-income groups cope with rising commodity prices, says the Centre for Policy Dialogue (CPD).

According to the leading think tank, the budget has squeezed the wallets of the middle and lower-middle classes and provides money laundering opportunities. It also says offering amnesty for money launderers is unethical and this should be cancelled.

The CPD made the observations at a press conference at Lakeshore Hotels in the capital on Friday.

The budget speech diagnosed the symptoms but failed to prescribe the required medication, it said.

Overall, with its current structure and proposed measures, the budget appears to be insufficient in terms of required measures, incomplete in terms of outlining strategies, and inadequate in terms of addressing the present macroeconomic challenges, CPD Executive Director Fahmida Khatun said in the keynote paper.

There is a serious lack of creativity and sensitivity in the budget, the CPD said.

It urged the government to remove the provision of offering amnesty for money launderers, which they can avail by paying a certain tax as a penalty, in the budget.

“Offering amnesty for money launderers is ethically unacceptable, will discourage honest taxpayers, and is unlikely to generate the intended revenue,” Fahmida said.

According to the proposed provision in the draft budget, no authorities, including the one dealing with income taxes, will raise any question about the source of an asset located abroad if a taxpayer pays tax on it.

Finance Minister AHM Mustafa Kamal placed the FY23 budget proposal before parliament on Thursday. He proposed a 15 per cent tax on immovable property not repatriated to Bangladesh, 10 per cent on movable property not repatriated to the country, and 7 per cent on cash and cash equivalents repatriated to the country.

This opportunity will be in force for the period starting from the first day of FY23 and will end on June 30, 2023.

Mustafizur Rahman, distinguished fellow of the CPD, said this initiative would encourage those who take money out of the country illegally.

He said no money would be returned from abroad even after this initiative.

“Smuggled money is being legalised through this initiative. It is unacceptable in three ways – political, economic, and moral.”

CPD’s Senior Research Fellow Towfiqul Islam Khan said the budget would facilitate those who launder money abroad but there was nothing for the low-income population.

The social safety net allocation, excluding pension, as a percentage of the total budget decreased from 14.9 per cent in the revised FY22 budget to 12.62 per cent in the proposed one.

Besides, the open market sale (OMS) allocation has been reduced, which would harm low-income and fixed income households that are already suffering immensely due to high inflation, Towfiqul said.

“If inflation is caused by rising import costs, how does the finance minister plan to change the existing situation very soon?” said Fahmida.

“According to the Food and Agriculture Organisation’s latest report, 19 per cent of people are being seriously affected by the rising commodity prices. I do not know how the exchange rate will go down. The government has to control inflation through tariff policies,” said Mustafizur.

Tax injustice

The CPD said despite skyrocketing prices of essentials, the tax-free income limit remained unchanged in the budget while corporate income taxes had been reduced for three consecutive years.

It thinks there are many injustices in the budget and those measures will not directly help the poor and ultra-poor.

Fahmida said, “The budget has not addressed the situation of the low-income people. It proves the budget is full of injustices.”

“The finance minister has identified the sickness of the current economy but has not prescribed any preventive or curative measures,” said CPD Research Director Khondaker Golam Moazzem.

“Perhaps he does not know the cure or the required dose for the cure,” he said. The CPD said the budget speech mentioned several challenges, such as containing inflation and enhancing domestic investment, subsidies, project implementations, prioritising education and health, increasing revenue, and maintaining a stable forex market and exchange rates.

It said the lack of appropriate initiatives to tackle the challenges had caused Bangladesh to lag behind Nepal and Afghanistan, according to the Open Budget Survey 2021.

The government had set a target to keep inflation at 5.6 per cent in the next financial year, but the finance minister did not say what magic would help achieve this goal, the CPD said.

It thinks it is also impossible to achieve the revenue target in the next fiscal year. Therefore, the government will be facing more pressure on budget deficits. The CPD said the government’s borrowing is flexible compared to the GDP. However, domestic borrowing is gradually increasing and due to the rise in exchange rates, the government’s debt servicing would get costlier.

Fahmida said the government has to cancel the decision to increase the prices of electricity and gas.

Around 80 per cent of the annual development programme (ADP) will not be implemented in the current fiscal year considering the existing progress rate, said the CPD.

The budget does have some welcoming measures, including better identification of contexts and challenges, expressing accountability by delineating the progress of past promises, the continuation of fiscal measures to protect domestic industries, and harmonisation of tax structures for export-oriented industries, it added.