Is national budget pro-people?

At a time when the country’s macroeconomic scenario came under criticism from all walks of life, the finance minister came into focus in the parliament house on June 01, this year.

The finance minister placed the proposed budget for the fiscal year 2023-2024 in the parliament in an upbeat mood. The budget size for FY24 has been set at Tk 7.62 trillion, around 12 per cent higher than the outgoing fiscal year. The ruling party is optimistic about the budget. The parliamentarians of the ruling party believe that the proposed budget will definitely help contain the raging inflation rate. The proposed budget came under a wide range of discussion for many reasons.

The economy is under stress according to many indicators.

The runway inflation rate, depleting foreign exchange reserves, and worsening state of the current and financial account have been the centres of the talk. The inflation-hit people were waiting for this proposed national budget for a long time. The people of low-income groups started to dream about seeing a pro-people budget. Unfortunately, the budget came to the nation as an expansionary one indicating that the inflationary pressure is likely to be intensified. The proposed budget is likely to address the problems of commoners.

Amidst crucial moments in the economy, the national budget faced a lot of criticism. The decision taken in the budget is not time-befitting. When the masses began to think about escaping from inflationary pressure, the policy in the budget is totally unfavourable in respect of containing the inflation rate. The revenue target for the budget has been set at Tk 5,00,000 crore. So, the deficit is Tk 2,61,785 crore. To address the deficit budget, the government has so far planned to manage money from both domestic and external sources. The budget promises to borrow Tk 1,32,395 crore from the banking system and Tk 1,02,490 crore from external sources. If borrowing from the central bank is increased, the consequences would definitely fuel inflationary pressure.

In FY 2022-2023, budgetary support was sought mostly from the central bank instead of commercial banks. The central bank’s contribution to lending to the government was significant during the period of FY2022-2023. Ultimately, there is the multiplier effect of money in the economy which is borrowed from the central bank. The money released from the central bank creates inflationary pressure, no doubt.

The budget for FY24 is determined to keep the inflation rate within 6.0 per cent. Is it possible to contain the inflation rate if borrowing from the central bank and commercial banks rises?

The national budget for FY24 is to follow fiscal-related conditions given by the International Monetary Fund ( IMF). In light of IMF-mandated conditions, the government is in a race to fulfil conditions within the time frame. The National Board of Revenue ( NBR) is to collect tax revenue amounting to Tk 4,30,000 crore within FY24. The target is ambitious.

The NBR seldom if ever achieves its annual targets. The outgoing fiscal year also saw a deficit in tax revenue. In a bid to fulfil the IMF target, the government needs to increase tax-revenue earnings by 19 per cent. The proposed budget for FY 24 hiked the tax-revenue earnings target by 29 per cent.

If the current economic scenario is taken into account, the government should follow a slow-paced model in collecting tax-revenue earnings. The much-discussed issue regarding the minimum tax policy for Tax Identification Numbers (TINs) holders is not timely. The tax policy should be reformed by hiking direct tax volume. The direct and indirect tax ratio in Bangladesh is 33:67; that is not acceptable. Tax exemption, tax holidays, and tax rebate facilities are responsible for reducing direct tax volume.

Low-income group people having TINs will be affected by the new tax policy styled ‘minimum tax policy’. Value Added Tax ( VAT) is an indirect tax which is tagged with commodity prices. Low and high-income group people equally give VAT. It is a total injustice shown towards low-income segments. There is a need to increase the tax net across the country. The recommendation from this writer is to lift the minimum tax right now.

In FY 2022-23, Gross Domestic Product (GDP) growth showed 6.3 per cent, the lowest in 11 years except for FY 2019-20. The 2023-2024 fiscal year set the GDP growth target at 7.5 per cent. The target might have not been achieved on account of borrowing from commercial banks. The private sector will face difficulties in taking loans from commercial banks in FY24. As a result of the liquidity crunch in banks, credit growth will be sluggish in the private sector. Employment generation, production, and exports will be hampered much by less lending in the private sector. Besides, the private and public sector investment volume of total GDP is insignificant. It needs to be increased for GDP growth.

At this moment, budgetary allocation needs more for social safety net programmes. The inflation-hit people are losing purchasing power capacity. The fate of unemployed people is uncertain in leading their life by taking a balanced diet. The ageing people need government-financed programmes. An amount of Tk 126,272 crore has been allocated in the budget for social safety net programs. The amount is 16.58 per cent of the total budget and 2.52 per cent of GDP. What is worrying is that pensions for retired government employees, agriculture subsidies, some credit programmes, find for some projects are tagged with social safety net programmes. Only the vulnerable and people who are almost unable to earn a living deserve the programme.

The issue concerning reducing subsidies on account of IMF conditions is a crucial one. A total of Tk 2.89 trillion for FY 24 has been kept for providing subsidies. Considering the economic condition of Bangladesh, reducing or withdrawing subsidies will be unwise. Intending to ensure food security, there is no alternative to pay subsidies to the agriculture sector.

In this budget, direct tax expenditure amounting to Tk 1.78 trillion has been kept in the form of subsidies on account of exemption and rebates. The tax exemption practice must be abolished as part of IMF conditions. The provision of tax exemption in subsidy format is bewildering to the writer.

The national budget for FY 24 with the motto of building a smart Bangladesh which has four pillars- smart citizens, smart society, smart government and smart economy. In seeing smart Bangladesh, the tax-to-GDP ratio needs to be increased to 21 per cent in 2041.

The writer is an economic affairs analyst. He can be contacted at [email protected]