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Sunday, April 21, 2024

Budget 2022-23: Walking on a tightrope

Any finance minister delivering a national budget wants, ideally, to project three qualities: calm, authority and very slight dullness.

He or she wants to give the sense that underneath the aspirational abstractions of populist politics is a solid grasp of numbers; that right behind the sunniness of prime-ministerial rhetoric there is a capable and hard-headed person, armed with a pocket calculator.

AHM Mustafa Kamal seems to have failed on all three counts as he took the podium on June 9 to deliver the budget for fiscal 2022-23— against the backdrop of one of the gravest macroeconomic stresses amidst post-pandemic recovery in a deeply uncertain global environment.

One cannot but feel sorry for Kamal. Ideally, he wants to cut taxes and unleash enterprise. But he has orthodox fiscal convictions and plenty of areas to spend precious resources from his budget to put the country into the fast lane of achieving middle income status.

Balancing these forces would always be hard. But the economy has also been buffeted by Covid-19 and now the Russian invasion of Ukraine has dented the global economy and Bangladesh is not insulated from it.

And when reassurance was needed, Kamal, in fact exuded what can be best described as panic.

Kamal’s fourth budget was unveiled in the backdrop of a cost of living crisis, strained foreign currency reserve and looming LDC graduation, and he has the floor to demonstrate that he has acquired a firm reading on the economy and knows precisely what to serve—for now and for the future.

But when he served—for long five hours at the parliament, the future didn’t look that rosy.

Checking the rising inflation

In essence, higher growth through economic rebound on higher spending by holding fired-up inflation in check featured a Tk 6.78-trillion new budget Kamal announced in front of a packed parliament.

With massive inflationary pressure on the economy, he proposed to ramp up spending on agriculture, food, and power sectors in terms of allocations and subsidies alongside enhancement in social safety-net recipes to make the inflation tolerable.

His budgetary calculations obviously came amid erosion of real income through surges in food and non-food price rises, increase in unemployment, and a rise in the poor.

The problem is, as a number of the country’s economists have already identified that the elevated inflation is mostly imported, meaning there is not much the government can do to stop it. What it could do was help the poor offset the inflationary shock.

Kamal had the scope to engage in some serious redistribution from the rich to the poor in the form of support package for households with cost of living problems. But he held back.

For instance, he increased the excise duty on bank account balances of upwards of Tk 5 crore by just Tk 10,000 to Tk 50,000.

He withdrew the advance income tax on the import of gold, a superfluous purchase for the most, and made importing aircraft and helicopters cheaper.

To encourage import substitution and local manufacturing, Kamal raised the tax incidence on the import of products such as laptops, lifts, mobile batteries and chargers and interactive displays.

At the same time, he brought down the import duty on raw materials for those. On paper, this looks promising, but in practice, only a select few large conglomerates stand to benefit.

Meanwhile, the budget provides nothing for the uncle next-door who has spent his life pinching pennies in a rented flat, nothing for the millennial slogging away 60 hours a week and still wondering how to pay for their second child’s school fees, nothing for the mother hesitating to buy beef for a special day. In short, there is nothing for the middle-income groups.

In the year in which food expenditure alone can blow off more than half the monthly income of a middle-income family, the only reference that Kamal made of them in his budget speech was when he singled them out as tax evaders.

“The population belonging to the middle classes and above is about 40 million [four crore] in our country, but most of them are not paying income taxes. Hence, necessary steps are being taken to prevent tax evasions and to bring all the people, who have taxable incomes, under the tax net,” Kamal said.

Lack of austerity measures

Kamal’s budget for 2022-23 also lacked austerity measures in tune with global uncertainty and higher inflationary pressures from both home and abroad.

The financing from the banking sector has been widened which may create the crowding-out effect on the economy at a time when private-sector investment should pick up as a result of the receding of the coronavirus pandemic.

Despite the pandemic dying down, Kamal is favoring continuing the stimulus packages announced shortly after the outbreak of the covid-19 in early 2020 to further accelerate the pace of economic rebound.

The targeted National Board of Revenue (NBR) tax mobilization looks a bit ambitious when the actual performance of the tax mobilization is considered for the fiscal year 2020-21, which was just 75 percent of the target.

Yet reaching this target might prove difficult since the NBR is unlikely to achieve even the revised target of Tk 3.30 trillion set for the outgoing financial year of 2021-22.

Economist Dr Zahid Hussain pointed out that the conflicts with austerity created by expanding expenditures could have been softened with cuts in allowances, travel, vehicles, training and so on.

“Development expenditures do not show any obvious signs of austerity. Allocation for projects outside the ADP has increased. The size of the Annual Development Program continues nearly the same as the budget deficit. There are no course corrections to respond to the stabilization challenges through reprioritization of several questionable, including some mega, projects,” he said.

Post budget briefings offer little hope

In a post-budget press conference on June 10, Kamal didn’t dither over saying candidly that the amnesty awaiting the tax evaders holding assets outside the country would be successful. As he has observed, the step will contribute to the national economy and help in job creation.

But on the issue of inflationary pressure stemming from armed hostilities abroad, the minister appeared helpless. However, he sounded optimistic about measures for managing internal factors behind price rise of essentials. At one point, Kamal elaborated on the many techniques used in capital flight.

He revealed that the amnesty in question was available in at least 17 countries. He said money was even laundered on grounds of the ‘existing system’. Although the minister has said the budget has been prepared for the marginalized people, many experts differed and termed the social safety net for them not sufficiently wider.

Although the budget document maintains that the poor and the businesses will be equally benefitted, experts from the Center for Policy Dialogue (CPD) have disapproved of the step of providing more support to higher income group, and keeping the low and middle-income groups in a tight spot.

Due to its being formulated in adverse times, filled with stop-gap remedies, meeting the budgetary goals may not be a cakewalk. Unforeseen challenges keep lurking, as experts have pointed out.

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