A budget not of its time: Kamal fails to get his crisis priorities right as he unveils a normal-time, fatty budget

The Daily Star  June 12, 2020

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.

And AHM Mustafa Kamal seems to have failed on all three counts as he took the podium yesterday to deliver the budget for fiscal 2020-21 — against the backdrop of potentially the biggest public health emergency and economic downturn in generations.

He opted for salesmanship rather than expectation management. He presented himself as a surgical mask-clad Santa Claus, doling out bountiful good news and dispenser of goodies for all.

He maintained more or less the same allocations for sectors that would have been understandable were this a regular fiscal year, like energy and power, transport and communication, public order and safety, defence, and local government and rural development.

But the sectors that were crying out for sizeable boosts in their budgets got nominal raises like health, social safety net, agriculture and education.

Nothing is more imperative for Bangladesh right now than taming the coronavirus, and for that, the health budget needed to have been increased by leaps and bounds. And yet, that was increased by 13.63 percent from the current fiscal year’s original allocation.

Hospitals are overwhelmed with COVID-19 patients, so much so that non-COVID-19 patients are denied treatment.

Since we don’t know when the epidemic curve would flatten out, there was an acute need to ramp up the health services expenditure now. How long are people going to live under the soul-crushing anxiety of being denied medical treatment?

Also, perhaps, this was the occasion to right the historically abysmal attention this sector got in the national budget. Alas, it wasn’t meant to be.

The coronavirus rampage has magnified destitution and stands to unravel the brilliant progress made in poverty alleviation over the past decade. So, like health services before, there was an acute need to ramp up social protection to help poor households weather the pandemic.

But it was increased from 2.58 percent of GDP this fiscal year to 3 percent.

In a country of 160 million, about 35 percent are now living in poverty, according to a recent study of the Centre for Policy Dialogue. This begs the question, given the uncertainty over how severe the impact may become, was the increase in social safety net adequate?

Agriculture was another sector that deserved greater focus, as the nation must be fed. But it was increased by just 4.68 percent from the current fiscal year.

The education budget needed to be augmented seeing that about 4 crore students would not be getting back to the classrooms anytime soon.

Lessons would have to move to the virtual space and for that equipment need to be bought at both ends. And even if classes start physically, there needs to be more sessions to give the same lesson to maintain the social distancing rule.

In short, massive investment is needed, but the education budget was increased about 8 percent.

There were so many areas where the expenditure could have been scaled back to make room for a bigger budget for the four overheads. When austerity was needed, he chose to be profligate.

The allocation for public services was increased by a staggering 54.70 percent.

What was more baffling was that he has earmarked Tk 16,148 crore for the upkeep of state-owned enterprises when Tk 1,499 crore had sufficed for the purpose in the revised budget for this fiscal year.

The amount is 61.5 percent more than the lump sum amount set aside to fight the rogue virus during the course of fiscal 2020-21.

Energy and power took up 4.7 per cent of the budget. Unless a vaccine is widely available for COVID-19, which would not be until 2021 at least, neither the factories would be roaring nor the businesses would be bustling. So what is the need for so much energy?

Then comes the trivial matter of where the money would come from to fund the Tk 568,000 crore-expenditure plan, and the pocket calculator was found missing.

But Kamal did a first-rate job of sounding confident and in control while jettisoning the years-long goal of keeping the budget deficit to within 5 percent of GDP.

He has tasked the National Board of Revenue to collect Tk 330,000 crore, up 9.82 percent from the current fiscal year’s revised budget.

In a letter last month to Finance Secretary Abdur Rouf Talukder, NBR Chairman Abu Hena Md Rahmatul Muneem said the tax collectors would be able to manage Tk 250,000 crore at best next fiscal year.

And yet, Kamal chose to have his blinkers on and set the highest revenue target in the country’s history, when the economic growth would possibly amongst the worst.

What would have helped in this challenging time was a definitive move towards automation to stop evasion and leakages. But, he was found dithering.

Whatever he said about automation in his budget speech was a regurgitation of what he had penned last year too — and we all know how much we have achieved on that front in fiscal 2019-20. Not much.

The only new move towards automation and digitalisation of the tax administration is the rebate of Tk 2,000 to all taxpayers who will file their income tax returns online for the first time.

And then there is his naïve hope of generating revenue by giving full amnesty to black money when past moves have flopped spectacularly.

The move to slap 50 percent tax on the proven amount of over- or under-invoicing, or on the proven amount of false declaration of investment looks promising on paper. But, there were no specifics on how that would be enforced.

While it is laudable that he has given relief to individual taxpayers by raising the tax-free threshold of income and reducing the tax rate, his move to also bring down the rate for those who earn in the highest slab is a proper head-scratching one.

The wealthy do not need any tax relief. And when all avenues of revenue collection are narrowing, why would you extend aid to a faction that is not in need of one?

The increase in supplementary duty (SD) on mobile phone usage when it has become an absolutely essential service is a below-the-belt move.

The hikes in SD on chartered planes and helicopters, air-conditioned launch fares, cars and jeep registration and cosmetics and cigarettes and the 60 percent hike in excise duty on the account balance of Tk 5 crore are welcome though.

And so is his proposal to impose a small rate of customs duty on onion import to encourage cultivation, cut dependency imports.

The value-added tax has been asked to shoulder most of the revenue collection target — when most consumers would be confined to their homes or cutting back on spending given the looming threats of job losses or pay cuts. Yet another unwise move by the finance minister.

The fact that the NBR would fail to power the budget is a foregone conclusion. That means, the finance minister would be relying more on external financing, bank borrowing and printing money.

The latter two are risky propositions — one could crowd out private sector investment and the other would escalate inflation — as they can go on to pose stability risks at the faintest signs of economic recovery.

Ah, economic recovery! The elephant in the budget. Beyond a few small measures, there was no reassuring demonstration that the government was determined to push for an upturn.

Kamal said that next fiscal year, which begins on July 1, would see the prioritisation of “government spending that creates jobs”. But, as has become a habit by now, specifics have become notable by their absence. Was this fiscal plan drafted entirely without any exercise in econometrics?

All in all, he did not portray an image of calm competence to navigate the economy during this extraordinary time, but one crossing his fingers and hoping for the best. Bit of a gamble, that.


Please enter your comment!
Please enter your name here