Budget: Goals and realities
Shamsul Huq Zahid | Wednesday, 2 July 2008
The national budget for fiscal 2008-09, which is one of the few of its kind born outside the parliament since country's independence and the second one in succession for this interim government, came into effect last Tuesday.
Starting from presentation down to adoption there were certain departures from the usual ways of budgetary process followed otherwise by an elected government. Yet it is hard to visualise what would have been the content of the budget had it been prepared by a political government. But, certainly, it would have been, in many ways, different from the one presented by the finance adviser.
Actually, the common men are not that concerned about the budget these days as the government tends to be less regressive as far as duties and taxes are concerned. But one particular group of people-the businessmen-does take special interest in budget, no matter who presents it. Duty and tax rates are very important for them.
Another large group of population-the hardcore poor-- whose welfare remains to be the prime concern of those involved in budget preparation, is totally unaware of all those budgetary exercises.
There is no denying that the budget for the current fiscal has primarily focused on the protection of the poor, higher farm and industrial output and increased investment. But the government's ability to achieve the objective number one largely depends on the progress in other two areas. Higher farm output would help improve food availability situation is one of the conditions for ensuring the much-sought-after food security in the backdrop of a volatile international food grains market. And increased industrial output and investment would, in addition to the generation of employment, contribute to higher revenue earning so that the government can adequately finance its safety net and subsidy programmes.
The moot issue as far as budget is concerned is money. And that is where the problem lies. The finance adviser has taken note of the challenge but his way of meeting it has not convinced many.
One has reasons to express doubt about the prospect of achieving the revenue target set for current fiscal. The finance adviser has set the overall revenue growth target at 14.60 per cent in fiscal 2008-09 over the revised budget for fiscal 2007-08. Similarly, an 18 per cent growth of tax revenue has been projected for the current fiscal.
The government, it seems, pins much hope on the changes made in the duty structures on imports, including capital machinery, raw materials and intermediate goods. It expects that there would be more investment and more production because of lowered rates of duty, resulting in higher revenue earning through three major heads of taxation-import duty, value added tax and income tax.
However, tax and duty rates are not the only factors that influence investment decisions or production in mills and factories. What is about the demand for goods and services in the economy? Is there any reason for expecting an increase in demand for the same in the coming months? Will the problems of gas and power short-supply or other hassles often encountered by businesses disappear immediately?
Doubts persist over whether the government would be able to achieve the non-tax revenue target at the end of the fiscal, particularly in the form of dividends and profit of state-owned enterprises. Likewise, hitting the tax-revenue target could prove really difficult. And the possible failure leading to higher-than-projected public borrowing, might leave a crowding out effect on other areas, including bank credit flow to the private sector.
The finance adviser should take another challenge-rising inflation- into account, seriously. The projection he made about annual average inflation remaining at 9.0 per cent might betray him. The latest hike in fuel oil prices, an average 36 per cent, has all the potential to unsettle his estimate about inflation.
Who does not know about the spillover effect of the hike in prices of diesel and kerosene on cost of transportation of passengers and goods and production in farms and factories?
The common men are already hard hit by rising prices of essential commodities and higher transportation cost. Their sufferings would only reach a new height by the latest increase in prices of diesel and kerosene that are mostly used by the common people.
One cannot, however, dismiss the necessity of making changes in fuel oil prices when the price of a barrel of crude oil has soared to a record $ 143 in the international market. But is it not proper for the government to devise some mechanism to help lessen the burden on the poor?
While announcing the revised prices of fuel oils at a press conference Monday, Special Assistant to Chief Adviser Dr. Tamim, who is in-charge of the power and energy ministry, admitted that the decision to raise fuel oil prices was an 'unpleasant' one.
He, however, referred to fund allocated in the budget for the current fiscal for disbursement as subsidy among farmers on account of diesel use for irrigation. Actually, the money to be given to farmers as subsidy would be eaten up by the additional amount that the farmer would be required to spend due to increase in prices of diesel. The prices of fertilisers have already been raised by the government. So, the cost of production at the growers' level would increase from the next Aman season. This could even lead to further increase in food grain prices, a development that the common men can ill-afford.
Thus, the challenges before the government, in terms of implementation of the budget, are many. It is expected that the government would make best use of its tool and wisdom to resolve most of those, if not all.
One more daunting task that the government will be facing will be in the areas of the expanded social safety-net programme. Targetting the poor and the vulnerable will be difficult without effecting major institutional changes that affect the quality of governance. Otherwise, such a largesse for this programme will hardly mean anything.
Starting from presentation down to adoption there were certain departures from the usual ways of budgetary process followed otherwise by an elected government. Yet it is hard to visualise what would have been the content of the budget had it been prepared by a political government. But, certainly, it would have been, in many ways, different from the one presented by the finance adviser.
Actually, the common men are not that concerned about the budget these days as the government tends to be less regressive as far as duties and taxes are concerned. But one particular group of people-the businessmen-does take special interest in budget, no matter who presents it. Duty and tax rates are very important for them.
Another large group of population-the hardcore poor-- whose welfare remains to be the prime concern of those involved in budget preparation, is totally unaware of all those budgetary exercises.
There is no denying that the budget for the current fiscal has primarily focused on the protection of the poor, higher farm and industrial output and increased investment. But the government's ability to achieve the objective number one largely depends on the progress in other two areas. Higher farm output would help improve food availability situation is one of the conditions for ensuring the much-sought-after food security in the backdrop of a volatile international food grains market. And increased industrial output and investment would, in addition to the generation of employment, contribute to higher revenue earning so that the government can adequately finance its safety net and subsidy programmes.
The moot issue as far as budget is concerned is money. And that is where the problem lies. The finance adviser has taken note of the challenge but his way of meeting it has not convinced many.
One has reasons to express doubt about the prospect of achieving the revenue target set for current fiscal. The finance adviser has set the overall revenue growth target at 14.60 per cent in fiscal 2008-09 over the revised budget for fiscal 2007-08. Similarly, an 18 per cent growth of tax revenue has been projected for the current fiscal.
The government, it seems, pins much hope on the changes made in the duty structures on imports, including capital machinery, raw materials and intermediate goods. It expects that there would be more investment and more production because of lowered rates of duty, resulting in higher revenue earning through three major heads of taxation-import duty, value added tax and income tax.
However, tax and duty rates are not the only factors that influence investment decisions or production in mills and factories. What is about the demand for goods and services in the economy? Is there any reason for expecting an increase in demand for the same in the coming months? Will the problems of gas and power short-supply or other hassles often encountered by businesses disappear immediately?
Doubts persist over whether the government would be able to achieve the non-tax revenue target at the end of the fiscal, particularly in the form of dividends and profit of state-owned enterprises. Likewise, hitting the tax-revenue target could prove really difficult. And the possible failure leading to higher-than-projected public borrowing, might leave a crowding out effect on other areas, including bank credit flow to the private sector.
The finance adviser should take another challenge-rising inflation- into account, seriously. The projection he made about annual average inflation remaining at 9.0 per cent might betray him. The latest hike in fuel oil prices, an average 36 per cent, has all the potential to unsettle his estimate about inflation.
Who does not know about the spillover effect of the hike in prices of diesel and kerosene on cost of transportation of passengers and goods and production in farms and factories?
The common men are already hard hit by rising prices of essential commodities and higher transportation cost. Their sufferings would only reach a new height by the latest increase in prices of diesel and kerosene that are mostly used by the common people.
One cannot, however, dismiss the necessity of making changes in fuel oil prices when the price of a barrel of crude oil has soared to a record $ 143 in the international market. But is it not proper for the government to devise some mechanism to help lessen the burden on the poor?
While announcing the revised prices of fuel oils at a press conference Monday, Special Assistant to Chief Adviser Dr. Tamim, who is in-charge of the power and energy ministry, admitted that the decision to raise fuel oil prices was an 'unpleasant' one.
He, however, referred to fund allocated in the budget for the current fiscal for disbursement as subsidy among farmers on account of diesel use for irrigation. Actually, the money to be given to farmers as subsidy would be eaten up by the additional amount that the farmer would be required to spend due to increase in prices of diesel. The prices of fertilisers have already been raised by the government. So, the cost of production at the growers' level would increase from the next Aman season. This could even lead to further increase in food grain prices, a development that the common men can ill-afford.
Thus, the challenges before the government, in terms of implementation of the budget, are many. It is expected that the government would make best use of its tool and wisdom to resolve most of those, if not all.
One more daunting task that the government will be facing will be in the areas of the expanded social safety-net programme. Targetting the poor and the vulnerable will be difficult without effecting major institutional changes that affect the quality of governance. Otherwise, such a largesse for this programme will hardly mean anything.