Budget buzz

Blog, Op-ed

This Op-ed was pulished in Dhaka Tribune on 5th June 2014

Authors: Pushpita Prithwee and Elme Zahriat Zobair

The outgoing fiscal year took quite a big economic toll due to political turmoil. We are eager to know how the government performed during this timeline.

Everyone has a stake in the national budget and hence everyone has a lot to say regarding what should be done, what is expected from the budget, or what went wrong with the implemented budget. After closely following the buzz regarding the budget over the last few months, we have identified five issues that are creating the loudest noise. So, in the wake of the budget announcement day, let’s buckle up and see what everyone has to say about these five issues.

Size matters, implementation matters more

One of the loudest buzz made during budget talks was aimed at the size and implementation capacity of the Annual Development Program (ADP). Amid the recent war of words between the finance and the planning ministers, the ADP has already been revised twice – finally bringing it up from what the finance minister originally wanted. Many supported the finance minister’s earlier bid to downsize it more, taking into account the implementation rate and practicability. Researchers are already raising concerns that a higher ADP size can cause “wastage and leakage of funds and distort spending priorities.” Nonetheless, the upcoming budget is set to allot an ADP for FY2015 which would be 20% higher than the original ADP of the outgoing fiscal. Irrespective of the allocation, we would like to see what the finance minister suggests to ensure effectiveness of the ADP implementation.

Encouraging private investment is the key

All the decisions taken for the national budget will have a sensitive effect on the private investment of the country. Starting from eminent consequences, like how domestically financing the deficit will have a crowding-out effect on the private sector to how the government can boost private investment through the budgetary mechanism, are being discussed on all budget-related talks. The chambers have raised concerns about how entrepreneurs are feeling discouraged in making any new investments in this uncertain political environment.

So, how the government can help to promote a suitable environment for private investment through the budgetary mechanisms is the major question.

For this, many proposals have come forward which include exempting VAT for SMEs, reducing import duty for raw materials for manufacturing industries, and increasing “tax-free limit of individual taxpayers” income. There was also a debate about increasing or reducing corporate tax in the upcoming national budget.

Wealth tax for investment and equality

Having a relatively low tax on wealth accumulation, experts are now proposing to impose a higher wealth tax. Under the existing tax scheme, there is little tax for buying and owning idle and unproductive assets like land. Hence, investment on such assets generates little revenue and does not churn the economic wheel. Economists have been calling for wealth tax to mobilise resources and to reduce inequality.

If the government reduces taxes on productive investment ventures while increasing wealth tax, then this should discourage people to invest on idle assets and promote investment on productive sectors.

Black money cannot be whitened

The finance minister has already said there will be no provision for whitening black money. He added: “We almost abolished it last year, this time it will go away completely.” This created a debate in which most welcomed this move while some demanded extension of the whitening provision. Those who are speaking in favour of amnesty for black money are saying it might arrest rampant capital flight from the country. However, researchers argued that incentive to whiten black money only works when a very limited window along with a credible threat of high penalties are set. But recurrent opportunities in Bangladesh not only made it ineffective, it has also been frustrating genuine taxpayers.

Past response to the provision of allowing undisclosed money has also been poor during the current fiscal year. This year, will we finally say goodbye to such provision or will there be any discreet or indirect scope for whitening black/undisclosed money?

Supporting post-conflict economic growth

The initial GDP growth target for FY2014 was 7.2%. However, development partners and independent analysts predicted that the GDP growth would drop below 6% this fiscal year, due to pre-election political unrest. However, according to the provisional estimate of BBS, using the new base year of 2005-2006, the GDP growth for FY2014 is 6.12%. This means the GDP grew faster during this political turmoil than the previous fiscal year, which has created a lot of buzz among the analysts.

On top of this higher base, the GDP growth target for FY2015 has now been set to be 1% higher than this year. In addition to a supportive political environment, such ambitious target would require very efficient public investment, high incentive to private investment, and robust fiscal and monetary intervention. During the budget speech, we will be eager to see the finance minister’s plans to revitalise the post-conflict economy in the coming year.

The outgoing fiscal year took quite a big economic toll due to the political turmoil. Hence along with the targets for the upcoming year, we are interested to know how the government has performed during this timeline through the finance minister’s budget speech.

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