Budget supports special groups

To increase public burden

Enayet Karim: Bangladesh was one of the top countries in terms of the increase in the number of global riches for three consecutive years from 2018 to 2020 in the annual report of Wealth-X, an American wealth information service provider.
According to information published recently by various media, many of the country’s government officials, businessmen and political leaders are amassing huge amounts of wealth, which is not legally acquired or displayed or considered as black money.

According to the statistics published by Switzerland-based UBS Bank last September, despite the multifaceted economic crisis, the number of billionaires or owners of hundreds of millions of taka in the country has exceeded 1,700, who control more than 10 percent of the country’s total GDP. The budget proposal for the fiscal year 2024-25 has been presented in the National Parliament on Thursday, with the opportunity to legalize the undisclosed wealth or black money of the members of this special group of the country.
According to the budget proposal presented by Finance Minister Abul Hassan Mahmud Ali, the government will have to tax only 15 percent to whiten undeclared money or black money. In that case, no question can be raised about the source of income. And in case of declared or legitimate income, the maximum tax rate will be double or 30 percent.
In this regard, the budget proposal said, ‘Notwithstanding the existing laws of the country, no authority can raise any question if a taxpayer pays fixed tax rate for immovable properties like flats, apartments and land and 15 per cent tax on other assets including cash. ‘
The maximum tax rate imposed on legitimate income is double the tax rate required to whiten black money. Experts fear that this step may further encourage money making through corruption.
They say that although the budget has an opportunity to legitimize the undisclosed income of special groups or black money, there is no comprehensive direction to bring out the common people of the country from the existing crises including inflation. The measures taken in the budget are not enough to reduce the inflationary pressure of the people. Rather, it is likely to increase the suffering of the people.
Executive Director of Policy Research Institute. Ahsan H. Mansoor said, “Through this budget, there is no possibility of changing the trend of ‘Culture of Crony-Capitalism’ or the trend of building huge wealth through making money on bare bones.” There is no announcement regarding that in this budget.
We would have been somewhat reassured even if there had been an announcement, but there is none. There is no talk about the banking sector. It affects everyone. Our interest rates are increasing. Our private sector credit flow is decreasing. The government’s dependence on the banking sector is increasing. But as such the health of the banking sector is deteriorating. This is an imbalance created in the banking sector; Demand is increasing but their capacity is decreasing. But that was not addressed. I think that any structural problem has not been mentioned in this budget. Some of the effects of liberalization and rising interest rates may be reflected in inflation. However, public suffering may increase temporarily. Because the price of some products including electricity will increase. So, the suffering will not decrease.
The finance minister himself admits that the measures taken by the government, including curbing demand, have not played an effective role in controlling inflation. While presenting the budget proposal yesterday, he said, “As inflation is one of our major challenges, we have focused all our attention in the last two budgets on curbing demand and increasing supply in order to control it.” In this context, various supportive fiscal policies are adopted along with contractionary monetary policy to get macroeconomic benefits. Despite this, inflation in the country remains stubbornly above 9 percent due to import-induced price hikes and domestic supply chain failures.
Stating that this policy will be continued in the first half of the next financial year (July-December), he said, “Fiscal consolidation i.e. deficit reduction in the budget and belt tightening i.e. austerity will be continued in a limited scale.” If this approach is adopted in the long run, the pace of growth may slow down. For this reason, we will aim to gradually increase government spending in the second half of the fiscal year. This will be possible if the revenue collection can be increased. For that purpose, I will look at increasing the revenue collection along with the gradual withdrawal of tax exemption.
The finance minister said, “Due to high inflation, the country’s economy is currently facing some pressure, but due to the implementation of prudent and correct policies, the GDP growth trend continues. In order to maintain this pace of GDP growth in the future, all reasonable support will continue to encourage the production of agricultural and industrial sectors. Besides, proper implementation of important infrastructure projects and adoption of specific action plans aimed at increasing export and emigration income will be helpful in achieving the desired GDP growth. We hope that as a result of our prudent policies and strategies, 6.75 percent GDP growth will be achieved in the next financial year and it will increase to 7.25 percent in the medium term.
He also said, ‘In order to ensure the success of the measures taken under monetary policy to control inflation, supportive policies and strategies are also being adopted in fiscal policy. Family Card, OMS etc. programs have been strengthened to protect the common man from the pressure of inflation. As a result of these policies adopted by us, we hope that inflation will come down to 6.5 percent in the next financial year.
In the budget review, economists say that the government needs to focus on controlling inflation instead of growth. For this, unnecessary development projects and infrastructure construction should be avoided. It was imperative that the budget contain a reformist direction of fiscal policy. Otherwise, contractionary monetary policy will not work.
When asked about this, the economist and former governor of Bangladesh Bank Salehuddin Ahmed said, “This budget is not business-friendly and people-friendly.” There is nothing like making people happy. People being happy means that inflation will decrease, employment will increase, sources of income will increase, small businessmen will get opportunities to expand their business. People will be happy only if these are ensured. But I haven’t seen much about inflation. It will not achieve the target of reducing inflation to 6.5 percent, it is not possible. For this, the supply should be increased within a year, the demand should be controlled. If you monitor the market, maybe it will decrease. But the proposed 6.5 can’t be brought up.
However, this year’s budget is not much bigger than last time. A realistic decision has been taken from this point of view. But there was no contraction in spending. Should have reduced the cost as well as the size. Deficits would be reduced by cutting unnecessary expenditure. In particular, annual development project (ADP) expenditure has been estimated at Tk 2 lakh 65 thousand crores, where there are more than 1,200 projects. It does not make sense to take up so many projects at this time. At such a time, if the ADP were to be halved except for some very important infrastructures like IT, energy, then the deficit would also be reduced by half.
In the budget speech entitled ‘Journey of Smart Bangladesh in the Path of Sustainable Development’, a total expenditure of Tk 7 lakh 97 thousand crore has been proposed in the financial year 2024-25. The largest budget deficit in the country’s history has been estimated at Tk 2 lakh 51 thousand 600 crores. In the proposed budget, the deficit amount without grants will stand at Tk 2 lakh 56 thousand crores, which is 4.6 percent of the total GDP. In the budget proposal, the GDP growth target for the next financial year has been set at 6.75 percent. Inflation has been targeted to be brought down to 6.5 percent.
Although the target of 7 percent GDP growth has been set in the budget, observers believe that the current situation of the global economy is unfavorable. According to them, the world’s largest economies are unable to come out of tight monetary policy without being able to control inflation at the desired level. Global investment flows have slowed. In this situation, the reserve situation, devaluation of money and the superiority of government debt are increasing the fear about the country’s economy.
These risks have also come up in the finance minister’s budget speech. He said, ‘Gross foreign exchange reserves at the end of July of the financial year 2022-23 was $39.6 billion, which decreased to $24.22 billion at the end of May this year. In keeping the currency exchange rate stable, about $22 billion have to be released from the reserves since July 2022-23 fiscal year. As a result, our foreign exchange reserves have decreased. In this context, from July 2022 to May of the current financial year, about 25.5 percent devaluation of the taka has occurred against the dollar, as a result of which the price of imported goods is increasing significantly and thus the increase in import prices has a direct impact on the overall inflation of the country.
He also said, ‘Secured Overnight Financing Rate, which is used as one of the reference rates of interest rates in the world, was only 0.5 percent in January 2022. However, if almost all developed countries, including the United States, gradually increase their interest rates to deal with the inflation caused by the Russia-Ukraine war, the secured overnight financing rate will rise to 5.4 percent by May of this fiscal year as an average of six months. Interest rates have also increased in other developed countries including Europe for the same reason, which has affected the reference rates like EURIBOR, TONA etc. As a result, Bangladesh has to face two types of pressure. As interest rates rise in the developed world, capital outflows tend to increase as well as inflows to decrease. As a result, the financial deficit is increasing on the one hand, and the foreign debt repayment liability is increasing on the other hand. In the last fiscal year 2022-23, the annual expenditure on foreign debt interest payments exceeded $1 billion. If the forecast that the interest rates in the developed world including the United States will decrease in the coming days is not correct, this trend will continue in the future.
It is said in the budget speech that there is no alternative to increasing revenue collection to increase the spending capacity of the government. Bangladesh is lagging behind many of its peers in this regard. The tax-GDP ratio in the country is below 8 percent. According to the 2022 calculations, the tax-GDP ratio in India, Indonesia, Vietnam and Thailand was 16.98 percent, 11.59 percent, 14.03 percent and 15.57 percent respectively. Achieving a tax-GDP ratio of more than 10 percent is essential to meet the country’s development goals in the medium term.
The target of revenue collection in the budget is Tk 5 lakh 41 thousand crores. Out of this, Tk 4 lakh 80 thousand crores will be earned through the National Board of Revenue. Tk 90,700 crores of foreign debt will be taken. And the internal loan will be taken to the tune of Tk 1 lakh 60 thousand 900 crores. Of this, Tk 1 lakh 37 thousand 500 crores will come only from the banking sector. And the amount of non-bank loans is Tk 23,400 crores.
Regarding the government’s reliance on bank sector loans to meet the deficit. Salehuddin Ahmed said, ‘The banking sector is already in dire straits. The sector is suffering from various crises including liquidity. If all the loans are taken by the government and if the individual does not get the loan, then how will there be employment? Otherwise, how will NBR collect direct or indirect taxes. One of these has little connection with the other. It seems like without.
In the budget, the government’s interest payment expenditure for the next financial year is estimated at Tk 1 lakh 13 thousand 500 crores, which is 14.24 percent of the total budget. Interest payments have doubled in the last six years. In the last financial year as well, the cost of interest payments was estimated at Tk 94,376 crores in the main budget.
In his speech in the parliament yesterday, the finance minister highlighted the challenge of transition from less developed countries and said, “In the changed reality, the local industry has to survive by competing with the outside world with their own skills and strategies.” In this context, by using new and better technology in production, improving the quality of products, innovating new products and increasing the skills of employees, increasing the competitiveness of industrial products, diversifying products and providing appropriate policy support for the diversification of products, everyone should work together to make Bangladesh’s transition from a less developed country smooth and sustainable. will be
For that purpose, the government has constituted a high-level committee to formulate a smooth transition strategy (STS) to deal with possible adverse conditions in international trade after formal transition from LDCs. That committee and various sub-committees formed under it have already determined various strategies, on the basis of which Bangladesh is currently taking necessary preparations to meet the challenges of transition.
The proposed budget announced reduction of tax at source on supply of several essential commodities and foodgrains to stabilize the commodity market. Tax at source on these products is being reduced from 2 percent to 1 percent. The products include onion, garlic, peas, chickpeas, rice, wheat, potatoes, lentils, edible oil, sugar, ginger, turmeric, dry chillies, pulses, maize, flour, flour, salt, pepper, cardamom, cinnamon, cloves, dates, 30 products including bay leaves, jute, cotton, yarn and all kinds of fruits.
Besides, the prices of the products which have been increased in the budget include cigarettes, mobile phone sim cards, call rates, ice cream, electric meters, imported cars for MPs, soft drinks and energy drinks, cashew nuts etc. Besides, the cost of AC-fridge production is going to increase due to increase in VAT. Along with the announcement of increase in duty on the import of water filters, the expenditure is also going to increase at the consumer level. Similarly, the price of LED bulbs may also increase.
The former Minister of State for Planning Shamsul Alamthinks that there was a need for clear instructions in the budget to prevent the recovery of defaulted debts and capital smuggling. He said, “The amount of employee debt is increasing. And money is being smuggled abroad through these loans. Therefore, it would be better if there were clear guidelines for recovery of defaulted loans. Money laundering must be stopped. Otherwise, the reserve will not stabilize. Therefore, prevention of money laundering and collection of defaulted loans is now a big responsibility. Unpleasant steps have to be taken in times of crisis.