Budget for FY 2021-22: Predictable with a sprinkling of prudence

The proposed Taka 6.0 trillion-plus national budget for incoming fiscal year (FY) 2021-22, placed amidst the second wave of the Covid-19 pandemic, does appear expansionary. It, however, has failed to strike the right chord, at least, in some important areas. Barring the additional emphasis given on some particular issues, including vaccination and social safety net, the budget traverses the same old path of making tall promises against low performance. More importantly, the budget is devoid of 'surprises' that the finance ministers used to unlock during the yesteryears. In the days preceding the formal presentation of the budget in parliament by the finance minister, most of its key features--- size, allocations, resource mobilisation target and even changes in tax rates---were available for public consumption, courtesy of the media.

The budget for the next FY coincides with the celebration of the Golden Jubilee of the country's independence. Yet it lacks the befitting flavour and hue because of the pandemic. Both outgoing and upcoming FYs are different from the earlier ones when none was required to worry about the devastating impact of the Covid on life and livelihood. Beyond the usual framework and approach, the budgets for such a trying time need to deal with some pressing issues rather diligently. It was desired most that the budget would pay special attention to health, education, agriculture sectors and safety net programme, besides normal budgetary exercises, to help mitigate the adverse impact of the pandemic. Such expectation is quite justified given the experience gained by all concerned, including the policymakers, during the outgoing FY. Allocations for health, agriculture and education, disappointingly, have been routine ones.

Vaccination and social safety net, however, have gained some special attention, in terms of allocation. Yet uncertainty over vaccine procurement looms. The safety net operation will see an expansion in the upcoming FY, but it intends to deal with the usual beneficiaries. The pandemic has created millions of new poor and several surveys have revealed it. The budget does not have any plan or programme in the matters of lifting them from the poverty trap. Doling out a few hundred taka, occasionally, will not be a meaningful way of helping these people in distress.

Planning a budget during a hard time such as the present one, surely, is an arduous task. The finance minister deserves appreciation for accomplishing that. He has proposed the new national budget for the FY 2021-22, setting its overall expenditure target at a record level---Tk. 6.03 trillion, with four key targets---achieving gross domestic product (GDP) growth at 7.2 per cent, increasing aggregate investment to 33.1 per cent (public 8.1 per cent and private 25 per cent), keeping the budget deficit limit to 6.2 per cent and containing inflation to 5.3 per cent. These are all numbers and there is no certainty that all these will be in line with the projections at the end of the FY. The budget expenditure and aggregate investment targets, as have happened in the past, are unlikely to be reached. The lack of capacity of the government ministries/ divisions/ agencies has been responsible for lower than targeted expenditure. Private investment has been stagnant in recent years. Lower lending rates and other fiscal and policy supports could not spur private investment. In the proposed budget, the government has offered some fiscal benefits, including a cut in corporate tax. It remains to be seen how the tax sops together with lower lending rate help boost the pace of private investment in the country.

Since the onslaught began in March last year, the government has extended stimulus packages to large, medium, small and micro-enterprises to help them tide over the crisis. The large industries and businesses do not have a complaint about the relief package. But the SMEs reportedly have been bypassed to a great extent since the banks are not that interested in lending to this type of clients. The banks may choose their clients. Yet the government should find out ways to help the SMEs that are hit hard by the pandemic.

As far as the 'revenue receipts' head is concerned, the government, for the first time in many years, has exercised prudence and decided not to play to the gallery. The experience gained in tax collection in the outgoing fiscal---the board is unlikely to achieve even the revised target--- might have prompted the National Board of Revenue (NBR) to fix its tax mobilisation target equivalent to the original target set for the FY'21. If the Covid infections continue to flare up intermittently in the coming months and the government is forced to introduce restrictions, achieving this target might prove difficult to reach. As usual, the government pins much hope on the Value Added Tax (VAT), the largest source of tax revenue. But all will depend on the overall business environment. The problem with the efficiency level of the country's tax administration remains a hurdle. It is unlikely to go away soon since sporadic efforts made to revamp the tax administration have failed to deliver tangible results until now.

The government has done the right thing by removing one particular irritant---the special facility to legalise undeclared or black money by paying only 10 per cent tax. The facility, as expected, has given rise to lots of resentment among the honest taxpayers. The existing provision---19E of the Income Tax Ordinance ---enables one to whiten black money by paying penal tax at the rate of 10 per cent along with normal tax rates. The relevant agencies are not barred from asking questions about the source of such funds. None has objected to such a provision.

The finance minister in his budget speech has claimed that there has been a 'slight' deviation from the traditional budget to effectively deal with pandemic effects on the economy, life and livelihood. In this context, he listed five priority areas---Covid impact handling by the health sector, implementing stimulus packages for various sizes of industry and enterprises, ensuring food security, developing human resources and tackling unemployment in industries. The emphasis on the vaccination programme, in terms of allocation and efforts to buy vaccines, in the budget is very much visible in the budget. But the same cannot be said in the case of other so-called priorities.

In his budget speech, the finance minister has pointed out much on positives and achievements in recent years. Those need to be appreciated with an open mind. Certainly, many weaknesses need to be taken note of with due seriousness. The non-performing loan (NPL) is a chronic problem and a solution to it not in sight until now. The issue has now been kept aside because of the pandemic. But when normalcy returns, it might emerge as a far more complicated problem.

It is no denying that the country's economy was doing remarkably well before the deadly pathogen sneaked into the country. Some adverse exogenous and endogenous factors could not deter it from achieving notable economic progress. The pandemic has slowed down economic growth. But it could not reverse the growth trend as experienced by many countries. The second Covid wave is now hurting the process of normalization of business activities. The government will have to handle the situation efficiently without risking the lives that matter most. The businesses will be happy with tax sops offered during one of the most difficult times. Now is the time to offer some benefits to millions who have lost jobs and sources of income during the last 15 months.