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6 years ago

Budget and subsidies  

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The next year's budget is likely to be presented in parliament in the first week of June next. Brisk preparations are already on from the government side to have forethoughts from the economists, business leaders, think tanks and intellectuals and accommodate their recommendations in the budget.

Since budget is an estimated account of income and expenditure of the government, it presents projected income from internal revenue sources as well as aids and grants from external sources. A major part of a nation's expenditure is always met from revenue earnings that include collections through various forms of fees, tax, VAT, supplementary duty and other regulatory payments. Budget being a statement of income and expenditure of a country for a period of time, the entire financial system comes under spotlight at the time of preparing the budget.

The government cannot retain all its income for revenue and development expenditures and has to set aside a part of it for subsidies to companies or industries marketing critical products to keep market prices lower than their cost of production and also for critical organisations that cannot run on their own incomes. It is also called subvention. Subsidy is mainly intended to (1) support exports, (2) keep prices of staples low, (3) maintain income of producers of critical or strategic products, (4) maintain employment levels, or (5) induce investment to reduce unemployment. It is generally extended to an economic sector with the aim of promoting economic and social policy.

In case of Bangladesh, all the above objectives apply in varying degrees. With oil prices predicted to reach the US$70 mark in 2018, it may not be possible to completely withdraw the subsidy given to Bangladesh Petroleum Corporation (BPC). Also as most of the rental power plants are operated with fuel and as price of fuel goes up, subsidy on electricity alongside petroleum products cannot be reduced. Additionally there may be increased pressure within the government to raise power tariff again. Subsidy on food should be increased as was done during the current fiscal although food prices came down remarkably in the international markets. Overall it remains to be seen how the government is going to handle the subsidy issue for the annual budget. There are obviously some areas where subsidy not only helps keep the price down but also helps the government fulfil its welfare objectives.

Some kind of subsidies may be required for higher education particularly in engineering, medical and IT disciplines in the country. This will help higher institutions to grow outside the metropolitan areas. The WTO Agreement on Subsidies and Countervailing Measures (ASCM) recognises the significance of a subsidy for a government. So, higher subsidies should be allocated for the health sector to enable greater number of people to have access to improved medical treatment or increased health facility. More hospitals and clinics may be set up in this way or the existing ones may be upgraded.

An employment subsidy in the form of wages may be considered as another choice which offers multiple benefits. It will serve as an incentive to businesses to provide more job opportunities to reduce the level of unemployment in the country and to encourage research and development (R&D). It may also be called income subsidies. Another form of employment subsidy is the social security benefit that allows a person to receive benefit for a minimum standard of living and in this way the overall standard of living in a country is raised.

The government should therefore base its policies on subsidy with both social and economic considerations as subsidies have become an integral part of budget to bolster socio-economic development. A careful evaluation on the impact of subsidies over the years on the economy as well as on society as a whole should therefore be done to help accelerate social and economic gains through subsidies.

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