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The Financial Express

OPINION

Price hike, taxes double whammy for middle class


Price hike, taxes double whammy for middle class

Mavericks provide spice in the flow of the usual. The appeal comes as much from the thrill of everything unexpected as it does from the audacious. That could well explain the lure of electorate for a Donald Trump or a Boris Johnson. The marked difference lies in the general psyche of a nation. The United States divided along two distinct polarities; the United Kingdom leaning towards traditionalism as opposed to progressiveness. In both cases Mavericks don't eschew continuity for that is their forte: individualism that isn't to be replicated. Mr Trump didn't create a successor. Mr Johnson chose Dominic Raab more out of convenience.

It's when tradition and progressive become bed-fellows that the fun begins. Barring Rushi Sunek, all the Conservative Party leadership hopefuls are playing the traditional tune in support of their ambitions. Nothing is as musical to voter ears as are tax cuts. Mr Sunak is at a marked disadvantage on that score. He can't be seen to be eating his own words that he served on the platter to the British public as Chancellor. That the others, especially those that clung on to or gave up ministerial positions in Mr Johnson's darkest hours can venture along the route should have come as a surprise. That no one has been bothered to ask as much is partly due to the irrepressible factuality of decision making. They too, had tacitly supported Mr Sunak's proposals as he looked for sources of money to fight deficit and inflation. As of now the tax cut promises aren't being backed up by any suggestions of alternative funding.

World-wide the same questions are being asked of governments. Wealthier nations are attempting to balance between increasing debt and tax raises, depending on the school of economic thought they prefer to follow. The less well-off countries have, despite exhortations of eminent economists of the ilk of Jeffrey Sachs, fewer alternatives than going the taxation route direct, indirect or hidden. Mr Sachs believes in supporting greater consumption at the cost of immediate debt increase, a concept Bangladesh's economists proposed during the pandemic. The same group prefer government to continue subsidising energy so as to keep the consumption growth momentum upwardly mobile. The conundrum for our political government is that to do so means either scaling back or slowing down ambitious infrastructure projects or risk being refused development partner loans that always come with the no-no as far as subsidies are concerned.

With rising import bills, sagging remittances and exports non-commensurate with imports, it's a difficult choice. Along with differential interest rates on government bonds so as to cushion the impact of borrowings, the state has chosen to go the volume rather than value investments trail. That's at odds with the continued policy of allowing undisclosed income, especially in real estate investment. And that's opposed to bringing the fishery sector in as the first step in widening the tax net. There wasn't much debate in a parliament not known for as much in the past decade. Just as the increase in tax on internet usage went largely unchallenged. The Information Technology sector is apparently willing to accept the trade-off with their basic taxes.

Resilience will face a litmus test as a shrinking middle-class faces the double pronged assault of prices and taxes against stagnant wages. Media and research suggests there is an obvious cutting down on consumption as the first reaction. The unsold number of higher priced sacrificial animals is another indicator. The Prime Minister has been upfront in asserting subsidies have to be reduced. She has a definitive point. The loophole exists for another way of ramping up the economy. Stimulus for the lower end of the divide to encourage consumption so as to prop up Small and Medium Enterprises (SMEs). Part of such moneys could well come from a re-negotiation of capacity captive costs being paid to Quick-rental power units, even in the form of a moratorium. Politically, any back tracking of infrastructure projects may be unpalatable. There will lie long-term sagacity. That and carefully weighed perspectives of the emerging nature of economics and geo-political maps.

 

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