Income inequality to balloon like never before
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The pandemic would trigger a record revenue shortfall of Tk 125,000 crore, it said, adding that revenue earnings in fiscal 2019-20 are likely to record a minuscule growth of 0.4 per cent.
“There is no beacon of hope in terms of revenue mobilisation in fiscal 2019-20,” the paper said.
Subsequently, it has become critically important to identify the sources of fiscal space to underpin the government’s intended fiscal policy stance.
“Realistic revenue mobilisation targets will be crucial for overall fiscal management.”
The CPD proposed the government to raise the tax-free income threshold levels from Tk 250,000 to Tk 350,000.
The first three slabs of income tax from 10 per cent, 15 per cent, and 20 per cent may be restructured to 5 per cent, 10 per cent, and 15 per cent respectively, at least for the next two years.
To ensure the food security of low-income people, the reduction of import-related tariffs on essential food items should be considered.
It is to be anticipated that demands for incentives will rise given the pandemic. “The primary objective of all tax incentives should be to directly support the marginalised groups.”
It is time to lose the ‘fat’ in the non-development public expenditure and this will be important to address the adverse impacts of the pandemic with suitable fiscal measures, the CPD said.
The annual development programme (ADP) for fiscal 2020-21 needs to ensure that the required allocative priorities are followed and inclusivity is maintained.
Better utilisation of project aid in the upcoming fiscal years will determine the overall pace of implementation and this is also important because of reducing the debt-servicing liability.
The higher budget deficit is understandable but financing-mix remains a key concern, the CPD said.
In the backdrop of subdued revenue mobilisation, the possibility of pushing the budget deficit beyond the traditional cap of 5 per cent of GDP may be a necessity given the upcoming fiscal year.
“However, this increased budget deficit should be managed through the appropriate diversion of available resources, proper sourcing and prudent use of resources.”
The Financial Institutions Division has a plan to make it mandatory for insurance companies to invest a certain part of their investible funds in government securities and allow investment of undisclosed income in the capital market, the CPD said.
However, such black money whitening facility through voluntary disclosure of undisclosed income and investment in capital market discourages honest taxpayers while tax evaders are encouraged.”
“It has also failed to register any notable response. This provision should not be continued from the next fiscal year.”
With limited scope to further incentivise export and remittances, the central bank should consider gradual depreciation of the taka.
The government has come up with several policy interventions over the past few months in the form of several stimulus packages and monetary easing, and by providing reliefs.
“Regrettably, the policy response has not been adequate. The government has relied primarily on monetary policy tools (instead of fiscal stimulus as generally practised) as is manifested by the design of the stimulus packages.”
The weakness of administrative capacity and lack of good governance have further limited the effectiveness of the government efforts, the paper added.
The next budget should be a cost-efficient one so that the government can implement it by spending less, said Khondaker Golam Moazzem, research director of the CPD.
There is scope to divert resources from sectors such as the power sector to the important projects and areas.
The CPD said the economic policies in response to the pandemic over the last couple of months were influenced by the false dichotomy between life and livelihood.
Putting the so-called ‘life versus livelihood’ debate on the table has misguided the policy discourse.
The decision to open up economic activities without taking proper precaution, plan and preparation is having a significant cost in terms of lives and sufferings of the citizens and sustainable recovery of the economy.
It is critically important to review the current state of the pandemic spread and take a planned phased approach to allow movements and economic activities.
“Saving people from loss of lives and sufferings ought to be the highest priority. The economic recovery should be measured and monitored in terms of poverty, inequality and employment,” the CPD said.