Priorities For The Upcoming Budget

Amrit P. Shrestha

The budget communicates information about the priorities of the government. Each act in the budgetary process is important, not only for taking a specific decision (so much for this, less for that), but for the information conveyed to others who will alter their activities accordingly. The closest analogy to budgeting in the political arena is pricing in the market place. Price is the major signal to which people adapt in choosing what to buy and sell, produce and consume, undertake or abandon. These signals communicate more about what is valued than any other economic decision. While concentrating on the budget, we should not be thought of as abandoning the awe-inspiring multi-year plan, rather as seizing one opportunity to focus on an area of significant potential advance over current practices. The budget has to focus on those segments that need to be brought on track, like infrastructure development, agriculture and the social sector

Strategies:Our economy has been pushed into a downward spiral. Neither are the government agencies in the process of activating the development programmes nor are the politicians concerned. The overall scenario is disappointing, whether we talk about physical infrastructure or social activities. Our journey has just started, and compared to our neighbours, it is in the preliminary stage of development. The upcoming budget must address all of the multi dimensional parameters of the economy which are causing concern - highway networks, rural connectivity by roads/communication, power, drinking water, agriculture, irrigation, watershed development, provision of quality seeds, access to health/education and poverty alleviation. Every finance minister plans ahead to avoid any problems in the future by anticipating them. He tries to obtain a more desirable future by working towards it at the moment. Attention must be diverted to the United Nations Millennium Development Goals, which could be a guideline for achieving our own goals.When there is growth, there will be more tax revenue. Growth-oriented budget benefits a section of the population, and growth is also a part of investment. When investment is taking place, there is nothing to suggest that growth will not take place. Policies that serve to distribute income more equitably must, therefore, become as important as those designed to accelerate growth. The road to economic prosperity, self-sustaining growth and national well being, in other words, has been impeded by lack of capital and industry than by the whole configuration of social factors responsible for it.

With every announcement that reduces our taxes, we are happy while we fall sullen when taxes go up. However, the finance minister must try to reduce inflation, keeping it at a moderate rate of 4-5 per cent. Taming inflation without dampening growth, more effective delivery of social services and putting fresh impetus in the economy are other priorities. And policies have to be designed in a manner to enhance investment to lay a robust foundation for growth, and make investment avenues more attractive.Customs and excise duty cuts are disinflationary. The reduction in customs duty on key inputs would reduce the manufacturing cost and facilitate exports. Cutting import duties on industrial intermediates and raw materials will be incentives for the manufacturing sectors. And it would be a strong support for increasing the tax to GDP ratio. Unfortunately, Nepal has not been able to push with VAT. The tax has not played a significant role in enhancing economic process. The overall strategies have not helped achieve those targets as envisaged in November 1997.The tax rate has been increased time and again for nothing, and this does not get reflected in real revenue mobilisation. So the finance minister has to pay serious heed to increasing the tax base rather than increasing the tax rate. International experience tells us that the gradual lowering of the tax rate is an effective tool in achieving the desired goals rather than increasing it. Meanwhile, WTO norms have to be kept in mind while granting direct subsidies on agriculture and farm products.

This is also the right time to rewrite tax laws aimed at: improving the capacity to mobilise more revenue; combatting tax evasion; making the tax administration more professional/strong /job-oriented, and improving compliance and economic activity. Tax evasion provisions should be more stringent with tougher penalties. Budget allocation for infrastructure development and expansion of the IT sector, promotion of the concept of an International Financial Centre, and adoption of the private-public partnership (PPP) model should be a part of the basic development process.ChangeOne must accept that the budget is not the main vehicle for bringing about changes. One also knows by experience that financial assistance through internal and external source is a strong instrument for initiating such changes. All must, therefore, think from a long-term perspective rather than weighing the immediate pros and cons.

Source: The Rising Nepal, July 5, 2007