Budget night

Published in the Daily Star (10 June 2010)

TONIGHT is the night of all nights for every citizen who has any interest in or is affected by the annual national budget. The finance minister is probably going through the last minute preparation before presenting the budget for FY2010-11 this evening.

Consumers and businessmen remain in suspense to see the impact of the budget on prices and taxes. Yet, there is a larger community out there, for whom it’s probably just another day of struggle with their inadequate family budget.

Nonetheless, every citizen contributes to the national budget, and tonight’s budget will affect everyone — directly or indirectly. Hence, economists and policy analysts are gearing up for rigorous post-budget analysis that scrutinises the impact of budget proposals on the public and the republic. I know for a fact that some leading civil society institutions in Dhaka are planning a sleepless night tonight.

The suspense of last year’s budget night was somewhat curtailed by the prior leaks of budget information. But as we argued at that time, some organised revelations during pre-budget consultations can help the budget better reflect public demands and expert opinions.

This year, the finance minister has kept such leaks to a minimum. But thanks to his mid-term and pre-budget reports on last year’s budget performance, some macro- aspects of the new budget are quite predictable.

A post-budget reaction predicted deficit financing and public private partnership (PPP) as the most uncertain features of last year’s budget. The fiscal deficit was managed through an under-performed Annual Development Program (ADP), but the PPP turned from being uncertain to unrealistic.

Yet another expansionary budget can be expected this year with an ADP of Tk 38,500 crore, being 35 per cent higher than the revised ADP of FY2009-10. We assume that the energy and infrastructure sectors will get the deserved priority in this year’s budget.

Mitigation of existing infrastructural crisis in the power sector will require government to actually spend a bulk amount on these sectors. Therefore, traditional under-performance of ADP may not be enough to keep the budget deficit within reach.

As such, we assume that the finance minister will opt for increasing tax rates in some areas (potentially, for luxury items). While we expect the finance minister to tell us what amount the government wishes to spend on energy sector, we are also interested to know how that money will be spent, whether in rental power plants or in energy subsidy.

The public private partnership (PPP) — for which Tk 2500 crore was allocated in the last budget — failed to live up to its hype, making no substantial achievement. Before the last year’s budget, we argued that mere budget allocation is not enough for PPP, and it is essential to have a well-defined legal and institutional framework for the regulation and implementation of PPP projects.

But in the mid-term budget review, the finance minister has informed us that such institutional set up could not be completed. As a result, “desired level of progress under PPP project” could not be achieved, and the PPP budget allocation was slashed in the revised budget.

Tonight, in addition to the budget allocation, we expect the finance minister to offer a trajectory with clear modus operandi for the implementation of the PPP scheme.

Last year’s budget had some good, bad, and uncertain features. We appreciated its plan for growth recovery, economic devolution, and pro-poor taxation that raised tax on luxury consumptions while reducing tax on raw materials and essential commodities.

But we also criticised the budget for allowing black money to be recycled at a lower tax rate. Since that provision failed to generate any significant investment, and the government has repeatedly criticised the opposition for using similar provisions before, we hope the finance minister will withdraw that provision from this year’s budget.

A block allocation of Tk 3,100 core was required in the last year’s budget for the National Pay Scale 2009. But as it was argued in last year’s post-budget analysis, block allocations for development programs often cause double jeopardy by allowing corruption when spent and by stagnating development expenditures when kept idle. We hope that tonight’s budget will be less dependent on block allocation.

In an atypical yet positive move, the opposition has offered some budget proposals. We wish these proposals were formally offered at relevant parliamentary committees. To further this initiative, the opposition should now join the post-budget parliamentary debates, and create public support for their proposals to be added in the budget.

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