Let’s start with government revenue. The government aims to collect revenue of Rs 247 billion this year as the main source for financing its planned expenditures. Is this realistic? Not at all. The government failed to raise the targeted revenue last year by about Rs 10 billion, netting just Rs 206 billion in the entire year. Without major revisions in tax rates and the other sources of income, how can the government realize the revenue targets for this fiscal year, which have been raised by well over 20 percent?
A stifled economy, which manifests itself in suppressed demand, will not be able to generate that level of revenue. But it’s not just revenue that will fall short of the finance minister’s projections; the government is also unlikely to realize its foreign aid target of Rs 103 billion (Rs 75 billion in grants and 28 billion in loans). And what happens when the government doesn’t raise enough money? Very simple—it will not be able to spend as it plans. But that’s not the main worry for us. What typically happens when the government fails to realize its income target is it often ends up failing to spend on critical infrastructure projects and the social sector and instead drains away the money on populist programs.
It is always easy to spend (read waste) money on populist programs since that is often about just distributing the money without any real accountability as to where it was spent or how. We want to caution the government from now on that it should try to rein in spending on populist programs and ensure timely release of funds for vital infrastructure projects and the social sector (such as education, health care and drinking water) should it fail to mobilize the projected levels of income.
One of the major reasons the budget has become so imbalanced in terms of income and expenditure is the government’s decision to raise civil servant salaries by up to 25 percent. Since the salaries weren’t revised for the last two years, denying civil servants a raise this year as well would have been utterly unjust, especially in the context of double digit inflation during the last two years. That government employee salaries have now gone up by 25 percent paradoxically raises fears that this will fuel inflation.
The government should from now onwards try to adjust civil servant salaries for inflation each year. Such adjustments will be a judicious move and will prevent pent up inflationary pressures from worsening.
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