1. Budget 2017: No reason why tax changes need to be announced only on Budget day

Budget 2017: No reason why tax changes need to be announced only on Budget day

By the time the public and the commentariat talk about the Budget, it has been finalised, printed and gone beyond changes.

By: | New Delhi | Updated: January 30, 2017 11:28 AM
Governments have to provide statements of income expected and spending anticipated, strike a balance and say how the difference will be settled. (Reuters) Governments have to provide statements of income expected and spending anticipated, strike a balance and say how the difference will be settled. (Reuters)

By the time the public and the commentariat talk about the Budget, it has been finalised, printed and gone beyond changes. Still, we speak of it, express our demands and concerns and eagerly hope the finance minister is listening. Budgeting is a strange ritual, more about accounting than economics. Governments have to provide statements of income expected and spending anticipated, strike a balance and say how the difference will be settled.

It is also curious as to when the financial year is supposed to start and finish. The English decided on April 5 being the beginning of the financial year for reasons of the timing of the solar cycle. The old calendar was thirteen days behind the new one; so, April 5 is really 22 March and the equinox. The date signalled the end of winter and the start of spring sowing. We are stuck with that. In the Indian calendar, the end of autumn is when festivals occur which celebrate the harvest. We should have the Budget on Dhan Teras, two days before Diwali.

Of course, the calendar year is another choice. The date of Christmas, the birthday of Jesus was decided three centuries after its true date by The Council of Nicea, a gathering of Christian scholars. One week after the stipulated birth date would be the circumcision of the Jewish boy. Hence, the New Year. They decided it had to coincide with the Roman festival for the Sun God which celebrated the northward transit of the sun. In India, we celebrate Uttarayan by flying kites, but that is a fortnight after New Year. A Budget is just a kite flown by the FM.

The Americans have no formal date on which the Budget is presented with the finality that we have elsewhere. The Republic was born with suspicion of executive power. After all, it was due to the folly of George III that the colonies had rebelled. Hence, the President can only send a budget message—his wish list—to the Congress around February. It is the Congress which then deliberates and draws up Bills to appropriate the funds which can be spent on designated activities. The Financial year starts in October. Thus, Donald Trump cannot begin to spend the money the way he would like till October 2017. For the time being, his hands are tied by the last budget Barack Obama proposed and that got passed by the Congress. An October starting point makes sense in terms of the harvest cycle.

You May Also Want To Watch:

In any case, what matters is economics, not accounting. We need to know not so much “how much” but “on what” the money is proposed to be spent. As the prime minister’s speech on New Year’s Eve showed, spending proposals can be made round the year. What is sensitive are the ways in which the government will raise the money to cover the cost. Here again, there is no reason why taxation changes can be announced only on the Budget Day. Ideally, we should be debating and introducing taxes any time of the year as long as the legal starting date is fixed. Budgeting ought to be, from the economic point of view, a continuous and open exercise.

None of this is relevant to what will happen on February 1. The new date is an unusual introduction of rationality in budgeting. It allows spending for the next Fiscal to begin on time which February 28 did not. The absorption of the Railway Budget is also welcome as it stops distracting us from the important decisions in the big Budget. It also stops the railway minister from announcing costly subsidies and new routes. Suresh Prabhu has been the model of care and discretion in this matter. If only the previous railway ministers had been half as sensible, the Railways would have been in a better state.

So, to the Budget. The ideal Budget is when the FM can get up and say he is proposing no new taxes or spending initiatives because the economy is behaving so well that it needs neither stimulus nor restraint. He can say the numbers have been adjusted for some growth and inflation, the books balance and then sit down in about 10 minutes. This year, it is almost possible though highly unlikely. The economy is growing at the highest rate in the G20. This is even despite all the alarm about demonetisation. An economy growing at 7%-plus does not need stimulus. As inflation is low, the country can relax.

The radical shift in taxation caused by the introduction of GST is perhaps the most important event of this fiscal than the Budget. But GST does invite the FM to rationalise the tax structure in a long-run perspective. What would be welcome is an open debate on a total overhaul of the tax structure, making it more incentive compatible, less prone to evasion and elastic in raising revenues for a fast-growing economy.

The author is a prominent economist and Labour peer

  1. No Comments.

Go to Top