In fiscal correction quest, the best betís GST

Mon Jun 23 2014, 19:53 hrs
The task of fiscal consolidation for this government will not be easy. While there is scope for switching expenditure from unproductive subsidies to spending in growth-critical areas such as infrastructure, health and education, there is little room to cut overall expenditures. Therefore, to sustainably reduce fiscal deficit, the government must raise revenues as a share of GDP. (Photo: AP)
The task of fiscal consolidation for this government will not be easy. While there is scope for switching expenditure from unproductive subsidies to spending in growth-critical areas such as infrastructure, health and education, there is little room to cut overall expenditures. Therefore, to sustainably reduce fiscal deficit, the government must raise revenues as a share of GDP. (Photo: AP)
To raise tax rates at this juncture is not prudent because it will severely hurt growth.  Instead, the government must focus on implementing structural reforms such as the goods and services tax (GST), which will lift tax revenues, lower the cost of doing business and boost growth. (Photo: AP)
To raise tax rates at this juncture is not prudent because it will severely hurt growth. Instead, the government must focus on implementing structural reforms such as the goods and services tax (GST), which will lift tax revenues, lower the cost of doing business and boost growth. (Photo: AP)
Unfortunately, implementation of GST in this financial year is unlikely. With limited upside to tax revenues and large roll-over of subsidies from last fiscal, we expect fiscal deficit to stay high at 4.3% of GDP in 2014-15. (Photo: AP)
Unfortunately, implementation of GST in this financial year is unlikely. With limited upside to tax revenues and large roll-over of subsidies from last fiscal, we expect fiscal deficit to stay high at 4.3% of GDP in 2014-15. (Photo: AP)
Beyond this year, however, we believe the most likely outcome is a partial GST - one that excludes petroleum goods Ė given its large impact on state revenues. Even with this, fiscal deficit could correct to 3.3% of GDP by fiscal 2017. A failure even to implement a partial GST would result in the fiscal deficit being much higher at around 4-4.2% of GDP in fiscals 2016-2017. (Photo: AP)
Beyond this year, however, we believe the most likely outcome is a partial GST - one that excludes petroleum goods Ė given its large impact on state revenues. Even with this, fiscal deficit could correct to 3.3% of GDP by fiscal 2017. A failure even to implement a partial GST would result in the fiscal deficit being much higher at around 4-4.2% of GDP in fiscals 2016-2017. (Photo: AP)
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