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After the budget

  • Published at 10:30 pm June 11th, 2018
Some burning questions emerge Bigstock

A few critical points on the new national budget

The 47th national budget, which has been the hottest topic of tea-time discussions among us citizens for quite some time now, has finally been placed. So, what are some critical points that are continuously emerging?

Corporate tax rate reduced, but what was wrong with RMG?

The most hyped issue in this year’s budget amongst influential stake-holders is the reduction in corporate taxes for banks and financial institutions. With other companies (such as merchant banks, mobile, tobacco, and traded companies) retaining their existing tax rate, it has been proposed that the tax rate for public financial institutions will dwindle from 40% to 37.5% whereas the same for non-public financial institutions will be from 42.5 to 40%.

However, a contradiction has been observed in the case of RMG where the rate was hiked from 12% to 15%. It might cause rage among international stake-holders. After all, as being the supreme export sector, RMG attracts more FDI attention. A hike in the RMG tax rate is really not a good way to go about it.

Growth rate estimation and achievement

From the FY 15-16 to FY 17-18, the trend has shown that our government has not only been able to achieve the GDP target, but also to surpass it by a certain percentage. This year’s provisional growth has stood at 7.65% (according to Bangladesh Bureau of Statistics), which has superseded the targeted rate (7.4%). This year’s growth rate has been estimated to be 7.8%. Now, only time will tell how much of the budget estimation rate has been materialized. Also, have the drivers of GDP growth rate been identified before setting up the target? We need to know.

Repatriated workers as part of the board of directors

Point 146 highlights that the Expatriates’ Welfare Act will be amended by including two repatriated workers as representatives in the board of directors to add a new dimension. But herein lies the dilemma -- whether they will really be able to shed undiluted perspectives about the real conditions of the workers. Will they genuinely and wholeheartedly work for establishing the rights of their fellow mates, or use the power vested upon them to their individual advantage?

Change in prices of domestic goods

A general concern among us ordinary citizens is the striking change in the prices of domestic goods that has been proposed by the Finance Ministry. The budget has a proposition of 45% supplementary duty on sugar confectionaries and finished chocolates. 

The prices of commodity goods such as caffeine, cosmetics, energy drinks, toiletries, electrical items like voltage stabilizers, circuit breakers, and UPS/IPS has been increased. But a downward trend has been seen in the prices of raw materials for pharmaceuticals, bakeries, electronics, and automobile spares. The duties which have been imposed are claimed to protect local producers, but is it really a valid assertion? We’ll have to wait for the answer. Moreover, we also have yet to find out how this change in prices will affect the consumer basket defining the Consumer Price Index.

Expensive luxury goods

This year’s budget shows an alarming increase in the supplementary duty (20%) of luxury goods and services such as liquors, renting expensive hotels/motels and tourist spots from the existing 10%. Will this shift the elasticity curve of these goods? Luxury goods have an elastic demand in economic terms. For elastic goods, the consumption reduces as prices go up.

It is likely to impact the businessmen profoundly, though it has the potential to solve the persistent problem of juvenile delinquency and illegal engagement activities of the youth. Chartering helicopters also falls in the category. In this time of crisis, when many people need to be rescued, is this a good agenda?

Skill development policies: Can they solve unemployment?

Having been categorized as a “medium human development” country, the national budget FY19 allocates 14.13% of the total outlay for children’s education and a special focus on health and skill enhancement. 

The goal is to achieve the targets set by the “National Education Policy 2010” and “National Skill Development Policy 2011.” As per the budget testimonial, Probashi Kalyan Bank has been converted to a scheduled bank and arrangements have been made for vocational training and rewarding (through stipends) as skill development policies.

But with an estimated growth rate of 7.8%, can these policies be effective in solving unemployment? M Tamim, a professor BUET firmly comments on the need for human capacity-building through quality education and diverting attention towards skills development at the entry level so that we don’t have to lose hefty digits to foreign officials and professionals working at the middle and top levels.

Most academics still feel that the budget allocation on education seems inadequate. Even though there are sufficient jobs, the apt skills/human resources required to effectively perform those jobs are not enough. Zahid Hussain, lead economist of World Bank, comments regarding the notion: “If you don’t use your demographic dividend, the youth can go on to become a liability for the nation.”

Some burning questions emerge. With such an increase in the price of goods and commodities, is there going to be a price-wage spiral (high-prices affecting the wage rate), or after a few days will a role-reversal take place, causing a wage-price spiral (high wages affecting the rise in prices/inflation)?

With the overall situation being such that there is a possibility of the occurrence of high unemployment and high inflation, is the economic growth going to face stagnation, ultimately leading to stagflation? 

Maisha Mehzabeen works at the Dhaka Tribune and is a graduate in economics.