Normally an election year is good for tax - payers but taxing for Governments, whereas a post-election year is good for Governments but bad for tax payers. The Government dare not propose heavy taxes or other means of extracting money from the citizens who are already “groaning” under a heavy burden of levies. On the contrary, the Government has to propose a soft - budget and announce many sops to tax payers.
When the Government has just come to power after fresh elections, it is the most propitious time for Government to announce fresh proposals and extract money from the people as the next elections are long way off and by then the tax-payers have come to adjust themselves to the fresh levies. Public memory is always short.
Political economy:
Our Finance Minister P. Chidambaram is a clever guy as a politician and also as an economist. He is an advocate of economic reforms and is trying his best to further the cause of reforms within the constraints imposed by the left parties. Though an avowed reformer, Chidambaram is a politician first and an economist next. Politics always takes precedence over economics. It is not for nothing that economics was once called political economy. Hence our Finance Minister cannot afford to forget that this has to be an election budget. Of course, the general elections are due only in May 2009 that is after the end of the next financial year. If the Congress or any improvisation under the Congress flag were to form the next Government, it has to present the regular budget for 2009 - 10 after the elections. The budget that would be presented in February next year will be a provisional one and the Parliament may have no vote on account. Hence all attention is bound to be concentrated on the present budget, and every attempt will be made by the Government to woo the voters well in advance.
The present financial situation, so far as the Government is considered, is rosy; whatever may be the state of stock market. The turbulence on the stock market is said to have nothing to do with the budget. If this stock-market goes wayward, it is the way of the stock market. The fundamentals of economy are sound and there is cause for alarm, says the Government. That is a global phenomenon and the share prices correct themselves quite often not to be found far oft the normal trend, global trends notwithstanding.
The complacence of the Finance Minister is born out of the happy position so far as the tax-collections are concerned. The Treasury is jingling with fairly huge inflows. The income tax collections for the first nine months of the present financial year are 50 per cent higher than the collection for the same period in the last year. This was quite unexpected and a pleasant surprise for the Government. The corporate tax collection also are quite buoyant and collections for the same period have increased by 39.84 per cent. If the same trend has continued for the last quarter for the current year, the total direct tax collections will be far in excess of expectations.
Direct taxes:
This happy trend so far as direct taxes are concerned is largely due to the continuing high growth that is being recorded by the economy. It grew faster in 2006 - 07 than previously estimated and recorded 9.6 per cent, the highest in 18 years, while it was legged earlier at 9.4 per cent. During the present year (2007 - 08) it is expected to grow close to 9 per cent. Whether it will be more than 9 per cent or a little less than that is only a conjecture at present. Suffice it to say that the growth rate will not be off the track. A fat lamb is the joy of the butcher. The Finance Minister is ready with a sharp chopper. It is for the tax payer to willingly place his head on the block!
India's average growth over the past three years at 8.8 per cent is a record of the UPA Government. Whatever may be the world economic situation and the whimsical movements on the stock exchange, the country's economy is sound and it is sailing on an even keel. Why worry? — says the Finance Minister. “But there is reason to worry, Sir!” says the common man. “Though you have not changed the personal income tax and corporate tax rates, you have already levied cesses on them. You have levied a surtax of 10 per cent on personal income tax rate of 30 per cent. Corporate tax attracts an additional levy of 3 % as education cess.” Though these levies were intended to be temporary, they are surviving their present life - span. Nobody knows when they exit.
There is a snag in the entire set up. Though direct tax collections are buoyant, indirect taxes are lackluster. Excise and import duties as well as service tax collections are not encouraging. The Finance Minister is of the opinion that the short - fall in the duties can be made good from increased service tax collections.
New measures:
The Finance Minister says he is not unduly optimistic and he is vigilant enough and ready to unleash new measures to make appropriate adjustments, should the global developments, which are always imponderable, warrant the immediate implementation of corrections and make adjustments. We are taking care to keep firm hands on the wheel not to allow the situation to go astray. The present task is to maintain a balance between growth and inflation — says Finance Minister. Growth often co-exists with inflation. When the economy is treading the path of growth, with the increase in investments and outputs as well as flow of liquid money in the economy, prices tend to go off the track. So we have to be ever-vigilant to reconcile growth with inflation. At present the rate of inflation is below 4 per cent and we have to take care not to allow inflation to go beyond 5 per cent. That is the limit.
As said earlier, the coming general elections have forced the Finance Minister to be wary of certain concession to be given to the tax payer. One may expect higher exemption limits for income tax, cuts in corporate tax and customs duty, selective cuts in excise duty and big spending on welfare and social schemes in the coming budget. One may expect higher Government salaries in anticipation of the pay commissions award, huge subsidies for oil, fertilisers and food.
But one can never forget that the budget has two legs. You cannot hope to increase expenditure enormously without making provision for income. The budget may show a huge deficit. This means that the fiscal and revenue deficits would be far above the limits imposed by fiscal responsibility and Budget Management Act.
