National Budget for the Fiscal 2006-2007: A Closer Look

INTRODUCTION

A national budget is one of the most important documents for any government. It is a plan which indicates how the government intends to carry into effect its political, social and economic aims. The essence of a budget lies in its role as a program of governmental activities. It is the blueprint for a Government’s plan of action. A good budget is one that that is pragmatic and long-sighted. It should look at the past, function in the present and lay out a plan for the future thus providing a sense of direction for the country economically and politically.

ANALYSIS OF THE BANGLADESH NATIONAL BUDGET FOR THE FISCAL YEAR 2006-2007

Finance and Planning Minister M Saifur Rahman placed the proposed national budget for the fiscal year 2006-07 (FY07) at the Jatiya Sangsad on June 8, 2006. This is the 12th budget presented by him as a Finance Minister of the country and the last budget of the present government. The budget has been placed at a critical juncture both from political and economic perspectives.

The upcoming fiscal year (FY07) is going to witness the reign of three successive governments, i.e. the outgoing coalition government (July - October 2006), the caretaker government (November 2006 - February 2007) and the new government (March - June 2007). This makes implementation of the budget very uncertain and the accountability for it will also be missing.

FY07 Expenditure & Revenue: Total expenditure for the coming fiscal year has been fixed at Tk 69,740 crore, which is Tk 8,642 crore more than that of the current revised budget. Of it, revenue expenditure has been raised by 14.11 % to put it at Tk 42,286 crore. The total development expenditure has been raised by 20.47 % to put it at Tk 28,463 crore. Of it, non-ADP expenditure has been increased by 45 % to make it Tk 1,982 crore. Again, ADP expenditure has been raised by 21 % to make it Tk 26,000 crore. Total revenue in the coming fiscal has been raised by 17 % from the current revised budget to make it Tk 52,542 crore. Of it, NBR portion has been increased by 19 % to put it at Tk 41,055 crore. Again non-tax revenue has been raised by 11 % to make it Tk 9,627 crore. The overall deficit except grants has been set at Tk 17,198 crore, which is 3.7 % of the GDP.

Deficit Financing: A change has been marked in the case of both foreign aid and internal borrowing. In the revised budget, net foreign loan has been reduced by 21 % from the original budget to make it Tk 5,574 crore. In the new budget, net foreign loan has been raised by 5 % to put it at Tk 5,856 crore. In the current revised budget, foreign grant has been reduced by 25 % from the original to make it Tk 2,476 crore. In the new budget, it has been raised by 1.2 % to make it Tk 2,508 crore. In the current revised budget, bank borrowing has been raised by 35 % from the original to make it Tk 4,911 crore. In the new budget, it has been raised by 11 % to make it Tk 5,434 crore. Borrowing through saving instruments in the current revised budget has been reduced by 30 % from the original to make it Tk 2,600 crore. It has been kept the same in the new budget.

Deficit budget and bank borrowing are common practice in world economy but it is absolutely essential to keep the bank borrowing within a tolerable limit. Private sector credit flow has declined substantially in the second half of current fiscal year largely because of excessive borrowing by the Government from the banking system. Immediate measures are essential to correct the situation. According to the new target of revenue earnings, the government will have to collect 17% more revenue in FY07 and the NBR will have to record a 19% growth. Renowned economist Dr. Debapriya Bhattacharya thinks this is unachievable based on the past record. In order to generate this huge amount of revenue, Saifur Rahman has rightly targeted income tax as a major source of earning and proposed a 22% growth. But an 18% proposed increase in VAT collection will hit everybody – poor and non-poor alike.

A large portion of revenue earnings will come through cancelling 100 per cent accelerated depreciation in the very first year of machinery installation and spreading it over three years – 50 per cent, 30 per cent and 20 per cent. This according to experts is a clever move for revenue collection.

PRICES OF PRODUCTS THAT WILL GO UP AND DOWN

The proposed budget for FY 2007 placed by Finance and Planning Minister M Saifur Rahman may lead to changes of the price levels of many commodities for measures like custom and supplementary duties and VAT.

Prices to go down:

Consumer Items: Rice, garlic, turmeric, chilly, ginger, onion and lentil, sugar, cell phone and its connection charge, locally manufactured dairy products, especially powder milk, reconditioned vehicles.

Industrial Goods: Machinery & spares of solar energy, hybrid seeds, primary plastic products, lead waste and scraps, compressors of refrigerating equipment, effluent treatment plant and synthetic filament tow along with miscellaneous other importable raw materials for various industries.

Prices to go up:

Consumer Items: Buildings, apartments in Gulshan, Banani, Baridhara, Bashundhara, Dhanmondi, DOHS etc of Dhaka and Panchlaish, Khulshi of Chittagong, land, canned beverages, juice, credit cards, glucose and glucose syrup, cigarette, sanitary towels, napkins, and napkin liners for babies and similar articles, tampered and laminated safety glass and motorcar.

Industry and service sector: Charge for hotels, decorators and caterers, community centers, beauty parlors, shipping agents, air-conditioned bus and railway service, and transmitting advertisement in satellite channels is proposed to bring under Value Added Tax (VAT).

TAX & DUTY MEASURES

In its fiscal measures, the government is relying more on direct tax like income tax and VAT thereby tasking the tax administration to go the extra mile in collecting revenues. This is a measure to cover up for the huge deficit in an oversized budget of nearly 70 thousand crore taka,

Limit on non-taxable individual income remains at the same level of Tk 120,000 although essential prices continued to rise and living cost increased substantially in the last one year. Those who would earn more than Tk 120,000 will have to pay 10% tax of the total income up to Tk 250,000, 15% of the total