Text by B360 Correspondent
Finance Minister Dr. Yubaraj Khatiwada presented the budget for fiscal 2019-20 with a large focus on distribution rather than introducing austerity measures. The government has increased the size of the annual budget heavily by 16.6% to Rs 1.53 trillion. The revenue mobilisation of the government in the next fiscal will be sufficient only to finance recurrent expenditure worth Rs 957 billion whereas the federal government has targeted mobilising revenue worth Rs 981 billion. “Current expenditure has alarmingly increased at a time when the government has comparative advantage to cut unnecessary expenses as elections are quite far,” said Dr. Swarnim Wagle, former Vice Chairman of the National Planning Commission adding, “The idea of mobilising foreign and domestic loans for development activities may not be the right approach to expedite development works in a desirable way”.
Finance Minister Khatiwada presented what is being labeled as a crowd-pleasing budget that has increased long-term liabilities to the state coffers, none that the FM or the government in the future can reverse back. An example of which is the decision to increase the allowance for senior citizens, disabled, marginalised and widows. Similarly, he has increased the budget for constituency development program which gives authority to the elected Member of Parliament under first-past-the-post system and supervision of concerned law maker from proportional representation of the particular constituency despite huge criticism. Khatiwada has increased the allocation of the constituency development program to 9.9 billion in total or Rs 60 million for each constituency. Experts state that allocation to constituencies is against the federal system. “In federalism the local governments are closer to the people and they are responsible for addressing the development needs and smooth public service delivery at the local level,” said Keshav Acharya, Economist and Former Adviser at the Ministry of Finance, “The rural and municipal assemblies do not know the Member of Parliament representing the federal parliament. This practice in fact corrupts lawmakers”.
The Constitution has provided lawmakers with responsibility to make laws, scrutinise government works, monitor development activities, however Parliamentarians themselves are deviating and lobbying for budget allocation for their constituencies.
The fiscal budget 2019-20 has also increased the allowance of senior citizens, disabled, marginalised and widows to Rs 3000 monthly from Rs 2000. According to the MoF, around 2.1 million people will receive such allowance. Liability to the social security increased to Rs 64 billion from Rs 42 billion. Increase in the committed liability squeezes the fiscal space gradually as the country will be an aging society after 10 years and aged society after 2054, according to Wagle.
Another distributive aspect of the fiscal budget is hike in salary and perks of the civil servants by 18-20%. There is 20% salary increment for civil servants below section officer level and 18% increase from section officer to chief secretary and also for constitutional bodies including parliamentarians, vice president and president as well. Liability of the government has been increased to Rs 145 billion from Rs 117 billion with the salary hike. The amount that the government is going to spend on salaries and perks from the next fiscal is one third of the budget allocated for development expenses or capital expenditure.
Execution modality of some of the political-pet programs is unclear. The fiscal budget has allocated Rs five billion for the Prime Minister Employment Program, however, due to lack of proper and trusted execution modalities, the program may not meet its target. A high-level source at the Ministry of Finance has said that the government can execute the employment program under public private partnership instead.
Sufficient allocation for development projects
On the bright side, the fiscal budget 2019-20 has allocated enough resources to national pride projects, post-earthquake reconstruction and other infrastructure projects. It has envisioned developing at least two mega hydropower projects in each province. Similarly, the budget has allocated Rs 163.52 billion for road, rail and waterways; Rs 141 billion for post-earthquake reconstruction, and Rs 83.49 billion for energy projects – generation, transmission and distribution. To provide subsidy in interest rate, the budget has allocated Rs one billion and Rs 950 million has been earmarked to provide subsidy for sugarcane growers. The fiscal budget 2019-20 has laid emphasis on quality education and health insurance for every citizen in the country.
No further tax burdens
Without making any major changes in the tax rates, the fiscal budget of the federal government aims to collect Rs 981 billion. The revenue target is quite ambitious as the federal government has revised the revenue collection target in the current fiscal to Rs 806 billion from Rs 831.31 billion as the initial target. In addition, Finance Minister Khatiwada has revised the income tax slab and the threshold of the tax-free income is Rs 400,000 for an individual and Rs 450,000 in a year for a couple. Likewise, the government has introduced a scheme to promote digital payments or minimise the use of cash. If an individual will pay by card or make online payment, he will get back 10% of the value added tax (VAT) into his bank account. This policy is expected to raise deposits in banks and financial institutions as people start paying with cards to capitalise on the incentive provided by the government on card payments. Similarly, excise duty on cell phones has been slashed to 2.5% from 5%.
How much income tax does an individual pay in the next fiscal?
▷ Yearly income: Tax amount
▷ Rs 400,000: Rs 4000 (1% social security tax)
▷ Rs 500,000: Rs 14,000 (10% above tax-free income threshold)
▷ Rs 700,000: Rs 54,000 (20% above tax-free income threshold)
▷ Rs 2000,000: Rs 429,000 (30% above tax-free income threshold)
(Those with monthly income above Rs two million must pay 36% income tax above the tax-free income threshold)
Intergovernmental fiscal transfer
The fiscal budget 2019-20 has estimated revenue sharing with province and local bodies at Rs 130.89 billion. Apart from this, the federal government has allocated grant amount worth Rs 99.84 billion to the provinces and Rs 213.82 billion to 753 local bodies as conditional and equalisation grant. Rs 10 billion each under matching and special grant is allocated for lower layer of administration in the fiscal budget.
The government has envisioned mobilising revenue worth Rs 981 billion, which is 64% of the budget. Similarly, nearly Rs 58 billion is to be mobilised from foreign grants, Rs 298.83 billion from foreign loans, and Rs 195 billion will be mobilised from domestic debt in next fiscal.
Through the execution of the budget, the government has envisioned achieving 8.5% growth in the next fiscal, and the inflation target is 6%. The government has envisioned completion of some of the mega projects namely: Upper Tamakoshi Hydel Project, Gautam Buddha International Airport and Melamchi Water Supply Project in next fiscal. The government has also targeted creating 500,000 jobs.