Economists recommend wealth tax, financial sector reforms in FY24 budget
Economists' proposals for FY24 budget
- Introduction of wealth tax to reduce inequality in society
- Massive interventions to ensure quality in public education and healthcare
- Creation of a finance or bank commission to ensure stability in the financial sector
- Reforms to the taxation system to increase the tax-to-GDP ratio
- Introduction of a pricing policy for consumer goods
- Withdrawal of regulatory duty on imports
Economists have recommended that the government take up new initiatives in the national budget for the forthcoming fiscal 2023-24 while continuing the Covid stimulus package to maintain macroeconomic stability.
Among the proposals the economists made during a virtual meeting with Finance Minister AHM Mustafa Kamal on Sunday are the introduction of a wealth tax to reduce inequality, massive interventions to ensure quality in public education and healthcare, and the creation of a finance or bank commission to ensure stability in the financial sector.
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Additionally, the economists suggested reforms to the taxation system to increase the tax-to-GDP ratio, which currently stands below 8%, the lowest among South Asian countries. The proposals also included introducing a pricing policy for consumer goods and removing regulatory duty on imports.
After listening to the economists, the finance minister said, "We have many problems, but there were many discussions about how to address the problems."
Professor Rehman Sobhan, chairman of the Centre for Policy Dialogue (CDP), said despite Bangladesh's success in reducing poverty and developing human resources, inequality is increasing.
He advised the government to take measures in the next budget to reduce social and economic inequality and build a democratic economic system.
He said that many policies of the government are directly and indirectly helping to increase inequality. Emphasis on the collection of indirect taxes instead of direct taxes is an example of such policies, he added.
Regarding default loans, Rehman Sobhan said, "It is related to the credibility of the macro economy, international image, and investment policy. Some of the big players in the market are involved in defaulting on loans."
Resources are being made available to defaulters with rescheduling and write-off facilities, he noted, adding, "But it is depositors who are the owners of the banks' money and many of them are poor. Providing various facilities to loan defaulters also contributes to widening disparity in society."
All finance ministers say that defaulters cannot participate in elections, but eventually, they help defaulters become candidates in elections by giving them the opportunity to reschedule their defaulted loans with a 2%-5% down payment before the elections, he observed.
Discrimination is very high in the education and health sectors, mentioned Rehman Sobhan, adding that only the elites in society are getting access to quality education and healthcare. He recommended that the government take necessary steps in the budget to ensure quality in public education and health sectors.
He also pointed out that the cost of migration from Bangladesh is the highest in the world and suggested taking necessary steps to address this issue.
Dr Binayak Sen, director general of the Bangladesh Institute of Development Studies (BIDS), advised the government to take ownership of the large loan-defaulting companies by converting the defaulted loans into equity in the next financial year.
He stressed the need for forming a commission in the same way the Money and Banking Commission was formed in 1981-82 to identify the problems of the financial sector. This will at least identify the problems the financial sector is faced with, he said, adding that the government can then consider whether or not to solve the problems.
To reduce the disparity between the rich and the poor, he suggested introducing a wealth tax in the next budget, at least on a limited scale in metropolitan cities.
Mentioning that there is no improvement in human resources and nutrition indicators in the lives of the 20% urban poor population unlike in the villages, he said additional importance should be given in the budget towards the urban poor.
He suggested providing the informal sectors of cities with various facilities including loans to help them get an institutionalised form.
To continue agricultural production, he also recommended that additional support is announced in the budget for landless farmers.
Mamun Rashid, managing partner of the PWOC, however, opposed the suggestion to impose a wealth tax and said these are century-old ideas.
Zaidi Sattar, chairman of the Policy Research Institute (PRI), proposed to remove the regulatory duty and said that the big challenge in the next budget is to simultaneously increase revenue and investment, and trade.
He said that import tariffs have also increased due to the depreciation of the Taka against the US dollar. The global average import tariff is 6%, and it is 11% for LDCs, he mentioned, adding that the rate is 27% in Bangladesh, which has increased further because of the weakening of the local currency.
In this situation, measures should be taken in the budget to reduce the import duty of goods, he said.
M Saiduzzaman, former finance minister, argued that increasing the tax-GDP ratio should be given the highest priority in the new budget because, he said, this will solve all problems of the economy.
Salehuddin Ahmed, former governor of the Bangladesh Bank, emphasised the formation of a bank commission and said if the financial sector is not streamlined, the overall economy, business, and investment will be ruined.
He also recommended the formulation of a pricing policy for all edible goods to ensure the supply of products at a stable price to consumers across the country.
The former central bank governor also spoke against the reduction of interest rates of savings certificates. He observed that the government should stop taking up unnecessary development projects to reduce expenditure.
Ahsan H Mansur, executive director of the PRI, said the forthcoming budget should outline measures to rein in inflation and eliminate the dollar crisis. Import curbs cannot be the solution to the dollar crisis, he added.
There is a downturn in the economy while the profits of traders and banks are on the decline, he mentioned, adding that increasing the tax-GDP ratio in accordance with IMF's prescription will be difficult in this situation. He suggested withdrawing tax exemptions from various sectors to boost the government's revenue.
"The picture of budget support from foreign sources is disappointing. The Bangladesh Bank is providing budget support by printing money. The private sector is also being supported by printing money. If this continues, there is a danger of getting stuck in a cycle of high inflation," he said.
An announcement should be made in the budget speech as to which areas the NBR will reform in the upcoming financial year, Ahsan Mansur suggested.
He also said that if the market-based exchange rate is not ensured, export diversification and export promotion will be difficult.
Dr Quazi Shahabuddin, former director general of the BIDS, also suggested the formation of a tax commission and finance commission.
Besides, he proposed to put a description in the budget speech of the challenges the government is facing due to the Ukraine-Russia war and the steps proposed to deal with those challenges.
Mustafa K Mujeri, former director general of the BIDS, recommended undertaking new initiatives in the next budget in addition to continuing the incentives provided during the Covid period to protect macroeconomic stability.
Selim Raihan, executive director of the South Asian Network on Economic Modeling (Sanem), said that the government should continue its efforts to ensure macroeconomic stability. Private investment has stagnated since the Covid period, which needs to be addressed in the next budget, he added.
He advised preparing the budget cautiously, taking into consideration whether the collapse of banks in the United States and Switzerland is signaling a new global financial crisis.
Mohammad Tareque, former finance secretary, recommended paying more attention to the education sector for the overall development of the country.
Another former finance secretary, Mahbub Ahmed opined that the size of the budget needs to be increased in terms of ratio to the GDP. Additional financing is possible from three sources – tax, non-tax revenue, and foreign debt, he added.
Abul Barakat, president of the Bangladesh Economic Association, suggested increasing taxation on the rich to reduce inequality.
