Safety fund inadequate to deal with inflationary pressure: Sanem

The social safety allocation in the proposed budget for the FY2022-23 is inadequate to deal with Covid fallout and the mounting inflationary pressures, according to the South Asian Network on Economic Modeling (Sanem).

Excluding spendings such as pension for retired public employees, interest and stipends, the social safety allocation was reduced to 11.2% from the existing 13.7% in the proposed budget, the research organisation said on Monday.

According to Sanem's budget analysis, since the per capita allocation for the elderly citizens and widows did not increase, the beneficiaries will be able to buy less products than before. Besides, reduced allocation for open market sales will cut the food aid to the poor.

Although the proposed budget pointed out various challenges, it was not discussed which groups of the population would be affected by those challenges. Besides, the budget lacks measures to support the people who are facing the vulnerabilities.

While presenting the keynote at the press conference at Sanem office in Dhaka, Sanem Research Director Sayema Haque Bidisha said shrinking social safety allocation conflicts with the government's 8th Five Year Plan.

The plan stipulates allocating 2% of the GDP in the social safety net.    

Commenting that the existing tax structure is fuelling inequality, she said that 33% of the government's total revenue comes from income tax. Increasing income tax reduces inequality. Even now the tax net has not been expanded substantially, while the country also lags in progressive tax structure.  

Sayema Haque Bidisha believes the proposed budget had scopes for creating jobs, increasing growth, reducing inflation and alleviating poverty and inequality.

She said the import duty on some products has been reduced in the budget. While there is a possibility that those products would be cheaper, still there is a scope for price readjustment and import duty reconfiguration if the situation worsens.

"Even if our growth rate increases, the real benefits of reducing the corporate tax rate may not be available as employment rates fall in line with growth," she said, adding, "The benefits of growth are often not reaching the people."

Sanem Executive Director Selim Raihan said the budget is not consistent with the Eighth Five Year Plan and the Perspective Plan.

He said the allocations for health, education and social safety were supposed to be more as per the plans. Although six challenges were mentioned in the budget, the measures to counter those are not clear. Besides, it is unclear who would be affected by those risks and whose vulnerabilities would become severe.

He said the budget does not reflect the helplessness of a large part of the population. "If we cannot identify the problem properly, we will not be able to walk the path of solution."

"It is important to look at whether the government agencies responsible to keep the market stable are working properly. In the current reality, it was necessary to increase the per capita social safety allowance. At the same time, we wanted more allocation for the open market sale programme."  

"But in reality, the allocation for the open market sale has been reduced this time. The tax burden on low-income people has been increased," Sanem executive director noted.  

He also remarked that if the tax-free income limit was raised to Tk3.50 lakh, the government would not have suffered much.

Selim Raihan said Sanem does not support the proposed amnesty to bring back laundered money. "Questions should be raised as to why the money was laundered in the first place."

Earlier, in her keynote presentation, Sayema Haque Bidisha said there is no official data on the household income and expenditure survey after 2016.

According to the survey, 38% of the country's total wealth is occupied by 10% of rich people. This inequality has further increased during the pandemic time although there are no official statistics in this regard.

In this context, she suggested tax reform to reduce inequality.

A lack of information has always been a major problem, which became more evident during Covid-19 in poverty surveys conducted by the country's private research agencies.

The government has not done any such survey or research but is raising various questions about the credibility of the surveys.