Are you preparing for a costlier living?

As the country is preparing to get its budget for the next fiscal year, it is time for you to review your family budget too. Will the cost of living go up further? Will your income rise enough to offset the additional cost? Will the budget add to your cost, or take some heat off you?

The new budget will be placed in the parliament on 1 June, but some of the tax measures expected in the next budget indicate the revenue administration's desperation to increase the government's earnings. Take some examples – like the indication to end zero tax and impose Tk2,000 minimum tax for all TINs – which may raise worries about a further rise in the cost of living.

Common household items including plastic and aluminium tableware, microwave oven, LPG cylinder, tissue paper, ballpoint pen, handmade cake and biscuit may cost more from 1 July.

Expect some relief

However, some measures are expected to bring some relief. If advance tax on fuel oils is removed, their prices will be in check. It may bring some relief as fuel oil prices impact inflation in many ways. The question is whether Bangladesh Petroleum Corporation alone will get the benefit.

Medicines for cancer, diabetes, tuberculosis and malaria, IV cannula are expected to decline as duty waivers for local manufacturing are being considered. Though sugar, the most used sweetener, is expensive now, sweets may cost less in the next fiscal year.

Diapers, sanitary napkins, freezer, computer and washing machines may not see fresh price rise, according to the tax and duty measures expected.

Gathering clouds of extreme weather

But the budget alone is not going to have a role in your family book. Extreme weather events will also add to your worries. Rain precipitation is much lower than expected during this period of the year already affecting fish fry production – which is feared to have a negative impact on fish output throughout the year. It means fish – a traditional source of protein – sometimes may not appear on your plate. Beef and mutton are already scarce in the average family menu, and now chicken prices saw unusual surges in recent months. Commercial farmers attributed the price hikes to the high cost of poultry feeds and medicines. The new budget may propose duty reduction for raw materials of animal feeds. Consumers will have to wait to see whether the duty cut would be reflected in retail chicken prices.

Bangladesh is not alone in enduring the adverse effects of climate change and global factors like war. Drought is hampering food production in many other countries including those considered global food baskets. The Black Sea grain deal, which paved the way for bringing Ukrainian wheat to the global market, hangs in the balance of Russia's willingness to extend the deadline further. If the gateway remains open, there will be less worry for food supply worldwide.

Not much in arsenal to cool prices

With the dollar still dearer, imported commodity prices are less likely to cool anytime soon. The budget does not have much in the arsenal to rein in local market prices. One common option is reducing import duty which is overused and often seen only benefiting importers and doing little in lowering prices.

Consumers' wallets did not feel any relief from reduction of import duty on edible oil as traders say costly dollars offset the benefit of duty cut. Whatever little impact from tax cuts is expected, it misses the consumers due to the built-in aberration of the market mechanism to control retail prices of everything – from onion to sugar in kitchen and grocery shops.

Tax measures alone cannot tame the market

Tax measures alone cannot stabilise the market if market oversight fails. There are issues beyond the annual budget interventions. There are actors other than the finance ministry who are mandated to make sure that people get the real value of their money while buying any product and service from the market. If these actors do not work, import duty cut benefits will end up in the wrong pockets and consumers will continue to pay higher prices for soybean oil or higher bus fares even if tax were reduced for both edible and fuel oils.

Be it from the budget, or weather impact or global market volatility, the cost of living looks set to go up further. If you are not a government employee, your monthly pay or income is not going to be inflation-aligned. So you need to plan to cut your coat according to your cloth.

While some expenses are beyond your control, you need to compromise on some spending to have ends meet.

Pensions and healthcare still  dreams

You also need to keep some amount, however meagre, aside to meet future exigencies. Remember, you are not covered by the universal pension scheme or health insurance, although promised in previous budgets. It is you who is to bear most of the health care and education costs out of your pocket. There is no unemployment benefit if you lose the job.

You are more likely to pay higher rent or higher prices for land or flat, as landlords, home builders and developers are free to pass on to you any increase they see in utility bills or registration fees.

As the Federal Reserve Bank of San Francisco President Mary Daly says too-high inflation is a "corrosive disease, it is a toxin" that erodes the real purchasing power of people.

Record shows Bangladesh has never suffered from such prolonged inflationary pressure. And the situation is so complicated and uncertain that nobody can forecast when the inflation will cool. Answers to many of the questions lie in the trajectory of the Russia-Ukraine war which upended the global trade and economy at a time when it was recovering from the Covid pandemic shock.

The Cold War era-like arm race has begun with many advanced economies spending more for defence. The West has been supplying arms and ammunition to Ukraine to help it defeat Russia. After three decades of the end of the cold war, the world is now going through a time full of tension and uncertainty.

"Russia's invasion of Ukraine "risks wiping out the peace dividend we have enjoyed for the past three decades," says IMF chief Kristalina Georgieva.

Election year wranglings will worsen life

While undergoing the aftershocks of the pandemic and the war, Bangladesh has entered an election year. Politics has heated up over the next parliamentary election and the situation may worsen further in the coming months as the contentious issue of the election time government remains unresolved. Political unrest may hamper the country's economy, your life and livelihood too.

Reduction in wealth inequality needed

Tax system can be used as an instrument to reduce wealth inequality. Imposing a minimum tax of Tk2,000 on all those who have TINs will hardly bring Tk160 crore revenue. But wealth tax from property, if properly collected, could bring Tk6,000 crore in additional revenue, the Centre for Policy Dialogue (CPD) projects.

Its distinguished fellow Dr Debapriya Bhattacharya has said income and wealth inequality has widened, but tax fairness has not been established and there is no specific tax called wealth tax in the country despite six types of tax and duty imposed on land. "For this reason, the introduction of a mandatory wealth tax has become inevitable," he suggested.

"People's investment in land and houses is increasing, because their prices are shooting up fast…People are accumulating wealth by taking advantage of tax havens," said another economist Dr Ahsan H Mansur, executive director of Policy Research Institute. He blamed "political economy" for immovable properties including land and houses remaining not taxed properly. 

The Organization for Economic Cooperation and Development (OECD) countries show how redistributive impact of main taxes and cash transfers help reduce inequality. Some countries with a relatively small tax and welfare system (like Australia, despite its relatively small tax and welfare system compared with Germany, could achieve high redistributive impact as the country chose to rely on cash transfer more than income taxes.

Could Bangladesh mark the beginning of tax fairness as a step toward reducing income and wealth inequality?