A social democratic, green, mission-oriented budget

In contrast to the usual approach to a budget discourse based on ideas around raising taxes, and expenditure allocations with slight hints of expanding the tax base, and having progressivity, and only marginal efforts to increasing expenditure efficiency, while ensuring some sort of welfare- related allocation, primarily through Benazir Income Support Programme (BISP), it is necessary to deliver a budget that is cognizant of the fast-unfolding nature of existential threats, the rising level of poverty, and inequality, and the diminishing strength of political voice.

It is also important to realize that an economy based on the policy of Neoliberalism, austerity, fossil fuel usage primarily, and slow-paced incremental improvement of economic institutional quality, will likely not only not deliver in any breakthrough way from the problems it is facing, but will continue to perpetuate the crisis.

Hence, in addition to taking a non-neoliberal direction, there is a need for purpose-driven, mission-oriented approach to budget-, and overall policymaking in the country.

Moreover, although it is important to have provincial autonomy, but given the nature of existential threats, the depth of non-resilience, and the extent of inequality calls for a much more potent nationwide, and longer-natured policy framework.

For this, the upcoming federal budget should allocate resources into setting up an institutional framework on the lines of a working group under the overall umbrella of Council of Common Interests. It is established to support an efficient delivery system for the center and the provincial finance, and other related ministries.

Any legislation that needs to be passed for setting up this institutional framework should be presented in parliament for deliberation, and possible passage.

In addition, beyond the budget, and domestic economic policy, the global nature of existential threats, and the strong misgivings of a mainly neoliberal global economic order, and short-sighted, inward-looking, xenophobia-influenced domestic politics abroad will require a strong economic, and political diplomatic policy response from the government.

Does this, then, leave much space for power politics, over-board, unjustified appeasement of local voters at the cost of producing sub-optimal policy response like produced in the shape of vaccine apartheid, and lack of multilateral support, and debt relief in the wake of it? Does this allow virtually unfettered market fundamentalism, and weak governments, relying heavily on neoliberal oriented private, and multilateral outsourced technical support?

The answer, globally unfortunately, remains mostly tilted in the positive up till now, even as extreme fringe political parties continue to take up more of mainstream political space, geo-political conflict continues to rise even as the heyday of the pandemic heard voices for a ‘new normal’, and a ‘green new deal’! The lines between local and global are fast diminishing as heatwaves transcend boundaries as island nations’ worry for their lands increases in the wake of rising sea level, and as calls build-up for more creative and apt reforms of global multilateral system and institutions on the lines of ‘Bridgetown Initiative’ as suggested by of Prime Minister of Barbados, Mia Mottley. It is then, in this context, the government, and the International Monetary Fund (IMF) should approach the budget.

This budget may allow setting the direction on a strong footing – clearly identifying policy choices, including starting a meaningful basis for shifting towards a social democratic styled, efficient and proactive public sector, and overall economic outlook, which means, shifting away from Neoliberalism, procyclical and austerity-based policy decisions, including reforming economic institutional, organizational, and markets on the lines of meaningful, proactive, co-creating role of government, striking a healthy balance between economic freedoms, and a significant level of regulation to check, for instance, over-profiteering and negative externalities. Overall, the budget should reflect governance, and incentive structure (taxes, subsidies, etc.) on these lines.

In practical terms, it means many things, and given the scope of current articulation, steps are taken in a prioritized way.

There needs to be a clear shift in the taxing mindset – shifting from consumption-based taxes to income-based taxes. In addition to laying a medium-term framework for domestic resource mobilization, an accompanying expenditure allocation framework should furnish details of bringing in supportive infrastructural, and human capacity build-up, including reforming the public service, and financing technical missions to limit the role of neoliberal-styled policy outsourcing, including bringing international best minds to seek technical/research support in this regard.

The overall effort here should be to move towards a non-neoliberal, social democratic-styled policy approach and implementation strategy, and in formulation of which the federal government takes on board all provinces; once again laying out a medium-term strategy.

This will also shape the whole reform agenda of state-owned enterprises, understanding the role of public sector as reflected by successful experience of Scandinavian model of social democracy, and by state capitalism led model in China; not to mention the serious misgivings from the experience of over-board privatization, including its wrongly assumed golden age time period of 1990s to early 2000s.

So, a major step with regard to meaningfully shifting the direction of taxes to income-based taxation is significantly reducing general sales tax (GST), which is tax on consumption, and the drop is matched by increasing tax progressivity, and applying a special ‘national income tax’ as recommended by renowned economists Emanuel Saez, and Gabriel Zucman.

In their book ‘The triumph of injustice: how the rich dodge taxes and how to make them pay’ they indicated that the tax will be applied to both labour-, and capital income, and across all sectors of the economy, whereby it does not matter whether income ‘originates from the manufacturing sector, finance, nonprofits, or any other sector of the economy’, while this tax also covers savings. Moreover, the proposed ’national income tax will be ‘a single rate and offers no deductions’, and ‘is certainly not meant to replace the income tax, or any other progressive tax… [it] is a true flat income tax.’

Moreover, the Budget should seek reining-in overboard austerity emphasis, and revenue needs are assessed on the basis of greater fiscal space under a much reined-in policy rate over the next fiscal year.

This freed-up fiscal space should then be diverted into enhancing subsidies of essential food items, energy subsidies, among others, in addition to making overall greater spending for a much more resilient, green, and welfare-oriented economy.

More than fiscal space, reduction in GST, and imposition of a ‘national income tax’ across all sectors of the economy, will help, reduce income inequality, and together with decrease in cost-push inflation, falling policy rate will incentivize investment.

Then, in addition to a reduction in interest-payments-related expenditure as policy rate gets reduced, electricity is shifted to renewable sources in a rather drastic way, so that circular-debt-causing expenditure gets reduced in the wake of this shift.

Moreover, to deal with the capacity payment issue, the government should try to renegotiate, and ultimately get rid of the onerous contracts with independent power producers (IPPs) since payments have to be made for idle energy produced as well.

In this regard, a long-term financial and technical loan programme is negotiated with China – since China is a global leader in solar energy sector – to make a rather swift shift to solarization of the country.

Not only will non-fossil-fuel based energy resources help fight climate change better, pressures will be drastically eased for import payments related to oil, bringing ease to both balance of payments, and imported inflationary situation.

Expenditure priorities should also be reflected in the direction of solarization process in the upcoming budget.

Copyright Business Recorder, 2024