Economic policy, federal budget and role of opposition

’…the existence of the opposition is ‘nearly the most distinctive characteristic of democracy’. In parliamentary democracies, since government and parliamentary majorities often coincide, the opposition is expected to function as a player who constantly checks the government and the parliamentary majority the government controls.

The main task of the opposition is to scrutinize a variety of government activities, criticize the government’s policy agenda and present credible alternatives to government proposals…’– An excerpt from a March 27, 2022, ‘European Journal of Political Research’ published research paper ‘Government dominance and the role of opposition in parliamentary democracies’.

The federal budget strongly appears to hold stagflationary consequences since it wrongly pursues pro-cyclical policy, and perpetuates the neoliberal and over-board austerity-based policy actions through its expenditure, and revenue decisions. Sadly, there has been no reply of substance from the opposition parties in parliament, other than showing dissent and rejection but, importantly, without presenting any meaningful response, challenging the wrong political economic underpinnings of the federal budget, and overall economic policy it is part of.

There have reportedly been discussions regarding allocations of development expenditure, but those too remain on the surface, and are only limited to how much of it will be designated to the spending choices of a particular public representative in parliament of a certain area.

The discussion sadly does not appear to be on improving the productive and allocative efficiency of expenditure – current, and development – overall. Also, the discussion is not on increasing the size of the development expenditure envelope, given the strong climate change, and development/welfare related economic resilience needs which, in turn, challenging the over-board austerity policies that have unnecessarily ballooned interest payment needs.

By following monetary austerity policy, and that too in an overboard way – given inflation has a strong supply-side influence – whereby unnecessarily high usage of policy rate is employed to squeeze aggregate demand, which by over-sacrificing economic growth than is needed for macroeconomic stability, reduces fiscal space, and not only diminishes the capacity to repay debt but also possibly creates larger deficits that in turn generate even more financing needs, and with it perpetuates debt distress. Hence, the interest payment related expenditure is already exorbitant, but the opposition has miserably failed to highlight this big hole in the boat of revenues.

Then, rather than rationalizing expenditure, and putting in place strong non-neoliberal reforms in the energy, and SOE sectors specifically to overall curtail other important sources of expenditure – in addition to expenditure on interest payments – the government in the budget has immensely increased indirect tax along with enhancing direct tax mostly on the already taxes. In other words, it has not increased tax base in any significant way.

Lack of expenditure rationalization, and increasing taxes when economic growth is struck in a low-growth equilibrium, under an overall pro-cyclical and over-board austerity policy approach will neither allow any meaningful increase in economic growth nor sustainable decrease in inflation due to increasing impetus this pro-cyclical policy gives to const-push, and imported inflationary channels.

. Yet, the opposition has apparently not at all highlighted the wrong policy choice of the government in the shape of adopting pro-cyclical policy. They have not advocated the need for adopting counter-cyclical policy, whereby it should give, for example, a wholesome plan of raising taxes on income of the untaxed, slashing taxes on consumption (or indirect taxes), reining-in policy rate usage to control inflation, suggest supply-side related initiatives on the side of improving economic institutional, organizational, market outcomes – where even thinking out of the box, and suggest social democratic-styled policy approach as adopted by Scandinavian countries, or introducing price controls, for instance, as adopted by China, like its ‘dual-track’ pricing initiative – and not going for primary surplus but rather sustainable fiscal deficit to overall not unduly hurt fiscal space.

Lack of substance in opposition’s rejection of federal budget, and overall economic policy, on the lines indicated above, for instance, while highlights lack of seriousness of opposition’s economic think-tank, it even raises questions about the technical and analytical capability, especially when all main parties in opposition, and leading coalition partners have been in government, where too they indicated no clarity, and deeper economic thought-process.

Opposition is said to be a government in waiting, but it is unfortunate that there is no shadow budget, or an alternative economic policy paradigm is provided, when there are clear signs for decades that a pro-cyclical, neoliberal, over-board austerity-based policy, and budgets, have only perpetuated the issue of twin deficit, increased debt distress, and not laid any sound basis for raising economic resilience, with negative consequences for political voice, and overall democracy.

Although, the opposition cannot stop legislation, given majority in parliament lies with the government, yet highlighting flaws in the budget and overall economic policy in a meaningful way, then such discourse from the opposition puts pressure on the government in terms of likely increase in likelihood of negative impact of government’s popularity among voters.

This, in turn, puts pressure on the government to change course, and presentation of policy alternatives by opposition not only highlights a better measure of capacity of opposition among voters for both next elections, but before that in getting greater number of people to participate in opposition’s activism; not to mention the loss of public support for government in next elections.

Yet, the opposition is very clearly absent in generating the discussion going in the direction of meaningfully tackling the content, and direction of federal budget – while similar course of inaction is reflection in provincial assemblies – and overall economic policy.

This is all the more worrisome in an overall global environment of poly crisis – including rising level of geo-political conflict – and when existential threat in the shape of climate crisis is fast-unfolding, and with it, and related to it the significant likelihood of the ‘Pandemicene’ phenomenon; not to mention that almost half of the population of the country is likely to be below the poverty line during the medium-term, while more than one-third is already below it, and needs greater economic growth, jobs, and development/welfare support, and lesser inflation.

Both the government and the opposition need to get much more better at reflecting on the underlying misgivings of the policy approach being adopted for decades in the country – both in and outside of the IMF programme, which really does not matter much because the underlying policy has been neoliberal, austerity, and pro-cyclical oriented, given the high influence of ‘Chicago boys’ on both either side of the policy table of IMF and government, and apparently holding significant voice among the government, and opposition – and show greater trust in alternative – social democracy, counter-cyclical, non-austerity, and overall non-neoliberal policy.

Lack of this change from both governments and oppositions over the years, besides producing negative consequences for macro economy, and growth, has kept the country under a vicious cycle of ‘hyper-financialization’, whereby government running from pillar to post to repay debt and arrange deficit financing, while neoliberal, and austerity policies did not allow much inward mobility, and retention of foreign exchange.

A July 7, 2022 ‘Phenomenal World’ published article ‘The IMF & the legacy of Bretton Woods’ pointed out in this regard: ‘…with hyper-financialization and the growth of capital flows, the nature of the balance of payments problem changed – it became less an internal problem of fiscal spending, and more an external problem where a country borrows money from abroad and then that money suddenly leaves.’

Moreover, while stuck in this cycle, neither the government nor the opposition has shown little interest, and out-of-the-box thinking to meaningfully rationalize revenue, expenditure, and price signals for needed economic transformation.

Sadly, the media overall has also remained complicit in terms of remaining weak, and not building its own capacity, to say the least, to put anywhere near enough pressure on the policy makers to change course.

Copyright Business Recorder, 2024