To quote the title of a book by Paul Krugman, “A country is not a company." A national budget is subject to a great number of constraints, some more contradictory than others. They are political, economic, financial and social.
Amidst budgetary constraints, a Finance minister is not, in fact, quite free to exercise his own choices. Whatever the state of public finance may be, he always has a relatively limited room for manoeuvre as many of the constraints are structural. It is an illusion to think that he can make generous gifts. Rather, he has to decide among policy options within a restricted framework.
So, if I were the Finance minister, I would take into account the context in which the country is: against a background of worldwide economic crisis, looms the imminence of the General Election. Everybody wants to get out of this crisis as quickly as possible but, at the same time, many are expecting that the government will spend lavishly to secure votes. The question is how to reconcile these two expectations.
One way of addressing it is to maintain the government subsidy of Rs 10,000 for the purchase of a solar water heater. One of the lessons to be drawn from the financial crisis is that we must henceforth refrain from overspending but instead consume, produce and invest in moderation. By saying so, I do not indulge in anti- growth environmentalism, but I am quite alive to the fact that an economy is sustainable only if it remains in constant growth.
In my humble view, public awareness of the importance of avoiding energy waste can best be ensured through specific fiscal incentives. If I were the Finance minister, I would earmark an additional sum of Rs 200 million to the MID Fund in the next budget to allow 20,000 more families to benefit from the subsidy on a solar water heater.
In addition, I would grant a tax incentive - in lieu of a direct subsidy - to taxpayers with a view to encouraging them to reduce their annual electricity consumption. The Central Electricity Board can print on the December electricity bill the number of units consumed by the user for the whole year, and indicate the yearly negative difference in monetary terms. Taxpayers producing a bill bearing their name would deduct the computed sum from their income tax.
While we can save up energy on the one hand, we use more, on the other, by being on our computer and surfing on the web. Now it is essential to give Internet access to a maximum of our citizens so as to nurture economic growth. If I were the Finance minister, I would grant fiscal exemptions - if not a reduction in the corporate tax rate - to Internet service providers so that they can offer free ADSL connections to households.
Last, but not least, I would beef up the purchasing power of the middle class. I would abolish taxation on interests received on savings deposits only, since many people - especially the elderly - live on these earned interests. And I would align the salary compensation review with the calendar year as from 1st January 2010.
For the sake of simplicity, I would extend the 2009- 2010 award to those earning up to Rs 12,000, by six months to December 2010. To other salary earners, compensation would be paid with regard to the expected inflation rate of the year 2009, but it would vary according to the income bracket.
Of course, the compensation for the first category of beneficiaries would be skewed upwards as it was based on a higher inflation rate, but government's decision would be seen as a goodwill gesture towards low- income earners.
By Eric Ng Ping Cheun,