The upcoming budget should focus on health, social protection and job creation to shield the people from the impacts of the second wave of the coronavirus, instead of putting too much attention on economic growth, the Centre for Policy Dialogue (CPD) said yesterday.
The think-tank also reiterated the need for an expansionary macroeconomic stance in the budget for 2021-22, accommodating the required additional public spending.
"The budget will have to allocate resources in a way that would address the needs of both the immediate and the recovery phase."
In the immediate term, the government will need to focus on health risk mitigation and ensuring food security through expanded safety nets.
"In the recovery phase, which should be pursued parallelly, the budget will have to make allocations and undertake measures given the demands of entrepreneurs, enterprises, businesses and commerce."
The CPD made the calls in its budget proposals, which were presented during a virtual media briefing.
The budget for FY22 is being prepared in the backdrop of a number of disquieting developments in the economy: weak performance of the FY21 budget implementation; the persistence of adverse impacts of the first wave of Covid-19; continuing stagnation in private investment; the second wave; and failure of the external sector to pick-up.
"The FY22 budget will need to address these and the medium-term fiscal reform issues to make a recovery sustainable," the CPD said.
It recommended increasing the allocations for health and social security on a priority basis.
Some 2 to 3 per cent of the gross domestic product (GDP) should be allocated for the health sector and 4 to 6 per cent for the social security sector to help the country fight the pandemic, it suggested.
"Because of the coronavirus, the poverty rate has increased when the tax collection was not satisfactory," said Prof Mustafizur Rahman, a distinguished fellow of the CPD.
"The government has to collect more taxes from the high-income group and disburse it as cash assistance among the poor now."
The cash assistance should be given at least two to four times a year for a longer period as it seems that the coronavirus would stay for a few more years, he said.
"In order to increase the financial assistance, the government can raise the maximum income tax rate to 30 per cent from the existing 25 per cent," Prof Rahman said.
In the FY21 budget, personal income tax rates were reduced. Providing benefits to monthly income earners of Tk 4 lakh and above clearly went against the cause of promoting tax justice at a time when the resource was scarce, the CPD said.
Rahman called for discontinuing the existing black money whitening facility, as it discouraged timely payment of income tax and encouraged corruption.
Moreover, taxes on all essential food items should be reduced for the sake of the food security of the lower-income groups, the think-tank said.
The budget proposals came as the country is passing through the second wave of the coronavirus. As a result, policymakers are, once again, posed with the challenge of maintaining a balance between the lives and livelihoods.
The agriculture sector has remained resilient during the pandemic. However, the external sector has shown a mixed performance in FY21.
A medium-term plan should be formulated as regards phasing out the various tax exemptions provided during the pandemic, it said.
Although Bangladesh has received a significant commitment on external funding support from multilateral and bilateral sources, the disbursement has lagged behind.
"It is important for the government to pay special attention to ensure speedier disbursement," the CPD said.
From July to December, both revenue mobilisation and public expenditure showed lower uptake than the same period of the previous fiscal year. It is unlikely that the target will be fulfilled during the next six months of FY21.
"Some of the underlying weaknesses in the institutional structure need to be strengthened through urgent reforms," said Towfiqul Islam Khan, senior research fellow of the CPD, while making the keynote presentation.
Public expenditure under the next budget should highlight four areas: ensuring better health facilities for Covid-19 patients; enhancing social safety net programmes for poor, new poor and marginalised people; raising allocation for employment-enhancing infrastructure development projects; and supporting agriculture, SMEs and export-oriented industries for their recovery and thereby keeping the existing jobs.
During the second lockdown, the sufferings of the poor and marginal people have further accentuated, it said.
According to the think-tank, instead of setting ambitious targets which may miss the annual target by a significant margin by the end of the fiscal year, the goals for revenue mobilisation should be set in a realistic manner taking cognisance of the potential shortfall in FY21.
Immediate term readjustments in tax provisions should be made considering the urgency of both addressing the risks and mitigation of the vulnerabilities. In order to extend support to economic recovery over the medium term, persuasion of fiscal policy should be made in a judicious manner.
The report said as introducing new taxes or raising tax rates might be difficult, more emphasis should be given to the enforcement of tax measures and curbing tax evasion.
The CPD reiterated its earlier proposals to initiate wealth and property tax in Bangladesh.
"Introduction of an inheritance tax, informed by global best practices, may also be taken into account."
The urgency of improving the implementation capacity of the relevant ministries and departments related to the health sector can't be overemphasised.
CPD Executive Director Fahmida Khatun called for a universal social security strategy to ensure social protection.
"A national strategy on social safety was formulated, but it was not implemented. Had the strategy been implemented, it would have been possible to solve these problems easily by identifying the lower-income people."
CPD Research Director Khondaker Golam Moazzem said the government had several programmes in the social security sector, but not everyone could be covered.
There are non-governmental organisations that are working on these issues. With their help, the poor people have to be brought under the programmes, he said.