Originally posted in Dhaka Tribune on 2 June 2021
A key objective of the upcoming budget 2021-22 ought to be to address the concerns of rising inequality and ensure a more inclusive post-Covid recovery
The buzzword in view of the recovery from the ongoing pandemic is build back better.
But what does this mean in the context of designing budget proposals and, more particularly, in terms of fiscal measures and public expenditure in the budget?
In the discussion on budget-related issues we tend to focus our attention mainly on such issues as resource mobilization, resource allocation, deficit financing, fiscal proposals and fiscal reforms.
However, a key philosophical argument that informs the raison d’etre of the budget itself relates to redistribution of income and ensuring distributive justice through public policy measures.
This is even more important in the particular context of Bangladesh where inequality was emerging as a major concern even before the onset of the pandemic.
If anything, the pandemic has accentuated and exacerbated the state of inequality in Bangladesh, as is evidenced by all recent surveys and studies.
In its various strategic documents, the present government has emphasized its intention of prioritizing the needs of the marginalized groups and building an inclusive Bangladesh.
This idea informs the election manifesto of the Awami League the 8th Five Year Plan and the Perspective Plan (Vision 2041), not to mention of the SDGs which aspires to leave no one behind.
Thus, a key objective of the upcoming budget 2021-22 ought to be to address the concerns of rising inequality and ensure a more inclusive post-Covid recovery.
In view of this, issues of inclusive recovery should be embedded both in the macroeconomic framework of the budget and in defining the allocative priorities.
Both the amount and quality of service delivery must be geared to this.
It is often argued that because the public expenditure targets cannot be attained, there is no point in going for a higher amount of public expenditure.
It must be pointed out in this connection that Bangladesh’s public expenditure as a percentage of GDP is only about 15.5%.
To compare, the share is 26.1% for India, 31.9% for Nepal, 32% for Bhutan, 18.6% for Sri Lanka, 31% for Maldives and 28.8% for Vietnam.
Lower public expenditure hurts the poor disproportionately.
Raising implementation capacity and enhancing the quality and effectiveness of public service delivery should be the way forward, and not curtailing public expenditures that benefit the marginalized groups.
The marginalized and the need to prioritize distributive justice in view of FY22 budget
It is well known that the Bangladesh economy has experienced wide-ranging adverse impacts on account of the ongoing Covid pandemic.
However, as it happens in any crisis of this type, it is the relatively less endowed and more vulnerable people, the usual left behinds, who tend to bear the costs of the crisis disproportionately.
Not surprisingly, the poors and the new poors have suffered more severely during the ongoing pandemic, leading to deepening of the already existing multidimensional inequality: income inequality (through significantly higher erosion of income of the poors and new poors relative to non-poors during the pandemic times); consumption inequality (due to erosion of purchasing power particularly because of the rise in prices of essential commodities and, more specifically, of rice) and asset inequality (due to forced and distress sale of assets, dissavings because of decreased income and higher borrowings).
In this backdrop, budget FY2022 must be geared to addressing and prioritizing issues of concern to the marginalized people and communities, through immediate and near term measures, and laying the foundations of a more equitable economy through medium-term economic recovery strategy.
Efforts towards structural changes must be undertaken in tandem in order for the future growth to be both equitable and sustainable.
Need to focus the budget towards inclusive recovery
In the context of modalities of resource mobilization and allocative composition, the budget should keep issues of distributive justice at the heart of all proposals.
In view of resource mobilization, a shift from indirect to direct tax (the ratio currently is 2/3: 1/3) must inform the resource mobilization efforts.
Tax relief to low income people proposed in the FY 2021 budget (e.g. a new slab of 5% for personal income tax; lower threshold for tax-free income) should be continued.
However, the highest tax slab for personal tax (which was reduced from 30% to 25% in FY2021 budget) should be restored.
More efforts should be put to enforce laws that are targeted to deal with tax evasion and tax avoidance.
The provision of allowing black money whitening should be discontinued.
Imposition of only fines on amounts of over and under invoicing (when this is a criminal offense as stipulated by law) should not be repeated.
Allocations should be there to strengthen the work of institutions that are responsible to deal with illicit financial flows (e.g. strengthening of Transfer Pricing Cell).
In view of resource allocation, rather than initiating new mega projects, the budget should prioritize projects that are earmarked for completion next year, and labour-intensive projects that create jobs for low-skilled people-not just public works type of projects but human-centric projects that cater to the demands of local people and which are identified with stakeholder participation.
Expand base, raise entitlement of safety net programs
The pandemic has revealed various inadequacies and weaknesses in the system of social safety net programs (SSNPs) in Bangladesh.
Shortcomings of the programs in addressing crisis-induced vulnerabilities(coverage, timeliness and entitlements) have also been exposed in the process. Even in normal times many challenges tend to afflict implementation of the SSN programs.
According to HIES 2016-17 data, only about one-third of poor people in Bangladesh were covered under some type of safety-net programs.
True, during the pandemic times, there has actually been some expansion in the numbers of the beneficiaries; however, it is equally true that the number of eligible people has also increased significantly during pandemic times.
Many eligible potential beneficiaries still remain outside the ambit of the SSNPs.
Timely distribution, problems of information dissemination and selection, inclusion and exclusion, continue to remain endemic and persistent.
As is known, due to lack of up to date data, the distribution of Tk2,500 cash support intended for 5 million families could not reach the target number.
The amount of direct cash support also remains inadequate, as also the coverage.
In view of this, FY2021-22 budget should do the followings: (a) Make allocations for establishment of an updated and comprehensive database of people who are eligible for support under safety net programs; (b) Raise SSN expenditure from the current level by at least 50 per cent; (c) CPD had earlier suggested that about 12 million eligible families should be provided with Tk8,000 per month, for 3 months (this would entail expenditure equivalent to about 1% of GDP).
The government has indeed initiated a new scheme to reach more than 1 crore families under direct cash transfer (Tk500 per recipient) which is a welcome step. The budget should make provisions for enhanced coverage, higher entitlement and multiple-time transfers of the cash support over the next months; (d) various marginalized groups tend to face difficulties that are unique in nature, influenced by specific dimensions of vulnerabilities, which are also often driven by spatial, social and employment dimensions. Timing, amount of support and nature of support must be calibrated to specific features and spatial dimensions of vulnerabilities; (e) Budget FY 2022 should provide policy guidelines to move towards a universal social security system in Bangladesh as was envisaged in the national social security strategy.
Address concerns of workers
Wage share in the economy has been on the decline in recent years, signaling further marginalization of workers.
It is true that before the second wave of the pandemic struck the economy, in very recent times, the Covid-induced employment situation in Bangladesh had started to improve.
However, as a recent CPD study reveals, there has been a shift from services to agriculture; many workers and self-employed people have experienced significant income erosion.
In the manufacturing sector, a number of RMG units which had to close down or downsize could not restart or get back to the pre-pandemic level of operation.
Particularly, the rise in rice prices, by about 20% over the last year, when the wage of workers increased only marginally (e.g. in RMG sector the annual increase is equivalent to 5% of basic pay), has affected the workers.
For those groups for whom food expenses are a considerable percentage of their budget, this has resulted in significant erosion of purchasing power at a time when their income had experienced decline.
Industrial police has estimated that about 36,000 RMG workers have lost their jobs; however, the number according to trade unions is much higher.
The Tk1,500 crore fund set up by the EU and Germany in support of paying wages of workers of distressed factories, launched in September 2020, is yet to go into full operation (till March 2021 only a fraction could actually be disbursed: about Tk15 crore was distributed as of March, 2021).
In view of the above there is a need for the followings: (a) Make budgetary allocation for immediate setting up of a comprehensive database for workers so that workers in need can be easily identified and they can be brought under support program immediately and more effectively; (b) Make support to entrepreneurs and enterprises contingent upon measures at the enterprise level in support of workers and their health safety; (c) Allocate funds for concrete programs, in industrial zones and clusters, in support of workers and their families: (e.g. crèche for children; health services and clinics; open market sale of necessities at reduced price, if not outright rationing); (d) Introduce transparent accounting system as regards contribution to workers’ welfare funds from company profit as has been stipulated under the 2013 (amended) Labour Law (about US$ 10.0 million is contributed to this fund annually); (e) Raise capacity of the DIFE to monitor and ensure compliance by enterprises as regards maintenance of protocols in place to ensure workers’ health safety;(f) Launch a fund in the budget towards introducing an universal unemployment benefit scheme.
Support migrant workers by calibrating measures according to specific needs
About 500,000 migrant workers have returned to Bangladesh during the Covid times.
A recent survey by Brac Migration Unit shows that 28% of these workers have incurred debt of various amounts, and 48% have not found any work; 35% of them were on leave waiting to go back to their work in host countries.
Budget should have concrete provisions for all four groups of migrant workers: (a) those who are overseas: Continue the 2 per cent cash incentives on remittances which was put in place in 2019. Budget should keep adequate provisions to underwrite this incentive; (b) those who are waiting to go back but have fallen into debt trap: Provide credit support for travel against future earnings; (c) those who have returned permanently: Expand the coverage of the credit program the government has taken for returnee migrants and ensure access to credit support without hassle; (d) those who are going for overseas jobs now (indeed, before the second wave of pandemic the numbers had started to pick up): Enforce government’s stipulated cost of migration and proactively pursue more G to G contracts.
The above is to underpin, referring to only a selected set of vulnerable groups, the need to keep the concerns and interests of the marginalized people in the upcoming Budget FY2021-22.
Such an approach will also align well with the philosophy of distributive justice through tax justice which will be fiscally sound, morally right and also politically astute.
As was pointed out earlier, such an approach is also in line with what the government has promised the citizens in its vision and strategic documents.
The author is the distinguished fellow at the Centre for Policy Dialogue (CPD)