Should we have the Annual Federal Government Budgets

There are issues regarding the annual budget that I haven’t heard anybody talk about, so I’d like to start here.

1) The annual federal government’ budget creates ‘Policy uncertainty’.

The budget is a statement of the government’s plan of action for the next fiscal year, with regards to its spending and thus its taxing and borrowing policies. This leaves a lot to be tinkered with. Consider the important variable – Tax rates.

The government can have its pick of which tax to alter. The current budget for 2013-14 saw a levy of surcharge on the income tax paid by the rich. Consider the effect of such tinkering year after year on expectations and moods. There is no reason why the tax regime must be open to manipulation every year, but yet it is.

One might argue that these changes are small but I guess not without accumulation effects plus It detracts from a rule based environment.

Won’t the economy be better-off without all the speculative noises about what the finance minister could do?

2) The budget sets in – ‘Unreasonable expectations and perceptions’

It presents the government as the almighty that can get things in control, as if they can create employment by putting their heads together, that they could stop the rise of prices, and help the economy out of anything that ails it. The only thing that successfully happens is that the government becomes bigger. Government expenditure for 2013-14 is estimated to be Rs 16,652,970,000,000. (16.5 lakh crore rupees for your convenience)

This is not to say that expectations for fiscal rectitude are not there, but that’s very far from a popular opinion. The common man expects government intervention but with little understanding.

I want to convey the big time flaws in the budgeting process and think it won’t be a big deal if we do away with the annual event all-together, but this seems almost certain not to happen. I had heard a similar suggestion for the railway budget some years back but the railway budgets are still around.

Allow me to speculate why this may be so.

Governments like the spotlight. The government feels important, like the savior, on a heroic mission. No matter how much they will disappoint after the event.

But more importantly, I see no popular pressure for discontinuing the event. The journalists, and the accountants make a living on it. The business community have a lot to gain but I have not heard any suggestion like this.

The USSR style planning commission and 5-year plans are still there and the same seems to happen with the budget.

Last night, the Chief Economist, Raghuram Rajan – one of the economist I like – said that the budget lacks any big policy commitments, because past commitments are yet to be implemented.

So can we skip the next 5 budgets to finish the task.

Do you want the next year’s budget?