'Times have changed, all the threads of bare tradition have become outdated', Kerala Finance Minister Thomas Isaac's 2019-20 Budget speech ended with this note from Kumaranasan.
The 156-page long budget speech would on the whole read like a romantic lecture by a leftist, in the lethargy of renaissance. Many other basic questions that may come up in relation to the budget will in no way find answers from the budget speech: What is the main thrust of the budget, what policy priorities does it put forward, how is it going to impact the lives of people in the state, what emphasis marks its economic planning? When the Opposition calls this budget one without a sense of direction, it should not be dismissed with the label of a usual Opposition criticism. The budget presented by Thomas Isaac is evidently one without a definite direction, goal or planning perspective. That said, it has also to be noted that the Finance Minister is not solely responsible for that. This is the second budget after the introduction of the Goods & Services Tax (GST). In a way, once the GST came into force, the state budgets have only a ritualistic relevance, almost like the Governor's speech. And the budget presented on Thursday by Isaac is nothing more than such an act of preserving that rite.
Thomas Isaac was one among the first to welcome GST, when it was implemented. He earnestly believed that when GST came into effect, the state would stand to gain as a consumer state. But as per statistics from 2018-19 till now, the revenue increase has been only by 10 per cent. And that was in the place of 18 per cent before the advent of GST. In other words, not only did GST fail to bring any benefit to the state as Isaac had expected, it even resulted in a big dent in tax revenue. Thus the big fall in tax revenue, the diasters like Ockhi, Nipah virus and flood damage, the economic setbacks in the Gulf countries, the Centre's unhelpful approach even in the midst of all these crises – given this background, it is a fact that a state government that does not have much scope for revenue-mobilising measures in the post-GST era, can come up with only such a budget. It is only that Thomas Isaac brought into it some luxury of using cliché like renaissance and new Kerala. An element that stands out in this budget is the one per cent flood-cess imposed for post-flood fund mobilization. And that in fact is an item that the government could easily have brought in even without waiting for the budget, by issuing an ordinance.
The addition of one per cent cess on items with GST rates of 12, 18 and 28 per cent, will cause a price rise in most of the goods and services. The rates of fees of various government services have also been hiked. In other words, the budget contains proposals that will cause a rise in the cost of living of the common man. When a general election is round the corner, and if the government has ventured to such a tax hike, it should be because it is hard-pressed without alternatives. At the same time, in the left wing's pet area of social welfare, the decision to marginally raise pension amounts, comprehensive health insurance scheme, the proposals for development of public health centres and quality improvement of public educational institutions are positive features of the budget. However, for post-flood reconstruction, apart from slogans like 'Rebuild Kerala', the budget does not put forward any concrete programme or allocations. As for other project declarations, they are literal repetitions of what were declared in last year's budget.
Thursday's budget clearly delineates the limitations of the state's economy in post-GST era. That is to say, the dispensation after GST is one that restrains the financial self-sufficiency of states, a point that has been stressed several times in this column. The new tax regime contains factors that strike at the root of our federal structure. But the sad fact is that Opposition parties including the CPM and Congress, have not become prepared to deliberate on them seriously. The only voices that stood out were the comments shared by former Karnataka chief minister Siddaramaiyah and Odisha chief minister Navin Patnaik at some point. What econmists like Thomas Isaac should seriously do is initiate debates on the extent of financial independence that should exist for states in post-GST phase.