State of the Nation

Reporting to Parliament

The projected order of business for the Fifth Session of the First Parliament for Bhutan had, among many others, the following two entries:

Thursday, July 1:

Presentation of the Annual Report on the State of the Nation, including Legislative Plans and the Annual Plans and Priorities of the Government, to the Druk Gyalpo and to the Joint Sitting of the Parliament.

Monday, July 12:

Deliberation on the presentation of the Annual Report on the State of the Nation including Legislative Plans and the Annual Plans and Priorities of the Government by the Prime Minister

As we all know, the prime minister delivered his State of the Nation address, as scheduled, on 1st July. But for reasons still unknown, we didn’t get to discuss the prime minister’s State of the Nation report. We didn’t discuss it, as scheduled, on 12th July. Nor did we discuss it at another time.

It wasn’t like that last year. The State of the Nation report was discussed, albeit briefly, in the National Assembly immediately after the prime minister delivered it to the joint sitting of Parliament.

I hope it won’t be like that next year.

The State of the Nation address is important. It is the prime minister’s report to the Druk Gyalpo, the Parliament and the nation at large, on the social, economic, financial and political condition of our nation. It gives the prime minister the opportunity to highlight the government’s successes over the previous year. And it allows him to outline the government’s legislative plans, policy agenda and national priorities for the next year.

Naturally, the prime minister would expect us, parliamentarians, to consider his annual report carefully. And to spend as much time as needed discussing it to offer valuable feedback.

But more importantly, our people would expect us, their representatives, to consider and discuss the prime minister’s State of the Nation report thoroughly so that they can rest assured that the Parliament is doing its job.

Photo credit: National Assembly

Polling McKinsey

During question hour today, I asked the prime minister to explain what work McKinsey were doing that couldn’t be done by our own civil servants. And in my leader to the question, I’d reported that the civil servants I’d spoken with had confided that they were not impressed with the work that McKinsey had done so far.

Naturally, the prime minister saw it differently. He claimed that every civil servant he’d talked to had been impressed with McKinsey’s work and had lavished praise on the world’s leading consultancy firm.

Perhaps.

But still, let’s conduct a poll – we haven’t had one in quite a while. Today’s poll asks,  “Are civil servants impressed with McKinsey’s work?”

Favouring foreigners over locals

The National Assembly passed the Financial Services Bill last week. I voted against it. I did so because the Bill seems to favour foreign investors over our own people and companies.

Section 50, on restrictions on ownership of financial institution and investments by financial institutions, reads:

No person shall hold more than the following percentage of interest in shares of a financial institution:

(a) in case of an individual, 10 percent,

(b) in the case of a company not being a financial institution, 20 percent

(c) in the case of a company being a financial institution, as per the limit provided under section 53 below, and

(d) in case of a foreign financial institution, as per the RMA regulations in line with the foreign direct investment policy

According to Section 53:

No financial institution can have ownership in another financial institution exceeding 5 percent of the other financial institutions’ paid up capital.

And RMA regulations currently allow foreign financial institutions to own 51 percent of a financial institution’s paid up capital.

So, here’s what I took exception to:

Our people cannot own more than 10%, and our companies cannot own more than 20% of a financial institution. But a foreign company can own 51%.

Our financial institutions cannot own more than 5% of another financial institution. But a foreign financial institution can own 51%.

The Bill favours foreign companies over our own companies. And how did the government respond when they realized this bias? They protected government owned companies by inserting a new subsection under Section 50, one that reads:

(e)   in the case of Ministry of Finance, RGoB, 75%.

Advocating champions

Replace one of these ...

The prime minster, an advocate of cycling and walking to work, referred to a certain setback in his State of the Nation address:

I would also like to report that the government has not given up on its dream to make Thimphu a bicycle and pedestrian city despite the initial setback.

What is that “initial setback” that the prime minister lamented? After all, the government has made no serious attempts to promote cycling (apart from installing a few bicycle stands in the capital) or to encourage walking (besides the agriculture minister’s famous HEHE walks).

Bicycles. In particular the 400 bicycles that were donated by a Buddhist group to the prime minister during his visit to Japan last year. The prime minister had boasted that he would distribute them to civil servants who promised to cycle to work. And they had responded, in overwhelming numbers, for the free bikes.

The bicycles have arrived, some 358 of them. But virtually all of them are not road worthy. Not in Thimphu, at least. All of them are single-gear bikes. All of them are used bikes (bought into the country despite the government’s ban on importing second-hand vehicles). And, most of them have been damaged beyond repair.

The bicycles must be fixed. As many of them as possible, even if two bikes have to be combined to make one. And they should be used, to whatever extent possible.

But, they are not mountain bikes. And they do not have multiple gears. So, they’re of little use in Thimphu. Dispatch them, instead, to Gelephu and Samtse, where the topography is not as demanding.

And close the chapter on that “initial setback”.

The prime minister can do more than “dream” of making Thimphu a bicycle- and pedestrian-friendly city. He can lead by example:

  • He can bike to office once in a while.
  • He can walk around town occasionally.
  • And when he must travel by car, he can use fewer of them.

... for this!

Everything else – safer pavements, bicycle paths, educated motorists, bike dealerships, and affordable financing – will then fall into place naturally.

And our prime minister would become a true champion – not just a mere advocate – of biking and walking in the capital.

Taxing explanation

The prime minister devoted a substantial part of his State of the Nation address to justify the government’s recent tax hikes. And to discredit the “vocal few” who challenged the government’s ill-conceived tax policies. The prime minister:

Much has been said of the fiscal incentives and tax increases in certain areas. It has been alleged that the government is being insensitive to the difficulties that these will cause to our poor and ordinary businesspeople and that they will suffer the most. However, one should not allow oneself to be influenced without seeing the full picture. One needs to be also mindful that such opinions could be planted to influence public opinion in order to protect the interest of those who are in positions of power and influence. As this is a serious matter, I would like to explain it in some detail.

And so he explained, in great detail, that we enjoy some of the lowest tax rates in the world; that we must replace external development assistance with internal revenue; that the policies are pro-poor; that the tax hikes are not aimed at generating government revenue; that taxes were being increased for the public good in spite of the political risks; that doing what is popular would be unpatriotic; that the opposition to tax increases benefits the rich and influential; that ministers did not take a pay raise; that increasing taxes will prevent widening economic disparities and social ills; that taxes lead to environment friendly development; that the tax measures would develop a tax paying culture; and, finally, that paying taxes is about democracy.

Indeed, we may need to increase taxes. So taxes, per se, is not what I’m concerned about. Not at this time, at least.

What I am concerned about – and what the public outcry is generally about – is that the government did not follow the law, particularly the Constitution, when it recently revised the tax structure.

The debate is not about if taxes should be revised. It’s about how taxes should be revised.

In order to deflect the debate, the prime minister used the State of the Nation address to explain, at great length, why taxes had to be increased.

But that won’t do. I’ve already reported the matter in the National Assembly. And if the government refuses to review its decision, I may be compelled to report it to the Supreme Court.

Working with NC

The prime minister, in his State of the Nation address, on differences between the National Council and National Assembly:

Already several issues have arisen between the National Council and this House which inevitably raised the question of seeking the guidance of the Supreme Court even before it was established. Now with its establishment, the wisdom of the judiciary too will be tested if indeed constitutional issues are brought before it.

My hope is that, through the ongoing dialogue between the two houses, these issues will be resolved without judicial intervention.

Very good.

Now prove that there’s some genuine commitment to resolve the many outstanding issues that the government and the National Assembly have with the National Council. Initiate that “ongoing dialogue”. And if differences can’t be resolved, seek the judiciary’s assistance. Major disagreements that need immediate attention are:

  1. Constituency Development Grant. The government has completely ignored the National Council’s repeated assertions that the CDG is unconstitutional.
  2. Question Time: Ministers have once again stopped attending the National Council’s Question Time.
  3. Budget appropriation. The National Council’s role in approving money and financial bills, especially in passing the budget, is still unresolved.
  4. NC resolutions. The government has not responded to any of the National Council’s resolutions. And during the current session, the National Council has made strong observations on the  economic development and FDI policies.

Carbon neutral?

Dorji, commenting on my last post, GNH vs GDP:

… what is surprising is that OL seem to have been engrossed in counting the repetition of GNH instead of the substance of the address itself.

Dorji is right. We should pay attention to, and analyze, the substantive parts of the PM’s address. So that’s exactly what we’ll do over the next few days. Here’s the plan: I’ll pick up some issues, one at a time, and we’ll discuss them.

Let’s begin with something easy: the environment. In his State of the Nation address, the PM informed the Parliament of the government’s decision to keep Bhutan carbon neutral for all time to come:

At the Conference of Parties Summit on Climate Change in Copenhagen (COP 15) last December, Bhutan declared that it will forever remain carbon neutral and serve as a net carbon sink.

Climate change is a reality. And, left unchecked, global warming could inflict dire consequences on Bhutan, a country that has become increasingly dependent on the Himalayan water resources.

So the government’s promise sounds good. The “Declaration of the Kingdom of Bhutan – the Land of Gross National Happiness to Save our Planet”, as the proclamation is called, sounds like a good idea.

Is it really a good idea? The government seems to think so. But we, the people, don’t know. We don’t know, because we were never consulted.

In its enthusiasm to make the carbon neutral promise at the Copenhagen Summit, the government seems to have done a hurried job – it signed the declaration on 11th December 2009, and, barely a week later, announced it in Copenhagen – without any consultations with the people. We don’t know if experts were consulted, but we do know that our farmers were not consulted. Similarly, the private sector was not consulted. And, even though the Parliament was in session when the declaration was signed, even the parliament was not consulted.

Is the government required to consult the people and the Parliament? No

Should the government have consulted the people and the Parliament? Yes. After all, the declaration is a momentous promise, one that will have far reaching consequences, one that has been made on our behalf, and our children’s behalf, for all time to come.

And, as it turns out, one that we may find difficult to honour.

GNH vs GDP

GDP over GNH

How important is GNH to the government? In the prime minister’s State of the Nation address (which, incidentally, sounded more like a political campaign speech than a statement by the head of government) GNH was mentioned 14 times. Plus he made 6 separate references to happiness. On the other hand, he mentioned GDP just once, and that to caution against being “swayed onto the GNP/GDP path.”

How important, in reality, is GNH to the government? In the finance minister’s budget report (which explains how the government will finance its policies) GDP was mentioned no less than 46 times. And GNH? That was mentioned six times, twice of which was to justify increasing taxes.

Taxing job

How not to raise taxes

Breaking News! Opposition Leader calls for Finance Minister’s resignation!

Actually, that’s yesterday’s news. That’s when the opposition leader called for the finance minister’s resignation, during the budget discussions in the National Assembly.

But, for some reason or the other, the news has still not reached the media. Bhutan Today, Kuensel, BBS and all the radio stations have been remarkably silent on the opposition leader’s demand.

The media may be uninterested. But you, I’m quite sure, want to know why I proposed such an audacious measure. Here’s the story.

Chapter 5 of the 2010-2011 National Budget is about the tax reforms and incentives that the government recently announced. When introducing it, the finance minister informed the National Assembly that the tax reforms – rationalization of sales tax and customs duty rates, and broadening the tax base – would “strengthen the government’s revenue base”. And that the fiscal incentives would “stimulate private sector growth and attract new investments.”

There’s no doubt that that would be the case. Except that I haven’t yet seen the details. The finance minister’s report was only an overview, and we, members of parliament, were not told which taxes were revised by how much. Like you, I also happen to know the increases in sales tax and customs duty for vehicles. But that’s only because the finance ministry is already implementing it!

The finance minister informed the National Assembly that the tax reforms and fiscal incentives have already been approved by the government. He explained that the government’s authority to approve the tax reforms comes from Part I, Chapter 3, Section 4.2 of the Sales Tax, Customs and Excise Act 2000 which states that:

The fixation of the rates of Sales Tax and any revision thereof … shall be approved by the Royal Government of Bhutan.

And Part II, Chapter 4, Section 6.1:

Customs Tariff and revisions thereof, shall be approved by the Royal Government of Bhutan.

Very good.

Except that the finance minister ignored the Public Finance Act 2007, Chapter III, Section 9 of which says that:

Raising of revenues through taxes shall be authorized by the Parliament.

And Chapter III, Section 14(b):

The Minister of Finance shall be responsible, inter alia, for: proposing taxation measures to the Parliament …

He also ignored that the government’s authority to approve taxes and customs duties according to the Sales Tax, Customs and Excise Act 2000 were repealed by the Public Finance Act, Chapter I Section 2 which states that the Act shall:

Supersede all laws, regulations, rules and notifications that are inconsistent with the provision of this Act …

But that’s not all. Important provisions of the Constitution were also blatantly overlooked. The government’s “tax reforms and fiscal incentives” should have been submitted to the National Assembly first, as according to Article 13.2:

Money Bills and financial bills shall originate only in the National Assembly …

According to Article 14.1 of the Constitution the Parliament’s approval is required to change the tax structure:

Taxes, fees and other forms of levies shall to be imposed or altered except by law.

And, Article 14.9 of the Constitution reinforces the National Assembly’s authority to approve taxes as government revenue:

Where the budget has not been approved by the National Assembly before the beginning of the fiscal year … Revenues shall be collected … in accordance with the law in force at the end of the preceding year …

Furthermore, the Constitution ensures that the government’s authority to approve taxes and customs duties according to the Sales Tax, Customs and Excise Act 2000 is repealed. Article 1.10:

… the provisions of any law, whether made before or after the coming into force of this Constitution, which are inconsistent with the Constitution, shall be null and void.

Taxes are important. They are the government’s principle means of generating revenue. But taxes are also dangerous. They can be misused to achieve corrupt or political ends. That’s why the laws of the land have checks and balances, and demands transparency whenever the government wishes to impose or revise taxes.

But that wasn’t the case. The finance minister ignored the Constitution and the Public Finance Act. And he bypassed the National Assembly.

That’s why I called for the resignation of the minister of finance.

Photo credit: Business Bhutan

UPDATE ( 30 June, 9:30 PM): I’ve just learned that BBS TV carried this story today.

UPDATE (1 July, 00:24): My apologies to Kuensel. They did run the story.

Increase civil service salaries

Civil servants in Dorokha

The day before yesterday, during budget discussion, the seven reasons I reported on why it may be time to review civil service salaries:

  1. Domestic revenue of the government, through tax and non-tax measures, has increased considerably since the last salary increase. In 2008-09 domestic revenues were projected to be Nu 11,932 million. In 2009-10 it was Nu 14,108 million. And in 2010-11 it is projected to be Nu 15,816 million. Domestic revenues have increased by a whopping 33% while civil service salaries have remained stagnant.
  2. Between 2008-09 and 2010-11 budgets, the government’s overall outlay has increased by a considerable 41%. Of that, about half goes to finance recurrent costs. Recurrent costs in 2008-09 were budgeted at Nu 11,061 million, and for 2010-11 at Nu 15,154 million. That’s a 37% jump in current expenditure in the two years. Salaries form a big part of recurrent costs, yet civil service salaries have not benefited from the 37% increase in current costs.
  3. Prices have increased. For the year 2009, the government has estimated a price increase of 10.74% for food items. For 2008, it estimated price increase of 11.75% for food items. That works out to a cumulative price increase of 23.75% over the last two years.
  4. Taxes are increasing. The government is proposing a wide range of taxes aimed at increasing revenue by Nu 450 million.
  5. Fuel prices have increased twice in the last six months. The last increase will drive up inflation even higher.
  6. Most civil servants will now receive less money. Civil servants received a uniform pay increase of 35% in January 2009. However, the basic pay was not increased. Instead the 35% increase was given as an “allowance” so that the government would not have to increase their matching contributions to the provident fund. So after the 35% allowance is incorporated in the basic pay, civil servants will henceforth receive less money in the hand every month – provident fund contributions, health contribution, TDS and more will now be deducted from the 35% increase in salary.
  7. The public expects a pay increase. In fact, the pay increase is a consolidation of the 35% allowance that civil servants have been receiving so far. So, in reality, they will receive less money from July onwards. But the public thinks that there is a pay increase. So prices will rise. And, in spite of the Tenancy Act, rents will, once again, increase.

I’ve suggested earlier – every year, in fact – that public service salaries should be revised every year taking into account the overall economic situation in the country. For simplicity, salary revision could be pegged to the price movements of a basket of goods and services, but one that is comprehensive and relevant.

That way, public servants wouldn’t expect a sudden hike in the salaries every now and then. And the government wouldn’t have to ponder about how best to extract political mileage when salaries are increased.