About relief

Consider this: His Majesty the King issued a Kasho yesterday granting Nu 200 million towards the reconstruction of the Wangduephodrang Dzong. Nu 100 million was granted from the armed forces, and Nu 100 million from His Majesty’s Kidu Foundation.

Now consider this: The government has allocated Nu 20 million per year to the Druk Gyalpo’s Relief Fund until the balance reaches a ceiling of Nu 100 million. The Relief Fund was passed by the Parliament in the last session. Nu 20 million per year is woefully inadequate. I said so in the Parliament. And I wrote about it.

How much is Nu 20 million? It works out to under 0.06% percent of the government’s annual budget estimated at Nu 34,515.549 million for 2012-13.

Perks and peeves

Two years ago, I had been surprised to hear that the cabinet had issued each minister with an additional car, a Wagon R. I had been surprised because that additional perk does not feature in the government’s approved list of “Entitlements of Cabinet Ministers and Equivalent Posts”, and because the additional expense had not been declared when the budget was discussed in the Parliament.

Now I’m surprised to hear that each minister has been receiving “an allowance for cooks and housekeepers from the cabinet”. I’m surprised because this perk is not part of the government’s approved list of “Entitlements of Cabinet Ministers and Equivalent Posts”, and because the additional expense has not been declared when the budget was discussed in the Parliament.

It’s perfectly okay for our ministers to enjoy certain perks. But those perks must be clearly defined. They must be transparent. And they must be approved by the Parliament. Otherwise, our ministers may be tempted to enjoy limitless perks.

More local government

Wanted: power and authority

The elections for local government are over. So soon, and for the first time, we will have local governments – thromde tshogdes, gewog tshogdes and dzongkhag tshogdus – elected and empowered by the Constitution according to which:

Power and authority shall be decentralized and devolved to elected Local Governments to facilitate the direct participation of the people in the development and management of their own social, economic and environmental well-being.

The local governments that were recently elected will serve for five years. But the first elected parliament and the current government have less than two years left in office. So it’s important that the government, parliament and local governments work together, as soon as possible, to reach a common understanding of the Constitutional requirement that “Power and authority shall be decentralized and devolved to elected Local Governments…”

That’s why, yesterday, the opposition party proposed that financial authority should be decentralized to local governments. That is, they should be provided annual block grants which they themselves would decide how and for what to use. Obviously, rules would first need to be framed defining limits, outlining procedures, and fixing accountability.

The current practice of approving annual budgets submitted by the dzongkhags is cumbersome. And it is restrictive. That’s part of the reason why local governments have not been able to make full use of their capital budgets.

Instead, give them annual grants. To begin with, the grants could be more or less equal to the budgets they currently receive. And what they receive is a pittance. So the government should be more than ready to give local government’s that much financial autonomy.

But the government is not ready. They argued that annual grants and annual budgets mean the same thing. They argued that decentralization and devolution of power and authority must take place incrementally. And they argued that the Local Government Act requires gewogs and dzongkhags to submit budget proposals for the government’s approval.

The government should reconsider. They should refer to Article 22 Section 18(c) of the Constitution which states that:

Local Government’s shall be entitled to adequate financial resources for the Government in the form of annual grants

And to Article 22 Section 18(d) according to which:

Local Government’s shall be allocated a proportion of national revenue to ensure self-reliant and self-sustaining units of local self-government

 

All is not well

The government’s final accounts for 2009-10 show that 22% of the approved budget was unutilized. Of that about 7% was for current expenditure. And a whopping 33% was money budgeted for capital expenditure.

But it’s not just last year, accounts for 2008-09 show that the government did not utilize 35% of the capital budget.

The government has a range of excuses for the huge deviation between funds budgeted and funds utilized. They point out that it is not always possible to predict when donor funds that have been committed are actually made available. They complain about the continued shortage of technical personnel, especially engineers. They fault the private sector for being weak and unable to undertake government contracts. And they complain that they are constrained by a lack of implementation capacity in the local governments.

But, overall, the government maintains that such lapses in expenditure are okay. They say that money not utilized one year will spill over to the next; that work that’s unfinished in one year will continue in the subsequent years.

Annual budgets provide a cost estimate for activities that will be undertaken in that year. And because they are estimates, they do not always match actual expenditures. But the deviations must be within tolerable limits. Otherwise the whole purpose of budgeting is lost.

Differences of 33% and 35% between budgeted and actual capital expenditure are not mere deviations. They are huge differences that indicate a failure in the budgeting system. Either our planning is weak. Or our implementation is bad. More likely, it’s both.

What’s disturbing is that this failure is chronic – every year we seem to underperform by unacceptably big margins.

What’s more disturbing is that this failure is systemic – last year’s accounts for capital expenditure show that the 10 central ministries underperformed by 30%, the 28 autonomous agencies by 40%, and the 20 dzongkhags by 30%.

But what’s most disturbing is the government’s attitude that all is well.

Inappropriate

The Budget Appropriation Bill for 2011-12 proposes how Nu 42,174 million of the government’s Consolidated Fund will be divided during the coming financial year.

Central agencies will keep a good 74% of the funds.

The 20 dzongkhags together will get about 20% of the funds.

And the 205 gewogs combined will get barely 6% of the funds. And that includes money to build farm roads. Take away farm road construction, and the winners of the forthcoming local government elections will have very little money to fulfill their campaign promises.

Budget – taxes

Now really cheap

During his budget report last year, the finance minister informed the National Assembly that the government was implementing a range of measures to rationalize the sales tax and customs duty rates, and to broaden the sales tax base. The measures were expected to bring in additional revenue of Nu 450 million.

The government eventually withheld the implementation of all the increased taxes, except those that were imposed on vehicles. The taxes on vehicles were also lifted after the Supreme Court declared them to be unlawful.

This year, the government has submitted the Tax Revision Bill 2011 to the National Assembly along with their budget proposal. The Bill seeks to increase taxes according to the procedure outlined in the Constitution, the Public Finance Act and the orders of the Supreme Court.

Here are some features of the Tax Revision Bill that may interest you:

Taxes on vehicles. The increase in taxes proposed for vehicles is way below what the government tried to implement last year. Cars that have engine capacities of under 1.5L will be subject to 20% sales tax and 20% customs duty. Cars having engines between 1.5L and 2.5L will be subject to 20% sales tax and 25% customs duty. And cars that carry engines bigger than 2.5L will be subject to 20% sales tax and 30% customs duty.

Vehicles imported from India are exempt from customs duties. And vehicles that were ordered before the Bill was introduced will pay taxes at earlier rates.

Electrical and hybrid vehicles will not be taxed at all. So expect a surge in the number of hybrid vehicles within a few years. Bicycles are also fully tax exempt. That will come as good news to people wishing to bike to work or for pleasure.

Taxes on alcohol. Excise on domestically produced spirits have been increased only slightly, from 20-60% to 30-75%. Higher excise rates will be applied to cheaper alcohol, while the lower rates will be applied to more expensive brands.

The sales tax on imported spirits and wines has doubled to 100%, while customs duty on imported spirits and wines remains the same at 100%.

Beer will now be subject to 100% sales tax (up from 50%). And another 100% in customs duty will be charged on imported beer.

Packaged juices. The sales tax on all fruit juices packaged in containers below 250ml will be doubled to 30%.

Spare parts. The customs duties and sales taxes on a wide range of spare parts have been increased. But for some reason, customs duties on spares for certain boilers, generators, turbines and pumps have been reduced drastically.

Budget – services

Here are more random thoughts on the budget. Please keep your comments coming.

Education. 17% of the total budget will go towards education. And this does not include money for vocational training, which comes under a separate budget head. Excellent!

Health. 7% of the total budget will go towards providing free healthcare. Excellent! Incidentally, the government earned Nu 130 million as “health contribution”. That works out to 7% of the total outlay for health. Not bad, considering that healthcare is provided “free of cost”. But we can do better: health contribution (which is currently 1% of basic pay) could be restructured to increase our contributions to our healthcare system.

Farm roads. The good news is that last year, an impressive 1350 km of farm roads were constructed. And that this year, 423 farm roads will be constructed. The bad news is that I don’t see how local governments will be able to maintain their roads. The government recognizes that sustainability of the farm roads is an important issue, and will provide each dzongkhag with one pay loader. But for most of the dzongkhags, a single pay loader will not be enough to keep the farm roads open. We need a better strategy.

Irrigation. Nu 50 million has been allocated to build 74 new irrigation channels. That works out to about Nu 6.7 lakhs per irrigation channel. And that’s not too expensive. More, many more, irrigation channels should be built to mitigate rural poverty, and to work towards food sufficiency.

Rural electricity. About 83,569 houses dot our rural landscape. 73% of them have now been connected to grid electricity. This year that figure will rise to 80%. And by the end of the 10th Plan, all houses will have electrical supply. That’s good, even if we’ve had to borrow money to light up our villages.

Housing. Rents continue to spiral without control in Thimphu, Phuentsholing and a few other towns. But the government still does not have a convincing plan to control rents, increase low-income housing and to encourage home ownership. The National Housing Development Corporation will be corporatized soon, but that will not be enough.

Entrepreneurship. Only Nu 10 million has been budgeted to promote youth entrepreneurship schemes. That is not enough. We must invest a lot more money if we want to nurture a culture of entrepreneurship among our youth, and if we want them to create their own jobs through self-employment.

Roads. 11% of the total budget will go to build and improve roads and bridges. Good. Roads, after all, are our country’s economic and social lifelines. Several sections of the East-West highway along our southern border will also be built. Very good.

Domestic airports. Yonphula airport is complete. Badpalathang is nearing completion. And the Gelephu airport will be built this year. Will they be economically viable? I hope so. Will they be safe? They better be!

Public transport. Thimphu’s city bus service is popular, but it is inadequate. The subsidy of Nu 14.5 million will not be enough to make meaningful improvements in the bus service.

Urban development. Nu 886 million will go towards developing outer Thimphu. Chang Bangdu, Luntenphu, Babesa, Semtokha, Langjophakha and Dechhencholing will benefit from this project. But we continue to ignore the rapid and unplanned constructions taking place on the outskirts of Thimphu. Small investments now could save us from big headaches in the future.

Fire fighting. The government will buy 17 new fire engines. Finally. But that won’t be enough. Fire engines carry only so much water, and unless they have access to water hydrants they will be of limited use. So I repeat: in the meantime, get some water tankers.

Relief fund. Nu 20 million has been allocated to His Majesty the King’s Relief Fund. Judging by the frequency and scale of natural disasters in the last few years, this amount will be woefully inadequate.

Public service delivery. Nu 329 has been earmarked to provide more than 110 services online under the G2C project. Good. But sustainability will be an issue as long as the cabinet’s website, and those of most other ministries and government agencies remain idle and, worse still, insecure.

Budget report

The finance minister presented the government’s budget proposal on Monday. Here are some of my random thoughts on the budget.

Pay increase. Last year’s pay hike for public servants cost the government Nu 380 million.

PIT increase. The government made an extra Nu 247 million in personal income taxes last year, mainly because of the pay hike.

Tax refund. The government collected Nu 28 million by increasing vehicle taxes unlawfully last year. At the Supreme Court’s orders, the government has refunded that money to the taxpayers.

Government expenditure. The government’s expenditure for this financial year is budgeted at Nu 38,020 million. That works out to 45% of the GDP. But the government’s expenditure for the construction of mega-projects (several hydropower projects and one cement plant) is not included in the budget although it is included in the GDP. Similarly, the government’s expenditure on the armed forces is also not included in the budget. Factor them in the budget, and the government’s expenditure could get to above 80% of GDP. That goes to show how very weak our private sector is. That also shows how unproductive our farms are.

Current expenditure. The good news is that current expenditure (Nu 17,185 million) continues to be financed from domestic revenue (Nu 18,606 million)

Grants. 42.6% of the government’s total resources come from grants. 66.5% of the capital expenditure is financed through grants. India is by far the largest donor contributing 74.3% of the total grants.

Debt. The bad news is that the government’s debt will increase to Nu 55,721 million during this financial year. That works out to 66.02% of GDP. 60% of the debt is for hydropower projects. By 2014, total debt is projected to increase to Nu 79,472 or 71.63% of the projected GDP. By then, 68% of the debt will be from hydropower projects.

Hydropower. Revenue from hydropower is expected to fall this year mainly because of the “substantial investments required to address problems in the Tala plant”. The Tala plant was commissioned on March 2007.

Lottery. The government has decided to discontinue lottery operations in India. So it will forgo income estimated at Nu 200 million this year. The government should not completely pull out from the lottery business. Instead, it should clean up the current mess, and then improve the system so that much larger revenues can be earned from the sale of lottery tickets in India.

CDG. Nu 282 million has been allocated for constituency development grants for the past three years. 460 projects costing Nu 172 million have so far been identified. Of that only Nu 106 has been used. I still don’t agree with the CDG. But if it must continue, allow the local governments to use the funds. Another Nu 94 million has been kept aside for CDG this year.

More to come tomorrow. But in the meantime, please give me your views on these thoughts, and any others that you may have on the budget. The National Assembly will debate the budget on Friday.

Screaming for answers

The picture above, taken by Bhutan Today, shows victims of the recent Chamkhar fire huddling around their possessions.

Look at that picture. It should make you feel grateful. The picture shows that the residents were able to save at least some of their belongings from the fire that engulfed entire houses. They seem to have rescued clothes, mattresses, blankets, tables, carpets, pots, cupboards and even a bukhari from the fire that destroyed 33 houses. Given the tragic circumstances, we should be grateful for that.

Look at that picture again. It should now make you feel frustrated. The picture shows that the fire could not be controlled even though so many people had the time to rescue so many of their belongings.

Most of the houses in Chamkhar town stand in a line along the main street. So it would have taken time for the fire to spread from one house to the next. It did – that’s why the residents could save so many of their possessions. And yet the fire could not be controlled, not until it reached a three-storied stone structure that prevented it from spreading further.

So why couldn’t the fire be put out earlier? Because Bumthang has only one fire-engine, a second-hand truck manufactured in 1998. What’s worse is that that fire-engine can carry only 10 minutes supply of water. In fact, at full blast, that fire engine uses up all its water in just 5 minutes.

The fire fighters actually almost bought the fire under control during its early stages. But their water ran out. And, because Chamkhar town has no fire hydrants, they had to leave to replenish their small stock of water. That’s when the fire went out of control.

Look at that picture one more time. It should make you angry. The picture shows that, in spite of the two earlier fires, we were not at all prepared to fight this fire.

About a year ago, in the Parliament, during last year’s budget discussions, and before the first Chamkhar fire, I had requested the government to increase funding for our fire fighting programmes. I had argued that our fire fighters need more and better fire-engines. But I had also proposed that, if the government could not buy new fire engines immediately, they should at least buy water tankers to support the existing fleet of fire engines.

Bumthang’s aging fire engine was no match for the three Chamkhar fires. But with support from a simple 9,000 litre water tanker they would have probably been able to control the fires before they wrecked so much damage and suffering to the people of Chamkhar.

Today, the government is trying to find out who caused the fire. The residents are convinced that the fire was not an accident. So they want to catch the person who set their town on fire. The perpetrator must be caught. And be bought to justice.

But the government has so far ignored another, perhaps more important, investigation. They need to find out why, after repeated warnings and fires, they had still not equipped our fire fighters adequately.

Look at that picture. It’s screaming for answers.

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.