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.

Discriminating industries

Excised steel

Today’s steel prices:

A ton of 10 mm TMT bar manufactured in Bhutan (by Karma Steel, for example) costs Nu 39,000 in Phuentsholing.

A ton of similar grade (Fe415) 10 mm TMT bar manufactured in India (by SRMB, for example) costs Nu 42,900 in Jaigon, outside Phuentsholing.

    If you were a contractor, which steel would you buy? Bhutanese steel, right? All else being the same, TMT bars manufactured in Bhutan would be cheaper by Nu 3,900 per ton.

    But Punatsangchu Hydropower Project Authority contractors prefer Indian steel. Why? Because for PHPA, the government refunds the excise duty levied on Indian steel (collected in India by the Indian government, then transferred to the Bhutanese government). The excise rate for steel is 10.3%. And that seems to be enough to make PHPA contractors prefer TMT bars manufactured in India over those produced in Bhutan.

    PHPA’s demand for steel is huge. And that demand will get even bigger – much bigger – as construction on the other hydropower projects also begin.

    This massive surge in demand for steel should come as good news for our industries. It doesn’t. Instead, our steel manufacturers are disappointed.

    I am disappointed too. And I am confused.

    Ideally, our government should favour our own industries over foreign ones. That, in fact, is what every country tries to do. But if, for whatever reason, that isn’t possible, our government should at least not discriminate between goods produced in our country and those that are imported.

    And under no condition – no matter what – should our government discriminate against national companies by favouring foreign products. But that, unfortunately, seems to be what’s happening at PHPA.

    Our government refunds the excise duty paid on Indian steel. But it does not refund the excise duty paid on Bhutanese steel. (Bhutanese manufacturers pay excise duty in India when buying raw material.) So Indian steel becomes much more competitive. And our own manufacturers lose out.

    If our government must refund the excise duty levied on steel manufactured in India, it should also refund the excise duty levied on the raw material that is purchased by domestic steel manufacturers. Only then will the playing field be level. Otherwise, our manufacturers don’t stand a chance. And they may eventually go out of business.

    That won’t be good for the promoters – they’d lose money.

    That won’t be good for the employees – they’d lose their jobs.

    That won’t be good for the banks – they’d lose their investments.

    That won’t be good for the government – they’d lose revenue from business and personal income taxes.

    And that won’t be good for our economy.

    But that precisely is what’s happening. Bhutan Concast is almost bankrupt. They’ve shut their factories. They’ve let go of most of their workers.  And they may be forced to default on their loans.

    I’m disappointed. And I am confused.

    Appealling justice

    Yesterday, after learning that the government was appealing the High Court’s verdict, Bhutan Today sent me some questions. With their permission, I’m reproducing their questions and my answers here.

    What do you think about the government appealing to the Supreme Court?

    I am pleased that the government has decided to appeal to the Supreme Court, as they were obviously not satisfied with the High Court’s verdict. Remember that the government has the right to appeal to the Supreme Court.

    As far as the opposition party is concerned, we respect the government’s decision to appeal, and will submit to the judicial process completely.

    Do you think the High Court’s verdict has failed to set a precedence on constitutional cases for the future?

    The High Court has not failed in any way. They ordered a verdict after giving the case careful and considerable thought. The fact that the government is appealing to the Supreme Court does not diminish, in any way or manner, the excellent work done by the High Court.

    How hopeful are you of what the Supreme Court might pass as verdict? Do you think it will favor the government?

    I have full confidence in the Judiciary. And I am absolutely certain that the Judiciary will fulfill their Constitutional mandate to “safeguard, uphold, and administer Justice fairly and independently without fear, favour, or undue delay in accordance with the Rule of Law to inspire trust and confidence and to enhance access to Justice.”

    Obviously, we cannot predict what the final verdict will be. But regardless of how Supreme Court rules, you can rest assured that the opposition party will accept it without any question.

    What is the long term implication of this case incase the Supreme Court intrepretation favors the government?

    The fact that the government is appealing to the Supreme Court is good. It will bring proper closure to our first constitutional case. After all, the Supreme Court is the guardian of the Constitution, and the final authority on its implementation.

    We will argue the case to the very best of our ability, but we will accept, and abide by, the Supreme Court’s final verdict. Regardless of how the Supreme Court rules, I am confident that the long term interests country and the people will be protected.