Feel good Budget for Kerala Friday, Feb 20 2009

Kerala Finance Minister Dr. T. M. Thomas Isaac has presented a feel good Budget (2009-10) to the Assembly. Whether the pleasantness would remain depends on his ability to carry out the proposals. The Minister, who has failed to carry out almost half of current year’s Budget proposals, has admitted that the “proof of the pudding is in eating”.

It is indeed an election year (Lok Sabha) Budget. But the Minister has made an honest attempt to address the problems arising from world-wide recession which is arriving in Kerala. His stimulus packages would take time to implement. To some extent, they are repacks of schemes that get announced every year.

The Minister has achieved a 23 per cent increase in tax revenues which is remarkable in a year marked with economic slow down. The introduction of value added tax system and the anti-corruption drive and measures to prevent tax evasion helped.

However, the buoyancy in tax receipts may not be easy to keep in the coming year. So, the Minister has resorted to a sleight of hand to keep down expenditure. He has advanced retirement dates of government employees to the end of year. This means that all gratuity, commutation and other benefits, payable on retirement, could be delayed by one year. Around half of the government employees would get their service life extended by, on average, six months. Employees should be feeling happy in an election year.

Not to antagonise the youth, the Minister has said that appointments to vacancies arising from retirement would be filled in advance. This does not mean much as recruitment process always gets delayed. The Minister is not surely going to entertain a surplus of employees.

One of the really notable measures taken by the Minister is the decision to increase rent on Government land leased to plantations. This was a measure that was hanging fire for 28 years. Previous finance ministers including Oommen Chandy had shied away from increasing the rent. There were also allegations of corruption as plantations continued to pay only a pittance for leased land.

Dr. Isaac is also making a big plunge for energy efficiency by promoting CFL lamps and reducing tax on light emitting diode (LED) lamps. This was something that the Electricity Ministers from the time of Pinarai Vijayan had failed to do so though the advantages of energy efficiency over adding capacity was well known for more than a decade.

Budget highlights

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Of financial myths and Dr. Thomas Issac Friday, Mar 21 2008

The Kerala Assembly concluded its budget session this week without much in-depth discussions on the Budget. Bigger controversies than finance took the time of the House.

The coming year will show whether the zero revenue deficit and other improved financial parameters projected by Finance Minister T. M. Thomas Issac for 2010-11 is achievable.

A major point to watch in 2008-09 will be whether the increase in revenue expenditure will come down from around 25 per cent this year to 8 per cent projected by the Finance Minister. The State will be coming out of the debt overhang with interest rates lower than the growth of State Domestic Product.

The myths listed by the Finance Minister in his Budget speech will be fully cleared (off the minds of people) only when he concludes the coming financial year in tune with his projections. Let us wait for that.

P. S. The Finance Minister said that the following assumptions were wrong to varying degrees, and hence were myths.

1. Kerala is in a debt trap.
2. The State Government is free to borrow from the surplus funds of co-operative and commercial banks of the State.
3. The tax revenue of Kerala is not increasing.
4. Tens of thousands of rupees of tax arrears remain to be collected in the State; if collected the financial crisis can be solved
5. Day by day the State is being crushed by the increasing interest burden.
6. The deficits in Kerala are increasing.
7. Plan expenditure is declining in Kerala.
8. The Plan allocations included in the Budget are not spent either due to non-availability of funds or due to their nonrelease.
9. Financial management of the State is not efficient

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Welfare pensions is just a refund of tax Friday, Mar 7 2008

Kerala’s Finance Minister Dr. T. M. Thomas Isaac has just announced a hike in welfare pensions in his Budget for 2008-09. With this, the pensions would go up to Rs. 200 a month (Rs. 2400 annually).

He has sought to raise money needed for this (Rs. 1000 millions) by imposing a cess of one per cent on sales and value added taxes. Kerala has over 30 million people. So, on an average, every citizen will be required to pay about Rs. 33 as cess in a year for paying the increased quantum of pension.

The total tax revenue of the State excluding taxes on income and expenditure, property and capital transactions is over Rs. 15000 crores. This works out to be an average tax burden of Rs. 5000 a year on the citizen. This would be the tax someone in the middle-income group actually pays. The poor will be paying much less. However, it would not be much less than the pension amount of Rs. 2400 a year!

The poor contributes a portion of the taxes on property and capital transactions (2600 crores) and non-tax revenues (Rs. 1300 crores). This is not taken into account here.

Budget speech in full (PDF)

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