A message circulating on WhatsApp groups calls for a “taxpayers’ union” to be set up and consulted by the government. An income tax officer apparently made the suggestion, but it’s hard to believe because it is rooted in ignorance of the facts and a misunderstanding of political economy. Yet the idea is greeted with exclamations of enthusiasm from middle-class PLUs (people like us), who are convinced their hard-earned taxes are being squandered on the undeserving poor through programs ” populists ”announced before the elections.
Underlying the proposal is the fundamental error that taxpayers are the main funders of government. Today, less than a third of the combined state and central government spending in India comes from income tax. It is the taxes on goods that cover more than half of government spending and these taxes are paid by all citizens, rich and poor; by those accused of getting “free” as well as by the middle class, who believe they are being stolen to flatter politically favored groups. The rest of the expenditure comes from loans, grants, divestments and various non-tax revenues.
In addition, taxpayers already have a say in government spending decisions. We have a “taxpayers union” today. It is made up of all voters (including those who pay income tax) who elect lawmakers, who then approve government budgets after lengthy debates in state assemblies and in parliament. Are we now asking for an exclusive right of veto over spending decisions for taxpayers, who only pay a third of the bill?
Beyond these fundamental flaws, there is an additional question: What government program would you call “free”? From the grievance felt by some taxpayers, it appears that any special financial consideration given to a privileged group is a handout or a “gift”. The term “subsidy” has a special meaning in economic jargon, but it is full of value judgment when used in popular debates. It has now become a vague synonym for debauchery, favoritism and injustice. What taxpayers are feeling are apparently preferential payments from the budget to a small group and favorable treatment of powerful lobbies.
Governments use different methods to target benefits. They spend more on some citizens and lower the prices of items the poor need. What most of us forget, however, is that they also demand lower taxes from different groups of taxpayers. The income tax code provides for as many exemptions and derogations intended for different professions for the promotion of various economic activities as the expenditure budget. A tax deduction is an indemnity like any budgeted subsidy, when it is intended only for a selected category of citizens. The standard deduction, which is considered a right by the bourgeois taxpayer, can only be claimed by employees – in the eyes of businessmen and farmers, it is another subsidy. The list of these tax advantages is legion. In the 1990s, they were compiled and published as a budget annex entitled “Tax expenditures”. Disgruntled taxpayers should consult this document to find out to what extent other groups of citizens are subsidizing them.
Cooking gas and food grains are sold at prices below market rates to poor families – these represent the big subsidy ticket from the central government. But free electricity and water provided in states like Delhi are available to all households. In fact, Delhi has a higher slab of free consumption than other states. Nevertheless, its level of resource conservation is much better because this advantage is linked to the obligatory counting. The state has also covered its costs through better governance without raising taxes. Cheap electricity given only to farmers to run diesel generators is a subsidy, higher limits for free consumption for all consumers are hardly a subsidy.
We cannot complain about “free” without asking what we want from a government. Even selfish individuals want to live in a country full of educated and healthy people, because education and health can make citizens productive and efficient and increase growth rates of GDP and per capita income. Like any other nation, we must together decide on the minimum level of public services we want for our country and demand from our governments a sufficient number of good quality schools and clinics. Money spent from the budget on free education and health care is not “free” when these facilities are accessible to all. And that is definitely a bonus when it comes to an additional tax like in Delhi.
Delhi’s program for free public transport for women is a program that demonstrates the confusion of ideas about subsidies. The debate was bitter but not always logical. The decision was perfectly constitutional and legal. It was taken by a duly elected government, which enjoyed a huge majority of 67 of the 70 seats in the assembly and had been elected with the support of 54% of the electorate – a rare occurrence in a country like the India which uses the first past the post system. The ruling also met all constitutional requirements, cabinet approval, and legislative approval before it became law. This subsidy benefits women, who constitute the majority of voters. This empowers them and increases their participation in the labor market – these are the stated goals of all governments. It is environmentally friendly as it encourages public transport and reduces pollution and traffic jams. It’s user-friendly (no login needed) and cheating is almost impossible. And this was accomplished without increasing taxes. What’s not to like about the program? Those who want the money to be spent otherwise should push for a new debate in the Assembly.
Let’s also launch a debate on any special budget waivers and what we expect from our governments. And let’s do this objectively and without bias, accepting the will of the people and democratic political processes and not letting semantics cloud our judgment.
Viswanathan is the former Secretary of the Government of India in the Cabinet Secretariat. She contested the 2018 Karnataka assembly elections on a ticket from the Aam Aadmi party