In a written response to parliament, the finance ministry last month ruled out the creation of a tax council. In theory, it would be wise to implement the recommendation of the 15th Finance Committee and set up a Tax Council. In practice, this would be as good as the willingness of political leaders to work within an institutional framework, respecting institutional mandates and limits. In a political system dominated by one person, the way President Trump has dominated the US administration or Prime Minister Narendra Modi dominates the Indian system, if the leader deigns not to notice an institution, be it the Tax Council or the Interstate Council, it doesn’t matter that it exists and works hard, delivering scholarly reports that preach wisdom to the silverfish with whom they may or may not share storage space.
India has a Fiscal Responsibility and Fiscal Management Act (FRBM), and each budget contains a document that describes how well this year’s fiscal performance meets established prudential benchmarks, and the reasons for the deviation. , if applicable. But this is an annual statement and projection. There is no secretariat, so to speak, to study the fiscal implications of any new project or vision that political leaders may suddenly unveil, to specify how to fund it or mitigate some negative fallout. This type of institutional work would have avoided follies such as the brutal demonetization of high-value banknotes that destroyed the value of something like 1% of GDP, according to the government’s own economic study.
The US Congressional Budget Office is widely respected as a non-partisan body that brings out the tax implications of official policy. India needs a similar body to verify the feasibility or otherwise of new policies. Take the hypothetical example of the National Security Council suggesting an overhaul of defense personnel policy in order to improve the tooth-tail ratio of defense spending. A significant portion of India’s defense spending is devoted to financing defense pensions. Suppose the length of service of most soldiers who are not officers, non-commissioned officers, is limited to, say, seven years, during which the service personnel acquire a large number of skills and values which will hold them back. prepare to become valuable members of the civilian workforce. once they leave the service, in their twenties, and defense pensions also become contributory, as do the pensions of civil servants who joined the service on or after January 1, 2004. The scheme would dramatically reduce future soldiers’ pensions and ensure that serving soldiers are at their peak.
Who can study the long-term tax implications of such a program, estimate how much additional funds could be made available for the purchase of military equipment, from the savings made on pensions? Right now, the government would simply outsource the work to a consulting firm, which would hand it over to its latest hires with an impossible deadline and no realistic quality control.
Consider another scenario. For reasons beyond the government’s control, budgetary targets will be missed. Now, if there was a non-partisan expert body with public credibility, it could attest to valid constraints behind missed goals, outline measures to minimize the pain of compensatory measures, such as further tax increases. and temporary, and provide the government with legitimate leeway without sacrificing political credibility.
At the same time, a council could warn of unnecessary budget slippage, disciplining the government’s debauchery instincts, for example, just ahead of a crucial election in the state.
All of these advantageous possibilities depend on the institutional independence of a proposed Tax Council, the autonomy of its professionals vis-à-vis political affiliations and the willingness of political leaders to respect the independence of the body and the expert advice.
If these conditions can be met, a Budget Council would be a useful institutional addition to the pursuit of sound economic management. If these conditions cannot be met, a Tax Board would simply mean more jobs for boys.
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