The Kerala Finance Minister, like his counterpart in Tamil Nadu, should come out with a white paper on the ‘alarming position’ of the state finances, says Jose Sebastian, a public finance expert and commentator and former faculty of think tank Gulati Institute of Finance and Taxation.
He describes Kerala’s dire situation as the culmination of the competitive populism of coalition politics that the state has witnessed since its formation. Coalition governments tried to conceal the fact that the government is ‘an entity financed by taxpayers’.
Culture of free lunches
People have grown accustomed to a culture of free lunches and the state is unable to convey that this is unsustainable. At least during the pandemic, a government should open itself to new ideas to help revive the economy and save livelihoods, he says.
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Pointing to the Centre’s move to mobilise public resources by monetising public assets, Sebastian says Kerala cannot think on those lines as it has clung to ‘outdated ideology’.
“For a government, people are the real assets, not PSUs or government land. If that is so, there is nothing wrong in selling family silver and pumping in a few thousand crores into the economy. I firmly believe that people who have lost livelihoods during the lockdown should be given ₹5,000 each for at least three months. This step alone can revive the economy to a large extent,” Sebastian says.
Spate of suicides
Stating that the life of ordinary people is becoming increasingly miserable, he points out that during the last 60 days, at least 36 people committed suicide due to pandemic-induced stress. He rues that the state continues to spend resources collected from the poor and marginalised (via liquor sales, for instance) on the salary and pension of the middle class and the rich.
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Just four items — liquor, lottery, petrol and motor vehicles — contribute over 60 per cent of the state’s revenue. The only way out is to mobilise more public resources from the middle class and the rich, who are the major beneficiaries of public expenditure, he says.
Salary and pension spend
In 2018-19, the state spent 55.69 per cent of the revenue on salary and pension, compared with 28.43 per cent in Karnataka. This means less than four per cent of the population receives 55.69 per cent of total revenue. He warns that this lopsided public expenditure promotes neither economic nor revenue growth.
Property tax potential
In Kerala’s context, property tax holds huge potential as almost 45 per cent of remittances have been spent on residential and commercial properties. The state has assigned the power to levy and collect property tax to local governments, which have inherent limitations in tapping its potential.
Through tax rental arrangements, it is possible to take back the right to levy property tax and levy it on scientific lines. Technology tools such as GPS can be used to prevent evasion. It should be possible to mobilise ₹15,000 crore even after exempting small properties, Sebastian says.
Electricity duty, user fee on health and education services, lease rent on government land, and royalty on mining are some of the other sources that the state can explore. However, care should be taken not to burden the lower income sections.
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