Folklore has it that Robin Hood, the brigand, used his muscle power to terrorise the rich and rob them. He would then sublimate his venal act by distributing the looted wealth among the poor and the needy. Ever since, even the intelligentsia has had a grudging admiration for his tactics. Democratically-elected governments too like to play the Robin Hood role but their predicament is they cannot afford to rob. What they have been doing over the years, especially in the now troubled Europe, is to tax their people heavily and rationalise such heavy taxation on the ground that it is necessary to bankroll welfare spends like on health and education. These governments did not know that for their Robin Hood-like act they would one day be hauled over the coals.
What sets Robin Hood apart from these governments? Well, he did not borrow. He lived within his means. He distributed to the poor what he looted from the rich, nothing more nothing less. But these welfare states, unable to find enough resources from high taxation, are driven to borrowing heavily beyond the accepted canons. Robbing may be illegal and unethical but to a financial pundit it is infinitely better than reckless borrowing. To use financial jargon, Robin Hood balanced his budget, whereas these welfare states have been running amok with fiscal profligacy unmindful of their responsibilities to their progenies who are likely to pick up the tab and pay a heavy price for the recklessness of their forebears.
Some of the Scandinavian countries have been eschewing heavy borrowings through
The Indian scenario
Though nowhere near the frightening figure of 200 per cent of the GDP for Japan and upwards of more than 150 per cent for many of the beleaguered European nations in financial dire straits, the Indian borrowing percentage close to 80 per cent of the GDP may spin out of control unless there is considerable belt-tightening and taxation of the rich at levels that sets them apart from the plebeian.
The Budget must necessarily address the tax issues. What is happening in India is Robin Hood principle in reverse, with the rich getting away with low taxes, thanks to their superior lobbying power.
Capital gains tax on long-term gains from the bourses has been conspicuous by its absence for more than a decade now, under the barely tenable excuse that the loss to the exchequer on account of this is made up by Securities Transactions Tax (STT), which is a turnover tax and not tax on income. Dividend too is tax-free in the hands of the tycoons with their companies footing the tax bill on this account.
Taxing the wealthy
Thanks to these generous exemptions, the Indian rich are placed on a par with the American billionaires as admitted by Warren Buffet — paying half the average rate of tax vis-a-vis the toiling masses. Wealth tax is nothing to write home about, producing peanuts to the Exchequer besides not facilitating plugging escape of income tax.
The invidious distinction between productive and non-productive assets has resulted in a short list of the so-called non-productive assets which alone suffer a wealth tax that is just a slap on the wrists of the rich and the famous.
Huge estates of scandalous proportions are happily inherited untrammelled by any tax, with estate duty being kept in suspended animation for more than three decades now.
India too is steadily heading towards the European situation, what with tax collections proving woefully inadequate to bankroll the gargantuan requirements for social welfare spends. And this is likely to exacerbate with doles assuming ascendancy.
Winning the masses
It would most probably be a last-ditch attempt by the beleaguered UPA-II to win over the masses in the run-up to the 2014 general elections.
Cash transfers to the BPL segment as an option to plug wastages and gargantuan expenses entailed in the public distribution system seem to have been summarily rejected in the enthusiasm to provide food security to two-thirds of the population. The parlous state of finance of many public sector companies calling for state bailouts is not helping matters. Meanwhile, the government is reluctant to sell equity stakes in these to bankroll some of the social infrastructure projects.
While India needs to tax its rich more, there is also a need to rationalise welfare schemes so that those worthy of largesse are identified properly and resources not squandered. Subsidies and freebies are addictive, self-perpetuating and precedent-setting. Doles and freebies not only have a corrupting influence but can make people lazy. A state that buys itself power with promise of freebies and doles is as guilty as a parent splurging Rs 15 lakh for 30 seconds of fame on the marriage of his first daughter, when two younger ones are waiting in the wings.
(The author is a New Delhi-based chartered accountant.)