Monday, October 13, 2014

The Pre- Budget gimmicks, so the Budget is poised to read like a giveaway.

First there were the election gimmicks of fuel price reductions, and electricity tariff reductions. Then there was the gas price reduction, as mentioned in my previous blog entry. Now we have the cigarette and alcohol price increases, items normally announced in Budget speeches, but this time craftily reserved for pre-budget releases, so the Budget speech will just seem like a list of goodies for people including the much delayed pay rise for the Govt. servants who have been waiting since the last Presidential Election for this promise, that will be given partly just prior to the Next presidential Election, timed to hopefully fool enough people to think that Santa Claus has come to town.

We must understand that the budget is a zero sum game, where to keep the budget deficit at IMF agreed levels, of a percentage say 4% of GDP, when one reduces tazes of increases subsidies, then they have to be covered by increases in taxes in other areas. Of course the Govt. hopes the zero sum game will actually work as they expect. That is just to be seen. As we are unsure how the people who are hardpressed will react to the increase in alcohol duties by purchasing less, which will reduce the Govt. tax take. Then the action taken will back fire. I do not have the answer to that yet.

With impending Presidential Election the Pres is mindful of his precarious stock value, and wishes to give sizeable breaks and relief to people he considers his key constituency. Whether they buy this carrot is a wholly different thing. Let us hope that this time gimmickry for the gullible will be a ricochet rocket to the regime!

To be fair thanks to the remittances of the people and no thanks to any action on the part of the Regime, the inward remittances will top US$10B, and with the slowing down of the economy, imports will slow down, resulting in positive improvements to the balance of payments, this will enable the Govt. to keep the Rupee strong, and keep the relative costs of imports down.

Therefore the comparative advantage is with the Govt. and they have the upper hand. The fact that they are in addition using unseemly tactics to fool the people into believing they are due more than their fair share is what irks me, and if they so do, then it is up to us to show them that it is wrong and explain to the people that these are merely window dressing gimmicks that we can point out as of not being of any benefit to the people in fact.

Let this be an eye opener to the advance tactics and await more with the budget.