Can FM Dr TM Thomas Isaac pull off a Houdini this time

THIRUVANANTHAPURAM: On February 2, when finance minister Dr T. M. Thomas Isaac presents the budget, he will resemble a magician trying out a seemingly impossible feat. His performance would be as tricky as that of an illusionist who has not just locked himself up in a box with his hands and feet tied but also has the box thrown into the deep sea. The question is, can Dr Isaac do a Houdini?

He cannot tamper with tax rates as state finance ministers have been stripped of their tax-engineering authority. He cannot rationalise non-plan expenditure either as it would be politically risky. But if he fails to do both, the state will drown in debt.

Unlike in other fiscals, especially because he has banked so heavily on the success of KIIFB, Dr Isaac has to compress the fiscal deficit. Earlier, Isaac had not cared much about the fiscal deficit; he considered it an indicator of growth. Not anymore. “A high fiscal deficit will hurt the state’s credibility with lenders, which in turn will affect the KIIFB’s capability to mobilise funds,” Dr Isaac himself had said.

So he has to either raise revenues or cut expenditure, or do a mix of both. Raising own-tax revenues is no more a state function in the post-GST situation. “He cannot lay much store by other tax options at his command like petrol and liquor sales tax or motor vehicle tax or land tax or stamp duty. Sales tax on petrol cannot be touched, land tax or stamp duty cannot be tweaked at a time when real estate is down,” said R. Mohan, a former IRS official who is also a member of the State Expenditure Review Committee. 

The existing motor vehicle tax will not be disturbed as it is the only buoyant tax stream with a growth of 22 percent. Any attempt to up sales tax on liquor from the already exorbitant 135, according to tax expert Dr Jose Sebastian, will be counterproductive. 

“It can only help in diverting individual spending from important items to liquor,” said Dr Sebastian.

Reining in expenditure will be equally taxing. Even a marginal reduction in committed expenditures like, say, dearness allowance, or subsidies would trigger a backlash. “At best, he can shrewdly manage the cash flows to soften expenditure. He has already prevented departments from parking unspent funds in the Treasury, a practice that had earlier widened the fiscal deficit,” Mr Mohan said. 

Dr Sebastian feels that Isaac has to employ drastic revenue measures like a reasonable increase in the fee of public services, say OP tickets at government hospitals. Isaac could also introduce penalties like a ‘cess’ on car owners for having more than one car.