Ever since the global fiscal crisis, the storyline on personal income tax has been altering — and faster, of late — as increasingly desperate governments, caught in the web of their own squandering ways, try to ward off the moment of reckoning.
Last week, Chakravarti Rangarajan, the chief economic advisor to the Prime Minister and also a former Reserve Bank of India governor, set the dovecotes aflutter when he mooted that the richie rich be skinned more through an inheritance tax or a higher marginal tax rate, a la Barack Obama.
India’s fiscal deficit, born out of reckless profligacy — for years, governments have spent way beyond their means to keep the votebank happy — has become the veritable monster Dr Frankenstein conjured.
And an exogenous slowdown has meant there are two, not one, deficits threatening India. Don’t forget the one on the trade account. It’s hurting the rupee like hell.
In the milieu, there are only two ways a government can generate extra revenue: through tax or through bonds. But issuing bonds is the Ponzi solution, essentially using new debt to pay for old. The charade has been going on long enough for the economy itself to throw up the margin call.
So Rangarajan has a case, though we are not sure the motive’s economic alone. The imperatives of the looming battle of hustings are compelling, and the loaded gentry could become politically expedient. But there’s a less-bitter choice before the political class than shedding half its wealth through higher taxes: agree doublequick to a full rollout of the Goods & Services Tax and bringing down subsidies, votebanks be damned. Game for it?