Ex-CEA Subramanian against tax cuts, says no space for fiscal expansion

Former Chief Economic Adviser Arvind Subramanian on Friday said there is no space for expansionary fiscal policy and opined against reducing personal income tax rate.

"...no space to have expansionary fiscal policy. There's a lot of talk about personal income tax cut and raising GST rates, and I would be categorically against the both, we do not have the space," he said at an event here.

Subramanian further said that he thinks personal income tax cuts motivated by desired increased consumption are highly inequitable.

Any cut in personal income tax, he said, will benefit the only top 5-7 per cent people, who are actual taxpayers.

"So if you want to boost consumption it has to be something much more, which actually reaches much poorer people. It has to be some kind of DBT (direct benefit transfer) or universal basic income (UBI)," he said.

Reminding that all the countries that are developed have more number of tax payers in their respective systems, he said adding that it is beneficial in the long term.

While on the other hand opposing GST rates hike, the former CEA said that it will affect the consumption and a slowdown or a recession is not the time to be embarking on (such options).

"You can't have too much expansionary fiscal policy but equally you can't be crunching government demand at a time when the economy is weak and in stress," he added.

India's economic growth fell to the lowest in more than 6 years at 4.5 per cent during the second quarter ended September of the current fiscal due to slowing demand as well as fall in output, exports among others. In the first quarter ended June of 2019-20, the economy grew by 5 per cent, which was the lowest in six years.

On the GST front, the government earlier this week fixed a uniform tax rate of 28 per cent on both state and private lotteries, which is to come to effect from March 2020.

In the previous various meetings of the GST Council, the government has cut the rates on various services and goods, amidst GST collections remaining below expectations, with an aim to boost demand.

Amid concerns that the government may fall short of tax collection target in a slowing economy, the government has set an ambitious Rs 1.1 trillion monthly GST target for the remaining four months of the current fiscal and asked taxmen to step up efforts to achieve the goal.