The Income-expense Gap

As the newly formed government has taken various measures to deal with economic problems at different layers, it is now grappling with a new challenge– the negative gap between income and expenditure. Nepal has been facing budget deficit for a long time owing to the lack of adequate resources and mismanagement of available resources. Growing administrative expenditure and people’s aspirations for development has led to widening gap between the revenue collection and expenditure. There is also unscientific projection of income, irrational priorities and project selection behind the lower income higher expenditure scenario. Non-economic factors such as political instability, policy inconsistency and conflict have also caused such imbalance. We have now an administrative structure after the country adopted federalism, which also absorbs a whopping amount of national income.

The country has confronted strange economic situation. On one hand, its capital expenditure is very low and on the other, the budget is in deficit due largely to the rising general expenses. The state’s capacity to spend money on development works is poor, with negative implications for growth. A satisfactory capital spending boosts infrastructure development, which in turn enhances the people’s purchasing power through job creation and market mobilisation. This will have virtuous impact on economic system. The sustained economic development broadens the scope of taxes, which form the basis of national income. If the taxation areas grow, the income sources of government also increase.  According to news report of this daily published on Wednesday, the gap between the government income and expenditure has further widened in February after it could not sustain momentum in revenue collection in January.

The utilisation of capital budget is less than one-fifth but the government is struggling to meet the public expenditure. The income-expenditure disparity has been negative by Rs. 120 billion. The gap was Rs. 87.6 billion in the third week of January with total government receipts of Rs. 501.3 billion and expenditure of Rs. 588.9 billion. Likewise, the mobilisation of capital budget stands at 18.44 per cent and recurrent expenditure is 46.36 per cent in seven months into the current fiscal year. As the government is unable to fully spend the development budget, it felt little pressure on managing the public expenses. The recent ban on crusher industries and price rise in construction materials such as cement and iron bars have slackened the development activities. 

As the economic recession continues to hit the entire financial ecosystem, the government decided to reduce the size of current fiscal year's budget by 14 per cent to Rs. 1549.99 billion during its mid-term review. It has scaled down the total revenue estimates by 11.29 per cent of the total target of Rs. 1403.1 billion. With the reduction of target of revenue collection, its impact will be felt in both spending – general and development. The government needs to activate its agencies to collect revenue as estimated in the budget. It is necessary to explore non-tax revenue sources that include natural sources, boost efficiency in collecting rental tax, check leakages in VAT collection and bring the informal economy within legal framework and tax regime. By tapping untapped revenues, the government will be able to increase national income and spend in the priority areas of development. At the same time, by increasing the capital spending, the macroeconomic challenges can be met easily.