Advocates of neoliberalism not only dress themselves as market fundamentalists but also present themselves as anti-populist. They don’t dither when it comes to condemning any sign of the government using tax revenues to provide transfers or subsidies to the poor or undertake expenditures that are expressly meant to favour the poor, in the form of livelihood protection, poverty alleviation or free and universal provision of basic health and educational facilities. The justification for this is two-fold: that expenditure to support growth must be favoured over spending to directly improve welfare; and, that fiscal prudence must be privileged over all else when deciding the use of the exchequer’s resources. So if spending has to be tailored to correspond to revenues, expenditure on “populist” measures must be limited or abjured.
There is a twist in the arithmetic underlying such reasoning. It assumes that the difference between tax and non-tax revenues, on the one hand, and total expenditures, on the other, can be reduced only by reducing expenditures and not by increasing revenues. That is obviously not true. Comparisons of the share of GDP appropriated as taxes by the Centre alone or by the Centre and states in India with the corresponding figures in similarly placed or even poorer economies points to the substantial untapped revenue potential in the country. While this has been occasionally recognised in the budget speeches of Indian finance ministers, few are willing to impose significantly higher taxes on those with much-higher-than-average incomes or those appropriating a disproportionate share of the surpluses over necessary consumption in the system.
The unwillingness or “inability” of the State to tax the rich reveals that it is not a neutral agency standing above all classes. It is partisan and represents the interests of a few.
But such partisanship also serves the specific interests of the party in government. Resources are needed to fight elections or consolidate a political position, leading to a financial nexus between those wielding political power and those with access to the nation’s surpluses. Under neoliberalism, which is based on an anti-statist and pro-market rhetoric, this nexus is strengthened. Since the neoliberal State is openly committed to favouring private capital, handouts to the rich in the form of tax reductions or direct transfers are seen as normal, and higher taxes on surplus incomes as abnormal. In such a system, State functionaries who have a role in deciding the magnitude of such transfers and determining the favoured recipients, often see nothing wrong in claiming a share in the spoils. The space for corruption is considerably enlarged. The result is that expenditure reduction has to be focused even more on curtailing so-called “populist” expenditures favouring the poor, to release the resources needed to finance the handouts provided to the rich and the payouts made to State functionaries.
This has two consequences. On the one hand, right-wing anti-populism gains intensity to both divert attention from financial cronyism and to release resources for transfers to a small elite. On the other, means are devised to treat elitist hand-outs very differently from so-called populist sops, with the former being treated as measures to spur growth and the latter derided as a dampener on productive investment and therefore as being anti-growth. This tendency is often reflected in the language of neoliberal fiscal policy as well, with tax concessions to corporates being labelled as “tax expenditures,” ostensibly aimed at furthering the growth agenda, while welfare measures are described as subsidies or transfers with no productive purpose.
The article from which this post is excerpted was originally published in Frontline and is available in full here.
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