Freebies, handouts and other myths loved by income taxpayers

Synopsis: Instead of blaming the government to offer freebies, people should decide what all services/ benefits they want from the government.


Recently, the idea has been floated by an income tax officer to have a” taxpayers union”. A section of the people welcomed this idea as they think that income taxpayers are the main funders of government.

They also think that their hard-earned taxes are mostly routed on undeserving poor through populist programmes announced before the election.

What is wrong with this idea and belief?

Income taxpayers are not the main funder: Presently, less than one-third of the combined spending of state and central governments in India is raised through income tax.

It’s the taxes on commodities that meet more than half the expenditure of the government and these taxes are paid by all citizens whether rich or poor or accused of using freebies. The rest of the spending comes from borrowings, grants, disinvestments and various non-tax revenues.

The demand for taxpayer’s union is like demanding an exclusive veto power over spending decisions by paying only one-third of the government bill. So, it is not feasible.

India already has a “taxpayers” union: All the voters (including those who pay income tax) elect the legislators. They form India’s taxpayer’s union. They approve government budgets after a lengthy debate in state assemblies and Parliament.

How government provide various benefits to citizens?

In the 1990s, the government compiled and published a budget annexure called “Tax Expenditures”. The annexure explains clearly how the government subsidise various citizens’ groups.

The government uses different methods to help the beneficiaries. They spend more on one section, give subsidies to the other, or reduce the prices on items needed by the poor. It is not that they give all the facilities to a particular section. This can be understandable from the following examples:

Taxes: Government demands lower taxes from different taxpayer groups. The income tax code has as many exemptions aimed at different professions for promoting various kinds of economic activity as the expenditure budget.

Tax deduction benefits target only a selected few. And this standard deduction is in fact seen as a subsidy by businessmen and farmers.

Subsidised food grains, power etc: There is a need to rethink the subsidy models. The reduced price given on cooking gas and food grains to poor households can be called as subsidies. But giving free power to all households, which also include well-off households, cannot be called a subsidy.

What citizens can demand from the government?

Citizens should collaboratively decide what they want from the government. For Example, citizens can demand sufficient numbers of good quality schools and clinics. These things will not consider as Freebies as these facilities will be available to everyone and have the capacity to make the citizen productive and efficient and raise the growth rates for GDP and per capita income.


Source: This post is based on the article “Freebies, handouts and other myths loved by income taxpayers” published in The Hindu on 14th October 2021.

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