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Finance Panel Moots New Consolidation Model For Fiscal
Finance Panel Moots New Consolidation Model For Fiscal
Dec 31, 2009

Report assumes GST revenue-neutral for Centre & states; no word on rates

The Thirteenth Finance Commission has recommended a new model for fiscal consolidation in its report submitted to President Pratibha Patil on Wednesday.

“Our recommendation is for a new path of fiscal adjustment... We have recommended a new path for fiscal consolidation and how to improve outcome and output of public expenditure,” chairman of the panel Vijay Kelkar told reporters.

Following the global economic slowdown, the government had last year suspended its targets under the Fiscal Responsibility and Management Act till 2011-12.

The government now aims to cut its fiscal deficit to 5.5% of gross domestic product by 2010-11, and to 4% in 2011-12.

Kelkar, however, refused to elaborate on the suggestions on fiscal consolidation made in the report.

“Our recommendations are for the period for which the Finance Commission (2010-2015) is. We have given the path for fiscal consolidation. Let the report come out. I don’t want to comment on what is there. It will be in the publicdomain probably by the month of February,” Kelkar said.

Parliament will next be convened in February for the Budget Session, and the report will be then tabled there.

The report suggests changes in the revenue-sharing pattern between the Centre and state governments without recommending changes in tax rates, Kelkar said.

“The report is unanimous. The core terms of reference come from Article 218-275 of the Constitution, which talk about sharing of tax revenues, net of collection of taxes between union and the states,” he said.

“Second, the distribution (of tax revenue) among states and third is the support for third tier, which is the local bodies—- that is the Panchayati Raj institutions and urban local bodies.”

Kelkar said the report has assessed the possible impact of implementation of goods and services tax (GST) on trade and related issues.

However, the report does not recommend a rate for the proposed GST regime. “Rates will be decided by the states in the negotiations... We are not recommending the rates,” Kelkar said.

He added that all recommendations on GST in the report assume a revenue-neutral tax regime.

A task force of the panel recently recommended deferring GST implementation by six months. The task force has recommended a single, 12% rate on all items —- 7% for the states and 5% for the Centre.

The commission is expected to review the state of the finances of the Union and the states, keeping in mind the operation of the States’ Debt Consolidation and Relief Facility 2005-2010, introduced on the basis of recommendations of the 12th Finance Commission.

Improving the quality of public expenditure to obtain better outputs and outcomes is one of the objectives of the commission.

Also important is the need “to manage ecology, environment and climate change consistent with sustainable development.”

The report includes a new path to deal with environment and climate change, said Kelkar.

The commission is expected to be focused on the need for ensuring the commercial viability of irrigation projects, power projects, departmental undertakings and public sector enterprises through various means, including levy of user charges and adoption of measures to promote efficiency.

It has also made recommendations regarding oil bonds, Kelkar said.

Source :  DNA

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