The government’s decision to pay its own employees Rs9,300-and-odd crore as extra dearness allowance at a time when inflation is roaring confirms a simple fact: government ought not to be trusted with our money. The more the money it has, the more it will waste it.
Government employees, who have only recently been given a bonanza by the Sixth Pay Commission, are the last people we need to indulge. But when politicians gift themselves huge wage hikes (MPs recently tripled their salaries and bumped up their allowances), they have to reward their co-conspirators — the bureaucracy — too. Hence the DA hike. This is how they waste taxpayer’s money and destroy our savings. With inflation pushing wages and higher incomes pushing inflation, we are now well into a classic wage-price spiral. The only thing that can result is more inflation — which devalues our savings.
When the government overspends, the country does too. We are thus running two deficits: one at home (Pranab Mukherjee’s budgetary deficit) and one abroad (the huge current account deficit, with external earnings seriously lagging import spending). But governments do not have to worry about deficits — they can either tax you directly or, if that’s not possible, reduce the money they have to pay back to lenders by destroying the value of money through inflation.
The main moral argument for big government spending is the need to redistribute wealth from rich to poor. Governments everywhere — whether in the capitalist west, or communist China or socio-capitalist Singapore or Scandinavia — believe that it is their duty to bat on behalf of the poor by raiding the rich through higher taxation. If taxes are short, then money is borrowed from the same taxpayer to feed the poor.
In theory, this is fine. In practice, taxation becomes an end in itself. Having created a bureaucracy to collect tax and then spend it, the former then perpetuate themselves by dreaming up new ways to spend more so that more even more taxes can be collected. This is not what companies do. They raise capital to start a business, but once the business is self-sustaining, they start returning capital to shareholders — or at least don’t raise more of it.
They generate profits, which then drives the business forward.
Governments do the opposite. They don’t raise taxes for any specific purpose; they just keep raising money indefinitely by making tax a percentage of your salary or profits. Sure, some government do cut taxes — George Bush did so, and so did our government some time ago — but the absolute amounts they raise only keep rising.
Another myth is that governments need money to invest in social areas like education or health. Wrong again. Governments have to facilitate skill-building and the creation of healthcare facilities; it does not follow that they have to run schools or hospitals themselves. They just need the right policies to ensure this happens.
The ideal government is one which exists only when it needs to and disappears when there is no need. Taxes raised without purpose are immoral. Profits are more moral.
Profits retained by companies and incomes left in the hands of individuals serve a public purpose: they create investment and consumer demand — and jobs. Taxes do the opposite.