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.