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Does salaried class need Covid relief?

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Lakshmisha K S
Founder - Namo Brigade, Management Consultant, Amateur Economist, Politically Conservative and believer in the supremacy of facts, NITK-Surathkal, XLRI alumnus

After PM’s announcement of 20 lac crores package to restart the economy, the finance minister announced a slew of measures (supposed to first tranche of measures) targeting MSME sector. While I will not go into the merits and demerits of the announcement, what has caught my attention is that enormous disappointment and cribbing by salaried class community. This disappointment has been around the fact that there has been no announcement of either tax or other monetary relief targeting the salaried class. To me in the Covid context doesn’t make any sense at all.

Let me first clarify, on any normal day I am in complete alignment for tax relief for salaried class. I would support and and actively campaign for such measures. It has been argued that salaried class has borne a disproportionate burden of funding the nation’s development. There are genuine grouse against the current taxation policy which lets out a large section of population from the tax net. As this article from TOI calculates – “The 2018-19 budget speech noted that an average salary earner pays three times more income tax (Rs 76,306) than a non-salaried taxpayer (Rs 25,753). If non-salary income earners pay even 70% of what the salaried class pays government earnings would go up by Rs 50,000 crore a year.” Finance ministers down the years have failed to correct this anomaly, surrendering to a system that penalises the honest. It also true that Salaried class also doesn’t get the public services it should get for the tax paid. Public education and public healthcare with dismal quality has resulted in private expenditure on the same (One of the highest in the world).

But today in this extraordinary situation induced by Pandemic Covid-19, Relief to Salaried class is a useless expenditure and distraction. Again let me clarify that I am talking about the people who continue to be employed and draw salaries. If someone has been rendered unemployed then they are not to be considered in the below argument. My sympathies are with them and I support any measure taken by the government in helping the same set of people. However this is with regards to people who are employed and earning their monthly salary. Here are the reasons why I feel so strongly about this

  • How has the Covid crisis impacted a salaried person today? If they are still earning the same salary or slightly reduced (20-30%) salary, where is the issue or problem that needs to be provided relief for? Compare this to a small time businessman, the food joint owner who has got ZERO business in the last two months and has to still bear expenses of rent, salaries and loan payments. I fail to understand how can any salaried claim the need for relief.
  • Let us take for arguments’ sake, that a tax relief or cash-back is announced by the government. How will this help the larger economy? In normal course such an action would have boosted the disposable income increasing consumption and bringing in a multiplier effect. But today with Covid lockdown, where will any salaried person spend this additional amount on? Today, most avenues of consumptions have literally been shut down and I can only imagine very few conspious things that people can spend this additional money. No fancy restaurant to go for, no exotic tourist locations to travel to. Would you buy an expensive Michael Kors bag or Louis Vuitton dress when you have limited avenue to go outside your home either to office or party. Most likely the additional money provided by way of tax relief will be saved and deposited in a FD in some bank. This doesn’t help the economy. Money needs to be diverted to those actors who can invest, produce and generate earnings and employment and not to be squirrelled into an FD deposit. Government’s relief should be prioritised by way of the multiplier effect generated by each of the measures and tax relief to salaried class will be at the bottom of the list.
  • Covid crisis has indirectly provided positive relief to salaried class. Any student of economics would know that deflation is always positive to Salaried class. The lockdowns and reduced consumptions has resulted in serious disinflation if not deflationary forces on prices. The purchasing power has actually increased to an average salaried class person. Think about rentals, Would the owner be able to charge the same kind of increment that was being expected before the crisis. With increase in unemployment in unorganised sector having unskilled labours, the price of maid, cooks, attendants have only gone down. Not to mention the reduced expenditure driven by stay at home and lockdown measures. From reduced fuel and transportation bills to reduced spurious consumptions. Check any salaried person’s credit card bill and you will see a significant reduction in spends.

Hence I feel the chorus on providing relief to salaried class not only asinine but also hugely counter productive. The most important factor for a Salaried person today is to ensure that they are employed and remain salaried. Hence all government measures should be in this direction to help companies stay afloat, to create new opportunities and bring in new jobs. And all effort should be however taken to help those who have lost their employment due to the crisis and only those should be helped.

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Lakshmisha K S
Founder - Namo Brigade, Management Consultant, Amateur Economist, Politically Conservative and believer in the supremacy of facts, NITK-Surathkal, XLRI alumnus

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