A spectre is hanging over the world, the spectre of bankruptcy. That could be why a recent IMF blog says that the world needs to raise at least $3 trillion over the next decade to achieve sustainable and inclusive growth. “The cost in emerging markets equals 4 per cent of gross domestic product —and 16 per cent for low-income countries,” it says.

Costs aside, what do sustainable and inclusive mean? Let me make a guess. Sustainable simply means don’t consume too much if you live in the non-Western world. Inclusive means everyone there must consume something at least but not as much as us. How these two goals are compatible I don’t know.

A small solution that the blog suggests for raising the money is more, if not also higher, property taxes. That is, let’s tax everyone and especially the rich. That’s ok, what are the rich for if not to be taxed so that politicians can attempt inclusive growth because, even if it isn’t sustainable, it does get them a lot of votes. The blog says a nationwide increase in property taxes could be “politically challenging” but “more efficient real estate taxes have an advantage in this regard: by being locally collected and spent, they may be politically less challenging than increases in broad-base national taxes.”

I don’t know why the blogger didn’t simply say municipal taxes. He or she speaks very approvingly of Delhi and Lagos in this regard. Both are using modern drone technology and satellite imagery to assess the size of the property.

Political angle

Great, but that information is already available with the municipal authorities. What is not available is information about small unauthorised residential buildings.

Even if drones helped with the mapping, I doubt if any political party would have courage to impose even very low annual property taxes on these.

Politics in low income countries doesn’t work like that. Indeed, if the costs imposed by illegal migrants in the developed countries of the West are any indication, politics doesn’t work like that there as well because a vote is a weapon of mass destruction of budgets. Each vote is tiny by itself but it grows into gigantic power when aggregated.

That said the blog does have a point: countries do need to raise more money for basic things like food, health, education and housing. These don’t impact sustainability negatively.

Another huge problem in developing countries is that people don’t actually own the property in which they live because these are illegally constructed on public land.

The problem is that the moment a municipality imposes a tax and collects it, that land would become the property of the taxpayer, and the government or municipality would forfeit that land. India has several lakh such owners. So this is a bit of a Catch-22.

An obvious solution is a tax on agricultural incomes. Even Pakistan taxes it at 15 per cent. The IMF wants to increase the rate to 45 per cent!

In India the first step would have to be to stop treating income, for tax purposes, by source. If income is to be taxed at all, why leave out agricultural income?

The second step would be to impose a tax on all agricultural income for those who have other sources of income. Like lawyers who grow cauliflowers, to take just one example. These guys wouldn’t pose a political problem.

We have a constitutional problem as well: agricultural income tax is a state subject. So we can forget about it until it’s put in the Concurrent List. Will any Central government even start a debate about it? Not a chance.

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