Criticising the previous governments for "lack of accountability in fiscal marksmanship", government's pre-Budget Economic Survey on Friday proposed sustained tax and expenditure reforms in the next Budget while asking the states to follow suit.

Projecting a marginal decline in fiscal deficit to 4.4 per cent of GDP in 2004-05 from 4.6 per cent a year ago due to a sustained reforms drive, the Survey asked the government to undertake major tax reforms and curtail wasteful expenditure to carry forward the process.

Economic Survey 2004-05: Complete Coverage

States should emulate the Centre in legislating Fiscal Responsibility and Budget Management acts for tighter control on wasteful expenditure, implement value-added tax and imbibe greater degree of discipline in financial management, it said.

"Fiscal consolidation has remained intractable despite initiatives of successive budgets at reducing deficits, primarily because of lack of accountability in fiscal marksmanship," the survey, tabled in Parliament, said.

"Sustaining the reform process in tax and expenditure regimes is a sine quo non for achieving the targets set under the FRBM Act," it said hinting at tax reforms in the Budget for 2005-06 to be presented on Monday.

Fiscal deficit, which came down from 6.6 per cent of GDP in 1990-91 to 4.1 per cent in 1996-97, started rising continuously to reach 6.2 per cent in 2001-02.

For the medium term, the Survey said, "adherence to FRBM targets, given the limitations of expenditure compression, critically hinges upon the success in raising the Tax-GDP ratio."

The Survey, brought out by the finance ministry, drew comfort from continuance of growth momentum witnessed in manufacturing and services sectors, and said, "deepening of tax reforms is likely to facilitate this process and thereby help reinforce growth with macro-economic stability through consolidation."

Observing that 2004-05 marks the beginning of fiscal adjustment mandated under the FRBM Act, it said, "medium term fiscal adjustment requires quantum jump in tax revenues."

Referring to the Kelkar panel's recommendations for "revenue-led" fiscal adjustment, it said, "given the near stagnant tax-GDP ratio in the last few years, the task appears daunting but not impossible."

Kelkar panel had laid the roadmap for increasing tax-GDP ratio from 9.2 per cent in 2003-04 to 13.17 per cent in 2008-09 as a prerequisite to wipe off revenue deficit.

The Survey stressed on widening the tax base through increasing the share of service tax in the tax revenues, removal of exemptions that do not conform to the established principles of tax policy and an enforcement mechanism that is non-discretionary, transparent and effective.

The present tax system needs to be further simplified and streamlined, it said adding "higher tax revenues have to be achieved not through increasing tax rates, but through innovative changes in policies, procedures, laws and dispute settlement mechanism."