Are Freebies Really Free? The Hidden Taxpayer Cost

Introduction: The Appeal of Freebies

In a Reserve Bank of India report in 2022, freebies have been defined as “a public welfare measure that is provided free of charge”. It adds that freebies are different from public/merit goods such as health and education, expenditure on which has wider and long-term benefits.

In India, freebies have gained significant popularity, particularly during election campaigns, where political parties offer them as a way to garner votes and build support among the masses. While these offers are attractive to voters, they come with hidden costs. The funds required to provide these freebies often lead to higher government debt and, in the long run, higher taxes. Ultimately, it is the taxpayer who bears the burden of sustaining these seemingly "free" benefits.

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Funding Freebies: The Taxpayer’s Burden

Governments finance freebies primarily through taxes or public borrowing. To sustain these welfare programs, the government collects taxes from individuals and businesses, or borrows money, often leading to an increase in national debt. In both cases, the burden falls on the taxpayer, who is responsible for funding initiatives that may not directly benefit them. For instance, taxpayers in urban areas might fund free electricity or water schemes for rural populations, even though they do not receive these benefits themselves. This redistribution effect can lead to an imbalance, where certain sections of society are disproportionately funding services that they do not consume.

Recent examples of high-cost freebies in India highlight the significant budgetary strain they create. Free electricity and loan waivers, for example, have been offered by state governments as part of election promises. In 2022, the Tamil Nadu government spent over ₹17,000 crore annually on providing free electricity to its citizens. Similarly, the waiver of agricultural loans by various states has cost billions, diverting resources from essential infrastructure and development programs. These freebies, while popular in the short term, create a growing fiscal burden. The costs are eventually passed on to taxpayers, who face higher tax rates or cuts in essential services to balance the budget.

A survey by the Association for Democratic Reforms showed that 41% of voters in Tamil Nadu considered freebies as an important factor in voting, while 59% said they were satisfied with the performance of the state government.

Impact on Fiscal Discipline

The culture of offering freebies puts immense pressure on government budgets, often leading to large fiscal deficits. To fund these promises, governments resort to increased public spending, which results in a widening gap between revenue and expenditure. This gap is typically filled through borrowing or deficit financing, which further increases national debt. As a result, the government may need to raise taxes to meet the financial obligations, ultimately burdening taxpayers.

Excessive spending on freebies can lead to higher taxes, which reduces disposable income for citizens and hinders economic growth. Deficit financing may also result in inflationary pressures, as borrowing increases the money supply, potentially leading to higher living costs.

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Additionally, the focus on short-term freebies often diverts resources away from essential public infrastructure projects such as healthcare, education, and transportation. These sectors, which are crucial for long-term development, suffer due to a lack of adequate funding. The government's inability to invest in infrastructure impacts overall economic growth and the quality of public services, undermining the sustainability of the economy in the future.

Freebies:A Political Weapon for merely winning Elections?

In 2024 April, During the Lok-sabha elections,Prime MInister Narendra Modi termed freebie promises as ‘Revdi’ culture.But the poll debacle the ruling BJP faced during 2024 Indian General Elections made one thing clear,there’s no Right Wing - Left Wing Differences in Indian Politics while giving election promises anymore.

The Congress Party was already in poll positions before gearing up for the Haryana Legislative Assembly elections.They promised Rs.2,000 for every women in the state if they would win the elections.There starts the political auction for wooing the voters, the ruling BJP started giving Rs.2,100 for every women in the state 100rs more than what the congress party promised.It resulted in BJP defending Haryana with a historic mandate.

The Recent Legislative Assembly elections in Maharashtra,where India’s financial Mumbai is located,as well as Jharkhand elections,The Poll Pundits were predicting a huge defeats for ruling alliance in both State’s.But both played a Freebie card again and won the elections,but increasing the debts of both State’s.

Congress won Karnataka 2023 Legislative Assembly by promising 5 things:

1. GRUHA JYOTHI: 200 units of free electricity per month to every household
2. GRUHA LAKSHMI SCHEME: ₹12.000/month to every woman head of household
3. UCHITA PRAYANA: Free bus travel for all women across the state of Kamataka
4. YUVA NIDHI: ₹23,000/month for unemployed graduates & ₹1,500/month for unemployed diploma holders.
5. ANNA BHAGYA: Free 10 kg of rice per person per month to BPL Families

This will cost ₹50,000 Crore.

Before you gasp, understand That Congress basically copied AAP's strategy from Delhi With more elections on the way, the freebie political strategy will become more extravagant, Politicians will make bigger and better promises. If history teaches us anything, it is that there is no such thing as a free lunch. Someone always pays the tab

In this case, that someone is the one who is able to read and understand this Article- a middle class tax paying Indian, waiting for better days.

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Opportunity Cost For Taxpayers

When government resources are diverted towards funding freebies, taxpayers bear significant opportunity costs. The money spent on providing free goods or services could have been invested in more critical sectors like education, healthcare, and infrastructure, which directly benefit long-term national development. By prioritizing short-term populist measures, the government often sacrifices investments in quality education, affordable healthcare, and modern infrastructure—areas that require consistent and long-term funding.

In education, for instance, underfunding can result in poor quality schools and insufficient resources for students. In healthcare, it leads to overburdened public hospitals and a lack of essential medical facilities. Meanwhile, infrastructure projects like roads, public transport, and urban development often face delays or lack proper investment, hindering overall economic progress.

Taxpayers who fund these initiatives are left with fewer public goods that improve their quality of life, while the government focuses on offering free benefits that may not always address fundamental issues. As a result, taxpayers face the cost of missed opportunities for improving crucial sectors that could provide greater benefits for society in the long run.

Indirect Taxation & the Hidden Costs

To balance the fiscal impact of freebies and cover rising government expenditures, the Indian government often resorts to increasing indirect taxes, such as the Goods and Services Tax ( GST ). Unlike direct taxes, which are levied on income, indirect taxes are applied to goods and services, making them less visible to consumers. As a result, these taxes are widespread and impact everyone, regardless of income.

While the wealthy can absorb the effects of higher indirect taxes, the burden falls disproportionately on middle-class and lower-income taxpayers. These groups spend a larger percentage of their income on goods and services, so an increase in GST or other indirect taxes directly raises their cost of living. Essential items like food, fuel, and healthcare become more expensive, which strains household budgets.

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Thus, while the government may gain short-term financial relief from indirect taxes, the long-term consequences include increased inequality. Middle-class and poor taxpayers are often the ones who feel the real impact, as they end up funding government programs through higher everyday costs, all while receiving minimal direct benefits from the freebies.

Are Freebies Sustainable? The Long-term View

While freebies may provide immediate relief and popularity, their long-term sustainability is highly questionable. On one hand, they can create a sense of dependency among citizens, discouraging self-reliance and reducing the incentive for personal growth and productivity. This dependency may undermine efforts to create a more self-sufficient society. On the other hand, well-structured social welfare programs can empower citizens by providing a safety net and promoting access to essential services like healthcare and education.

However, the long-term sustainability of freebies is a major concern. These programs require continuous funding, and when the government resorts to borrowing to meet these expenses, it leads to rising national debt. The costs of debt servicing, or repaying loans, consume a significant portion of government revenue, leaving less room for investment in critical infrastructure and development. As debt increases, governments may be forced to raise taxes, putting a strain on taxpayers, particularly the middle class and the poor. Ultimately, the unsustainable nature of freebies could lead to a vicious cycle of increasing taxes and national debt, which harms the economy and future generations.

Conclusion: Balancing Welfare & Responsibilities

Freebies are a double-edged sword ,whereas welfare schemes are win-win . Take for example, If the Government provides few subsidies or provide loans in low interest for setting up business,or even waiving taxes for few years wont do much harm,rather would flourish the economy.

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But giving Freebies,would just keep increasing the debts of both citizens and the state.Also Freebies can create a negative pattern of dependency and entitlement among the recipients, who may expect more freebies in the future and become less motivated to work hard or pay taxes. For example, freebies such as rice at Rs 1 per kg or electricity at zero cost can reduce the sense of responsibility and accountability of the beneficiaries and make them dependent on external aid.

Once a 3 member Supreme Court Bench headed by Chief Justice N V Ramana observed that "Freebies may create a situation wherein the State Government cannot provide basic amenities due to lack of funds and the State is pushed towards imminent bankruptcy. In the same breath, we should remember that such freebies are extended utilising taxpayers' money only for increasing the popularity of the party and electoral prospects,"

While freebies offer immediate benefits, they come at a hidden cost to taxpayers, who often bear the financial burden through higher taxes. To ensure sustainability, targeted subsidies, conditional freebies, or programs focused on long-term benefits like education and healthcare could be more effective. A balanced approach between welfare and economic soundness of the country and constituent states is key to long term sustainable growth of the economy.

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