The government might want to cut personal taxes in the next Budget to please the middle class which has been facing a lot of difficulties after demonetisation Finance Minister Arun Jaitley has hinted at tax cuts many times in the last few days.While there is no doubt the government would certainly try to assuage the middle class, there is little reason to believe that Jaitley would want to go for a bonanza this year because that would limit the possibility for big cuts when they would be needed more in 2019 — in the Budget before the next general elections.Not just political expediency, even the government's finances may not allow a splurge on the middle class. Demonetisation was expected to bring a windfall gain in the shape of black-money hoards that would not be deposited in banks. But of the Rs 15.4 lakh crore worth of high-currency notes that were demonetised, nearly Rs 14 lakh crore have landed in banks. The government had expected about Rs 3 lakh crore worth demonetised currency would remain undeposited.Of course, one gain the government can make from demonetisation is scrutinising millions of bank accounts and then taxing a part of the Rs 14 lakh crore which have been deposited. But that would require a huge and consistent effort and unnecessary trouble to a large number of genuine tax-payers. Moreover, the government might not want to probe Jan Dhan accounts, where the deposits are not too high, for sparing trouble to the poor who can upset the BJP's electoral math.As for bringing more people in the tax net to raise collections, it seems uncertain in the short-term for lack of infrastructure and basic digital literacy.Voluntary disclosures and seizures of black money, which are taxed at punitively high rates, may not bring enough money for the government to forego a big chunk of its direct taxes. The tax windfall of Rs 30,000 crore expected from Income Disclosure Scheme, a four-month window to declare domestic black money that closed on September 30, is likely to fall short by Rs 5,000 crore. A part of collections under another opportunity for income disclosure, Pradhan Mantri Garib Kalyan Yojana , is to be used for social welfare projects.Though the government may not have enough money to fund big tax cuts in higher slabs, it can raise the exemption limit from Rs 2.5 lakh to Rs 3.5 lakh. This cut will target the lowest tax-payers — in keeping with the government's recent pro-poor rhetoric and Jaitley's tax-cut indications. It will also not weigh too much on exchequer for those at the bottom account for a small part of collections. Of the 3.65 crore individuals filing tax returns, only 1.5 per cent pay income tax of more than Rs 5 lakh but account for 57 per cent of the total tax collection. A government trying to build a pro-poor image cannot appear to be providing too much exemption to tax-payers other than those at the lowest end. That's why there is little to expect from Jaitley other than raising the exemption limit. Middle-level tax-payers may get only small crumbs from him.There is another reason for not expecting big cuts in personal income tax — a slowed-down private sector also requires a tax cut. Jaitley had promised to bring down the highest corporate tax rate from 30 to 25 per cent in the next four years. In the last Budget, he cut the rate by one percentage point but only for companies with a turnover of less than Rs 5 crore. Apart from his earlier commitment, the cut in corporate tax is required to boost the private sector which has seen low investment. Too much spending on tax cuts for middle class may constrain the scope for corporate tax cuts.Jaitley is likely to fulfill his indications of tax cuts, but these may be mainly for those at the lowest rung. Middle class and the corporates may not get any bonanza due to political as well as financial compulsions of a government trying to side with the poor and without the windfall gains it had expected from demonetisation.