A poor-friendly budget, is it?

A B Shahid
14-06-08

 

In sharp contrast to the past tradition, the budget speech of the Finance Minister was punctuated neither by thumping of the desks by the treasury members' nor by shouting from the opposition benches. At one stage, the silence of the assembly chamber visibly disappointed Sherry Rehman, which was caught by the TV camera's eye.

What did such a reception to the Finance Minister's budget speech reflect? Were the members trying to keep pace with the rapid speed with which he was delivering the speech or trying to fathom the impact of the measures he was announcing. Or, with the shipping containers now removed from around the assembly premises, were they worried about the chaos that was likely to surface after the lawyers' protest rally would reach the assembly.

If they were worried about the lawyers' protest rally reaching the assembly while it was in session, it was unnecessary because no sooner had the Finance Minister finished his speech, the honourable speaker of the house adjourned the assembly until June 14, making sure that it re-assembled well after the lawyers had finished their protest. But that is being optimistic; these fellows may hang on for another day i.e. June 14 when the assembly re-convenes.

How realistic are the expectations that the Finance Minister has reposed in the future of the economy and efficacy of the measures he has announced for stabilizing the economy that has been bothering all the stakeholders? The simple answer is, only partially. Expectations about raising tax revenues by 25 per cent, holding inflation at 12 percent, confining fiscal deficit to 4.7 per cent of the GDP and maintaining foreign exchange reserves at $12 billion are too good to be believed in the light of the taxation proposals.

No one expected a total solution to the huge problems that the present government inherited from its predecessor but what one did expect was taxation proposals that effectively taxed the rich to divert more of the national wealth to the poor to undo the inequalities created by the last regime. But the budget does not penalize the rich as much as it could by raising the tax rate on the businesses and activities, and the luxuries they enjoy at the expense of the poor.

It is strange that the ruling party that claims to be the 'peoples' benefactor did not find it fit to jack-up the tax rates applicable to the excessively profitable financial services, cement and telecommunications sectors, increase the miserable Capital Value Tax now applicable to stock trading, impose a much higher tax on property development of residential units larger that 200 square yards and, above all, the budget expresses the regime's willingness to welcome tax evaders into the tax net by paying a measly 2 per cent penalty.

The budget speech was also deficient in a more crucial respect; it did not disclose the projected revenue receipts resulting from each tax the budget proposes to levy nor the negative financial impact of each tax exemption announced in the speech. All we have is a lump sum figure of expected revenue collection, which can hardly permit assessing the credibility of the projected fiscal deficit. It is these inadequacies of the budget that raise doubts about its ability to deliver.

But the good part is that the parliamentarians have two days to examine both the budget speech and the enormous amendments to the tax regime proposed by the Finance Bill. It would be worth watching how these wise men and women comment on the budget beginning June 14. If they do a fair job of assessing the Budget and the Finance Bill they may be able to offer sensible suggestions for enhancing the capacity of the budget to deliver. It is a test they all must try to pass.

The 1 per cent rise in Sales Tax and Federal Excise Duty across-the-board is bad. It is an increase in an indirect tax that will have a snowballing effect on inflation that makes no concessions for the poor on the principle of the ability to pay. Besides, the budget is silent on the future course of subsidizing the oil price that is bound to rise given the intentions of both oil producers and the mega speculators in the oil trade.

Pakistan's annual oil import now stands at 118 million barrels. At $150 a barrel, the bill could amount to around $22 billion. This year, the economy nose-dived because the oil import bill is close to $11 billion. What do we propose to do when it touches $22 billion and the trade deficit doubles as a result thereof? It implies cutting consumption. No two ways about it. But the budget speech said virtually nothing on the subject nor suggested measures to cut consumption.

The 20 percent rise in salaries of state employees too is devoid of logic because it envisages an identical proportion of rise in the salaries of all employees in grades 1 to 19. Shouldn't it have been graduated for grades 1 to 10, 11 to 15 and 16 to 19? Or do we believe that in spite of significant differences in salaries of these grade-groups, they all are suffering equally? Believing so amounts to denying the undeniable.

The purpose of the Benazir Income support Scheme is indeed noble (though personalizing its title isn't) but the Finance Minister's strategy for ensuring that its handouts reach the deserving is, at best, flawed, at worst, suspicious. NADRA doesn't keep the records of citizen's changing incomes or resources. How then does the Finance Minister believe that NADRA could help identify the really deserving recipients? To kill all suspicions, the job must be entrusted to highly reliable NGOs, not even the parliamentarians.

PSDP proposes to invest only Rs. 6.4 billion on school and college education. How on earth will this suffice for the growing numbers of school and college goers? Then there are no clear plans about setting up teachers' training centers although we all know that there is a dearth of trained teachers. If this is all that the federation can spend on education, it should be spent on developing and manning these centers and the provinces should take the responsibility for developing schools. Given the federal grant of Rs. 606 billion through the NFC, they should be able to do so.

Ensuring that subsidized food reaches the deserving (and shield them from the after effects of hoarding-driven high prices) requires state penetration of all poor localities. It could be achieved by a two-pronged strategy: tripling the number of utility stores in the shorted possible time and re-commencing the 'ration card' system. On the one hand this could ensure availability of cheap foodstuff to the poor and on the other create employment opportunities in these localities and help alleviating poverty to an extent.

The proposals to regularize all state employees in grades 1 to 15 and making it mandatory for state office to employ 10 per cent women in their workforce are commendable. But given the anomalies discussed earlier, the budget conveys the feeling that, within months, when fiscal and trade deficits widen beyond their proposed targets, there may be a supplementary budget to contain these expanding imbalances.