It is time that the problems being faced by the people were given greater attention


May 29 - June 06, 2004

While preparation of the budget for the financial year 2004-05 is being given final touches, it is generally believed that the forthcoming budget will be pro-poor with major focus on employment generation and poverty reduction, control on inflation, social sector and infrastructure development programme.

The Finance Minister as well as other high officials have indicated at various forums that it would be a tax free budget with a number of concession and incentive to promote growth and investment. Besides giving some financial increase to the salaried class and reduction in the electricity charges and petrol prices. An all time high provision of about Rs. 190 billion is to be provided for Public Sector Development Programme (PSDP). Basic tax exemption is also likely to be increased from Rs. 80,000 to Rs. 100,000 providing some relief to lower tax-paying class.

The Finance Minister Shaukat Aziz while briefing the National Assembly Standing Committee on Economic Affairs on the forthcoming budget, said the government will not introduce any new tax in the budget which will emphasis on agriculture sector, ending unemployment and creating new job opportunities and reduce poverty. He told the committee that the government was proposing Rs. 200 billion for PSDP, which will be finalized by the National Economic Council (NEC) meeting to be chaired by the Prime Minister. He said the budget would be growth-oriented, with a key emphasis on restoration of the investment climate in the country, which is lagging behind the potential. He also said enhancing water availability for irrigation will be the top priority. The minister said construction, industrial sector, and education and health sectors would also be specially focused in the budget. He claimed the GDP has registered 6 percent growth during the current fiscal year, against the target of 5.3 percent. Rashid Akbar Khan, MNA, Chairman of the National Assembly Standing Committee on Economic Affairs and Statistics Division, said the budget should be people-friendly. He emphasized the need of easy credit availability at low interest rates, and supply of quality speeds, fertilizers and availability of agriculture machinery for success of the agriculture sector.

According to official sources revenue target for the fiscal year 2004-05 is likely to be fixed at Rs. 575 billion as against Rs. 510 billion set for the current financial year, which is likely to be surpassed. Exports target for 2004-05 is likely to be fixed at $ 14 billion as against $ 12.1 billion, which is also likely to be surpassed. According to the official sources, the government is likely to raise minimum taxable income to Rs. 100,000, remove 5 more income tax exemptions, phase out excise duties, aggressively pursue rationalization of the customs tariff and broad base and modernize sales tax regime in the budget 2004-05. The budget, likely to be announced on June 5, 2004 is expected to project a tax revenue target of about Rs. 575 billion, with wide ranging reform measures to simplify and streamline the overall revenue collection system, focusing on an efficient tax refund mechanism.

Sources said the budget exercise is moving ahead, with discussions between the various ministries and divisions to develop the final projections. However, there are two fundamental challenges before the budget makers. First, the Jamali government is striving to present a popular budget, which appeases the large unemployed and poor segments of the society. According to the official estimates, the rate of unemployment has increased from 7.8 percent to 8.3 percent. People living below poverty are about 33 percent, with more concentration in the rural areas. Second, rapid growth in non-development and non-poverty spending would widen the fiscal deficit, which is the last thing any country would like to do, particular with a known history of debt and deficit problem.

The Ministry of Finance is trying to put together a budget, which meets some of the expectations of the government, without annoying the international donors too much. The most critical issue is the cut in electricity prices. According to the sources, the budget may announce a cut in electricity tariffs. The weighted average reduction is expected to be around 5 percent are so, targeting major relief for the industry and bulk consumers. Since the financial health of the state owned enterprises is not out of the woods, larger reduction may create difficulties for the government at the international level. All international financial institutions are urging the government to rein in losses of the state owned enterprises, and eliminate cross-subsidies. However, the domestic industry reckons that without a meaningful cut in the electricity prices, the issue of reducing the cost of doing business in the country would not be fully addressed. They demand cut in utility rates and reduction in duties, along with a system, which reduces direct interface with a large number of government agencies.

The second possible action is reduction in various taxes and duties to provide an incentive, both to the industry and the common man. The Ministry of Finance is already indicating that it would not like to distort the sales tax mechanism by reducing the 15 percent uniform GST slab. The items, which were put to 20 percent GST may be reviewed. However, the Central Board of Revenue (CBR) and the Ministry of Commerce are hectically engaged in rationalizing the customs tariff on the large number of items. Four or five items being considered for removal of the excise duties.

As the economy has turned a new corner, its macro-economic indicators have improved and it looks posed for higher growth, it is time that the problems being faced by the people were given greater attention. The government is trying to put together an investment oriented and people friendly budget. With larger amount of resources expected to be available, relief provisions can be accommodated in the budget. The government should try to control unproductive expenditure like the one being incurred on the loss making public sector enterprises. It should also try to further increase its income by widening the tax base. At least two factors are important. Tax GDP ratio should be substantially improved. In view of the donor community also being ready to assist, it should be possible to accelerate such development work that has a positive impact on the life of the people. The marginalized sections of the society, on whom the burden of poverty seems to fall most, deserve to get a better deal.