BUDGET 2006-07 A POSITIVE DOCUMENT

In a timely response to the hue and cry about food prices, the budget makers have enlarged the subsidy net

From SHAMIM AHMED RIZVI,
BUREAU CHIEF, Islamabad

June 12 - 18, 2006

The federal budget 2006-07 envisages an all time high outlay of Rs. 1.315 trillion with a deficit of Rs. 373.5 billion presented in the National Assembly by Minister of State for Finance, Omer Ayub Khan with a focus on relief to the common man has evoked a mixed reaction, however, majority of the people described it as a positive document.

Keeping the next year general elections is mind, the government has announced a sizeable relief package for lower income group in the form of 15% dearness allowance 15 to 20 percent increase in pension, subsidies to control and lower the prices of kitchen items, raising the tax exemption ceiling from present Rs. 100,000 to 150,000. An all time, high provision of Rs. 435 billion has made for Public Sector Development Programme (PSDP) mainly to be spent on projects aimed at curbing unemployment and poverty. Minimum wages have been raised to Rs. 4000 per month from present Rs. 3000. Following are other relief measures announced in the budget for poor and lower income group.

* Overtime and conveyance allowance of government drivers, dispatch riders and other non-gazetted employees increased by 50 percent.

* Teachers to g et allowance of Rs. 500, Rs. 750 and Rs, 1,000 according to their qualification.

* Pensioners under the Employees Old Age Benefit Act 1976 will get a raise from Rs. 1,000 to Rs. 3,000.

* Grant for marriage of daughters under the Workers Welfare Fund increased from Rs. 30,000 to Rs. 50,000

* Stipend for children of workers increased from Rs. 800 to Rs. 1,000.

* Maximum limit of profit share for industrial workers doubled from Rs. 6.000 to Rs. 12,000.

* Special grant upon death of workers up from Rs. 150,000 to Rs. 200,000.

* Relief package in case of sudden death of a government employee in shape of on-time grant increased from Rs. 200,000 to Rs. 1 million, according to grade.

* The family of the deceased to retain official residence from 3 to 5 years and one legal heir to get a two-year contract job in grade 1 to 15.

* Profit up for all savings schemes and prize bonds from 0.5 percent to 1.5 percent.

In a timely response to the hue and cry about food prices, the budget makers have enlarged the subsidy net. The utility stores will now cover every Tehsil and provide relief on commonly consumed kitchen items. Besides sugar, various pulses will be made available at reduced rates at these stores. In view of all these measures aimed to provide relief to low-income group the budget can rightly be termed as pro-poor of course within the constraints of limited resources.

The Finance Bill placed, before parliament, envisages a budgetary outlay of Rs. 1.315 trillion, with a development programme of Rs. 435 billion. The Federal portion of the programme has been allocated Rs. 325 billion, and provincial ADPs Rs. 115 billion - a net increase of 28 percent, over the current year's scheme. Other salient features of the Budget are: CBR tax collection is envisaged to rise from RS. 704 billion (FY 06) to Rs. 835 billion (FY 07). With a nominal rise of GDP by about 14 percent (FY 07), the taxation measures coupled with other CBR efforts, are expected to deliver an additional five percent revenue. Budgetary deficit is estimated at Rs. 373.5 billion i.e. 4.2 percent of GDP. In FY 06, too, the target was at 3.7 percent, the earthquake impact increasing it to 4.2 percent in FY 07. Defence expenditure is expected to rise b y Rs. 27 billion to touch the figure of Rs. 250 billion - almost constant at 3 percent of the GDP. The noteworthy aspect of it is the presentation of defence expenditure to the Senate Defence Committee this. Under the new (ad hoc) National Finance award, the provinces will get 45 percent with a commitment of enhancement to 50 percent in the next five years.

To give a boost to agriculture, the government intends to maintain the subsidy on fertilizer and electricity, costing Rs. 12.3 billion and Rs. 55 billion respectively. Duty free imports of tractors and a sharp policy focus to raise livestock and dairy production will indeed aid in keeping a check on food prices. For improving agricultural productivity, timely completion of water management projects worth RS. 48 billion and increasing irrigated acreage through building of dams (allocation RS. 10 billion) is a noteworthy initiative. President Musharraf's decision to bring about a national consensus on the divisive issue of dams will hopefully provide the much-needed leadership towards food autarky.

At long last, the government has decided to tax real estate business and enhance the capital value tax on the stock market. CVT mode of collection is indirect and not a substitute for capital gains. Doubling the tax on cash withdrawals from banks is ostensibly aimed to document the economy, which, in fact it cannot. A better alternative would have been the condition of providing National Tax Number for all transactions above Rs. 25,000 for reducing the size of the black economy. Imposing CVT on real estate without a time limit on the use of power of attorney will not curb off-the books transactions. The general practice of allotment letters changing hands and "benami" transactions conducted in real estate will persist. Imposing tax at the rate of five percent of the rental income will also not pay dividend unless the landlord is also a tax-registered person.

The combined opposition in the National Assembly staged a token walk out to protest against the alleged leak of budget proposals to the media before the budget speech. Later talking to the newsmen, the opposition leaders rejected the new budget and termed it "an economic fraud" by the government to strong them the ruling elite at the expense of the poor and downtrodden.

People's Party Parliamentarians spokesman Farhatullah Babar declared the budget a public relations stunt to cover up the dismal economic situation. "In the first place, the budget under the military dictatorship has no sanctity. As has been the practice under this dictatorship, mini-budgets will continue to haunt the people every month with raises in prices of petroleum, gas and electricity", he said adding that "The new budget is anti-people, anti-civil society and anti working class, which is designed to serve only vested interests of the ruling elite",.

Mr. Babar said military spending during the current fiscal year had crossed the allotted amount of Rs. 223 billion in the budget by nearly RS. 18 billion and the PSDP was slashed to Rs. 228 billion. "This has made the military spending exceed the development outlay, which is detrimental to social and human development and is deplorable', he said, adding; "The increase in military allocations from Rs. 223 to Rs. 250 billion is unjustified, particularly in view of strident drive for peace in the region". Moreover, he said, the budget failed to address the issues of rising inflation and growing unemployment compounded by the doling out of civilian jobs to serving and retired military officers.

Talking to journalists soon after the budget speech, opposition leader Maulana Fazlur Rehman said the government was patronizing hoarders and the new budget only protected interests of big investors. He said committees concerned o parliament had not been taken into confidence during preparation of the budget. He regretted that the government had not taken any step to introduce interest free economy in the country.

The MQM which is a part of ruling coalition also expressed some reservations on some budgetary proposals and said "there was great scope for improvement in it to make it a really a people friendly budget". MQM's parliamentary leader in the National Assembly Dr. Farooq Sattar said that keeping in view difficulties the government aced in budget making, the budget was a better one, but there was a great scope for improvement in it. He said it was true that there had been improvement in macro-indicators but the government should accept that it had failed to perform at the micro-level. He said reduction in poverty, price like and unemployment was only possible when the provinces would be given autonomy. He said there was a need to review the decision of levying taxes on property and stock market as it could affect development made in the two sectors.

PML-N's information secretary Ahsan Iqbal termed the budget speech of the minister a mere rhetoric without any substance. In a statement, he said the minister had failed to offer any concrete steps for curtailing inflation, alleviation poverty generating new jobs and building world-class human resources through shifting greater resources towards social sectors.

The President of the Islamabad Chamber of Commerce and Industry (ICCI) Abdul Rauf expressed his concern over the government policies for the next fiscal year. He said that while the government announced a relief package for lower income people including increase in dearness allowance and pension but it did not provide any benefit for businessmen and industrialists. He criticized the decision to enhance capital value tax (CVT) from 0.1 percent to 0.2 percent on cash withdrawal of Rs. 25,000 and above, saying that 0.1 percent was also a gig problem for small industrialists. He demanded that the government should withdraw this decision in order to encourage small businessmen. He, however, welcomed the government decision to impose 2 percent t ax on real estate, adding this would widened the net of taxpayers and government would get income from the transaction of property. He also lauded the government's decision to control prices on essential commodities and the deputation of a Price Control Magistrate in the union councils.