BUDGET 2007-08

Peoples friendly relief oriented

SHAMIM AHMED RIZVI, Bureau Chief, Islamabad
June 18 - 24, 2007

The federal budget for the year 2007-08, with a record outlay of over Rs.1874 billion, contains relief measures for the masses by means of subsidies, increase in salaries and pension of serving and retired government servant to the tune of about 193.9 billion. The Minister of State for Finance, Omer Ayub Khan announced an increase in salaries of government servant by 15 percent (on their running salaries instead of basic as explained later in the post budget press conference on Sunday) and pension by 20 percent increase of retiring before 1997 and 15 percent retired thereafter. He also announced to raise minimum wages of a worker from Rs.4000 to 4600 from 01-07-2007.

The overall size of the budget stands at Rs.1.874 trillion, which includes budgets of the provincial governments also. Most of the budgetary expenditures have been shown under general public services, which include debt servicing, pensions and other items. The pension bill of Rs.46.130 billion mostly goes to the military pensions, which are parked in the civilian budget.

Defence will receive consideration of Rs.275 billion in the budget, while the combined federal spending on education and health is Rs.29.398 billion. Total resources are estimated at Rs.1.475 trillion, which include external receipts of Rs. 259 billion. The budget deficit is 4 percent of the GDP that comes to RS. 398 billion. A tax revenue target of Rs.1.025 trillion has been fixed for the Central board of Revenue (CBR) against the expected collection of Rs.835 billion during the outgoing fiscal year. A huge sum of Rs.82 billion has been marked under the head of subsidies for Wapda, KESC, FFC Jordan, Trading Corporation and other public sector entities.

The budget assumes Rs.75 billion privatization proceeds for next year, as well as considerable bank borrowing of RS. 130.937 billion to finance the deficit. However, a sum of Rs.113.9 billion has been earmarked for subsides and relief to the masses. The subsidies will be given on several essential food items such as pluses, rice, sugar, cooking oil and basic medicine which would be available at the Utility Stores at prices lower by 10 to 25 percent then the open market. To expand the reach of Utility Stores, 5000 more stores will be opened (1 for every union council) with in the next 4 months besides ever expanding net work of mobile stores being run under Rozgar Scheme launched by the President.

In his one and a half hour speech, the minister announced the withdrawal of customs duty for machinery used in horticulture, furniture, marble and granite, surgical and medical instrument business. Also proposed are the withdrawal of customs duty or reduction by 5 percent on raw material used in electrical, capital goods, paper and paperboard, chemicals, plastic and rubber industries. The country is facing an acute shortage of electricity and to provide relief to the people and industrial establishments, the minister said, it is proposed to withdraw customs duty on generators for home consumption. Similarly, reduction in customs duty is proposed on generators for industrial consumption.

Likewise, it is also proposed to withdraw customs duty on components used in alternative energy sources such s solar energy and wind energy. The sales tax at import on stages on these items has also been proposed to be waived off. To encourage energy saving lamp, customs duty is proposed to be reduction from 15% to 10%.

He said presently CVT is levied on imported cars, while the domestically manufactured vehicles are accepted from CVT. In order to remove this, the disparity, withdrawal of CBT on imported vehicles is proposed. However, to maintain protection level in tact, adjustment in customs duty at the rate of 5%, 10% and 15% for different CCs of cars is proposed. There is a proposal to levy 5% withholding tax on local vehicles. To facilitate the middle-income groups, customs duty on 800 CC cars is not being charged. Finally, the capping for old and used cars previously for 5 years is being reduced to 3 years so that the domestic industry attains stability. The condition of 3 years will be applicable to TR, Gift Scheme, and Baggage rules.

Prime Minister Shaukat Aziz described the new budget as a positive and effective effort to make it people friendly and relief oriented and said it would go a long way in improving the lot of common man. "It is a historical budget in which relief has been ensured for every segment of he society and there will be no mini budget", he said while addressing a press conference here at the Parliament House.

However, he regretted the opposition for negative attitude in the National Assembly and said they had not the courage to listen the realities and they do not want to see progress of the common man. The premier states that concrete steps have been taken in the budget with a record public sector development programme that would focus on infrastructure development, provision of electricity, gas and water besides improvement in education, health and other social sectors that would create maximum job opportunities also.

He referred to an increase in the salaries and pensions of the government employees and hoped this would provide immediate relief. He said special incentives have been announced in the new budget for development of agriculture sector that would help increase productivity besides enhancing in come of he farmers that would reduce rural poverty.

A significant reduction has been announced in tariff and duties especially for SMEs and textile sector what would help expand industry, which would result in generating more job opportunities for the people. Another salient feature of the budget is Rs.13 billion subsidy on kitchen budget that would help stabilize, even reduce, prices of the essential commodities.

The opposition has however, castigated the government for insufficient relief to the poor and lower middle class who are suffering from double-digit inflation of kitchen items for the last many years. Instead of a pro poor and poor friendly budget as claimed by the government the opposition has termed the budget as pro elite and anti poor that "seeks to strengthen the ruling elite at the expense of poor and down trodden".

Secretary Information Pakistan Muslim League (Nawaz) Ahsan Iqbal said that after seven years General Musharraf regime is still trying to sell promises, which it made on 12th October 1999. He said here is no concrete remedy presented for controlling high inflation, overcoming mounting trade deficit, and stagnant exports. "The growth in GDP is an outcome of the massive injection of over $65 billion into economy after 9/11 incident as for first three years of Musharraf regime, the growth rate of economy was 2.5%, he added.

However, he said the government has failed to channel these funds towards infrastructure building, social sector development, improvement in real productive sectors, and improving quality of life for common man. In last budget, he said, it was promised that price hike will be checked through price magistrates but there was record increase in prices in last one year.

Iqbal said on one hand government is promoting a privatization plan on the grounds that it is not the job of government to run sugar and fertilizer plants but on the other hand it is promising to establish state owned retail outlets in every union council. "Inflation can't be curtailed through opening Utility Sores as it need sound economic policies and increase in production of food item", he added.

In the last seven years, he said, no significant increase has taken place in either major or minor crops as a result, food inflation is high. "The government has admitted that the design of Bhasha Dam will not be ready before next year, therefore, one more year will be lost", he added. He said the energy crisis shown mega incompetence of this regime as no new power generation project was installed in last seven years.

"The most disappointing aspect of the budget speech was that there was no mention of the education sector in the speech of the minister of state for finance, which shows the low priority this regime gives to educations", he added. He said the average allocation to education under Musharraf regime according to new Economic Survey in last seven years was 1.8% compared to 2.3% during democratic governments. "This compares with 1.8% allocation during Zia years", he added.

He said the increase in salaries and pension is very meager compared to high inflation in the country. The government has failed to control its overhead and its extravagance has cost billions to tax payers. There is no concrete plan of action to overcome power shortage reducing duties on generators is no solution.

Reacting on the budget in a statement, PPP Spokesman Farahatullah Babar said the new budget served only the exploitative vested interests of the ruling elite. He said that the budget documents did not disclose details of privatization proceeds and borrowing from the bank and non-banking sources despite commitments made to the international lenders. He called upon the regime to disclose how he privatization proceeds were utilized during the year.

The PPP Leader said that according to the latest report of the US Congressional Research Service the total overt US assistance to Pakistan during the year 2006 has been nearly $ 1622 million or over Rs.97 billion and asked the regime to place before the Parliament details of how this huge assistance was spent. The claim that the PSDP allocation had been increased to over Rs.500 billion is fictitious as the real issue is not the allocation but how much is actually spent, he said adding that the PSDP allocation for current fiscal is Rs.435 billion but during the first nine months only Rs.278 billion had been released for spending that meals that a PSDP of around Rs.350 billion.

He said that the military budget was actually far more than Rs.275 billion as shown in the budgetary document. "Add to this the over forty billion rupees of military pensions reflected as civil expenditure and expenses on other defence related institutions camouflaged as civil expenditures, the actual defence allocation is more than 330 billion, he added.

Religious leaders termed the federal budget a jugglery of figures, providing far less relief to the common man than what was portrayed by the government, which was on its way out, and desperately trying to regain lost popularity in the election year. They said the relief shown in the budget was mere eyewash and amounted to hoodwinking the people since the situation on the ground for the common man was so tough that thousands of people were committing suicide over hunger and poverty every year.

Jamaat-e-Islami Secretary General Syed Munawwar Hasan said the budget only catered to the rich and further deprived the poor. He said the government refrained from providing incentives to the industrial sector, thus digging its own grave. He said the whole country was under the grip of continuous price hikes and unemployment while the people were living under a huge economic burden, which forced them to commit suicides and unleashed the street crime. Munawwar claimed that the rulers were making false claims of increasing reserves and reducing unemployment just as election slogans to fool the people. He said the sharp increase in foreign loans was a proof the rulers were spending lavishly on non-developmental expenditures in the shape of their own luxuries.

He said the fast rising foreign debts over the last seven years and the inflation rate reaching 7.9 percent sowed total failure of the rulers in the economic sector. He demanded that prices of essential commodities should be fixed at the level of 1995, the minimum salary should be fixed at Rs.7000 while expenditures of the president, the prime minister the governors, the chief ministers, the ministers and bureaucrats should be down drastically to provide relief to the poor.

Jamaat-e-Islami Naib Amir and MMA leader Liaqat Baloch said the rulers had only provided relief to capitalists while the common man was given peanuts, which made the budget a tool of economic murder of the poor. He said claims of poverty alleviation and increasing investments were a pack of lies since the government itself admitted its failure on various counts which required the rulers to step down immediately, because their anti people policies had multiplied the poor while only relieved the rich during the last five years. He said the spiraling hike in prices of eatables and essential items was an enough proof of the rulers' failure to provide relief to the poor.

The budget may not have come up to the expectations of the general public but it would be unjust to call it an anti poor and pro elite budget. No doubt the budget is populist in nature providing quick fixes and in some cases a cosmetic solution to serious problems. Subsidized products, it is proposed, will be sold at government owned utility stores and the plan is to have one such store in every union council within the next four months. Past experience has shown that selling subsidized good at utility stores is riddled with many problems such as pilferage/embezzlement of products by store staff. The network of stores is also not very comprehensive. Even setting all this aside, a target of one store in every union council in the country seems unrealistic to say the least. Apart from that, the whole nature of this subsidy is not sound on purely economic grounds. For instance, the fact that subsidy is being levied at the retail level and not at the production stage means that the whole scheme is to show to the electorate in most of whom are obviously not economic savvy that they will be able to buy some essential food item at controlled rates (with the difference being picked up by the government). However, a far more useful approach to a subsidy package would have been to levy the assistance at the production stage. This would have been better because it would have a potentially long-term positive effect on prices, since production would increase and help reduce chances of any shortages arising in the long term as well, which is the primary reason why food prices have been rising of late.

Furthermore, a subsidy at the retail level does not do any thing to generate employment opportunities, something that would happen if it were levied at the production stage. Given all this, the only plausible reason that one can think of why the government would have chosen this particular approach is that it may achieve some results in the short term for the ruling party. It also should be noted that the bulk of the any assistance such as textile, oil marketing companies and refineries or are going to white elephants like KESC and Wapda whose inefficiencies are yet again going to be paid for by taxpayers.

One striking aspect of the budget is its massive deficit, estimated to be at Rs.398 billion which the government says will be bridged by domestic and external borrowing. This is bound to become controversial because of simple economic: financing a deficit means that the government debt burden will increase and eventually in the longer term taxes may have to be raised to finance the increase in the debt. So this seemingly populist measure, presumably to make thing easier for the ruling party in an election year, will only have short-term consequences.

The biggest flaw of the budget seems to be its failure to take serious note of looming power crisis and the depleting water resources. The allocations for these heads in the budget 2006-07 could not be utilized and provisions made in the coming budget are not commensurate with the challenges we will be facing on these fronts in the coming months. Housing Sector too deserved more than it got in the budget.

It is heartening to note that massive allocation for Public Sector Development Programme (PSDP) has been provided in 2007-08 budgets. But as pointed by opposition senator that mere allocation is not enough. Performance must be judged by actual utilization. In 2006-07 an allocation of Rs.435 billion was made in the budget but only 60 could be utilized in the 11-month (July May).

The budget may be lacking in some other respects as well. But all said & done the budget 2007-08 has been acknowledged as pro people, relief and development oriented and perhaps the best one by the government its tenure of 5 years.