FEDERAL BUDGET ROBBING PETER TO PAY PAUL

SHAMIM AHMED RIZVI
June 16 - 22, 2008

The PPP led government presented its first budget for the fiscal year 2008-09 in the National Assembly. Holding additional charge of finance Ministry, Syed Naveed Qamar unveiled Rs 2.01 trillion (an all time high outlay) tax laden budget with apparent relief for the poor and the salaried class people.

Starting his budget speech, the PPP minister recalled that "we presented a budget 12 years ago when it was certainly a different budget, a different social environment, a different house and a different Pakistan. That budget was not so large but at the same time deficit was also not that large. At that time we did not have so much poverty and hunger, unemployment and disease. It was the same Pakistan but it did not have problems and challenges of such magnitude. There were some law and order problems but we were not so helpless before the terrorist because of which lives of innocent people have become unbearable. Every city is a dead place and fear has gripped every house."

In his budget speech in the National Assembly, the minister presented the details of budgetary measures to be taken in next fiscal year for a quick recovery of the ailing economy. The increased target for FBR set at 1.25 trillion against Rs 9990 billion revised estimates of 2007-08. Duty on import of 300 items has been increased by 5 percent. Imported and locally made cars, traveling, mobile phones communication services will cost more. GDP growth target set at 5.5 percent against 5.8 percent of the outgoing fiscal, inflation rate at 12 percent. Fiscal deficit and current account deficit projected at 4.7 percent and 6 percent of GDP, respectively. The government employees and pensioners will get 20 percent increase in their basic salaries and pensions. Minimum pension has been increased from Rs 300 to Rs2000. Adhoc government employee up to grade 15 to be regularized. Travel allowance for 1-19 BPS increased by 100 percent. Medical allowance for grade 1 to 16 is increased to Rs 500 per month. The poor will be issued Benazir cards for special relief of Rs 1000 per month. NADRA's record will be used to identify the poor for the relief. Working women will get incentive in their income tax limit. One million small houses will be constructed for the government employees in 2008-09.

The minister announced a cut in subsidies to curtail borrowing from commercial banks at a manageable level. Non-development expenditure except salaries has been frozen. Public Sector Development Programme (PSDP) increased to Rs 549.7 billion. Defence budget increased by Rs 25 billion to offset inflationary affect. Tax on houses and property deals has been increased. A substantial increase in social sector allocation has also been announced. Education sector allocation remained at the last year's level. The minister added that reduction in fiscal deficit, rationalization of subsidies, buildup up of forex reserves and removal of bottlenecks for economic growth were among the government's top priorities for the next fiscal year.

He said textile industry will get round the clock power supply whereas other key industries and tube wells will have electricity for more hours. He said wheat support price to be enhanced in August-September for wooing the growers for better output and a cold chain to be established for produce and better value and return to the growers. The Minister added that subsidy on DAP had been doubled to help the growers get more farm productivity.

Following are the salient features of the taxation measures:

* Additional tax impact of Rs 84bn
* 5% FED on motor cars
* FED in VAT mode 16%
* Excise on telecom services raised to 21%
* FED on cement up by Rs 150/tonne
* 10% custom duty hike on non-essential imports
* I/Tax exemption limit raised from Rs 150 to 180 K for salaried men. For women exemption raised to Rs 240K
* 0.5% minimum tax regime on listed shares
* 20% rise in pay & pension
* 2% hike in NSS rates
* 10% advance tax on electricity bills
* CNG buses exempted from duty;
* 18 drugs for cancer/heart treatment made duty-free.

As was expected, the budget has evoked a mixed reaction from cross sections of the society. Almost a unanimous view is that the budget is tall on claims but short on delivery. Another comment that it amounts to "robbing Peter to pay Paul." Some have termed it a balanced budget under the present difficult conditions.

The opposition termed the budget 2008- 9 as a frustrated, anti-poor alleging that the government has failed to fulfill its promises with the people that they had made during elections. The budget did not offer any incentive for industry and will lead to only creating more unemployment in the country," said, opposition leader in the National Assembly Chaudhry Pervez Elahi while talking to the newsmen here at Parliament house after the presentation of budget.

Chaudhry Pervez Elahi said that the budget offered no relief for the poor and had also failed to implement the promises, which the PPP made during the election campaign.

He said there was no mentioning of any kind of reduction of prices of flour, ghee, pulses and sugar in the budget. He said the government has announced to allocate 75 billion rupees for the construction of dams and provision of electricity, but it did not mention about Kalabagh Dam. "Kalabagh Dam should be constructed which is vital for the progress and prosperity of he country", he said. Criticizing the government policy regarding fertilizer, he said during PML-Q tenure the prices of fertilizer was Rs1200 and now it stands Rs3000 so the farmers will not get any sort of benefit by providing subsidy.

Chaudhry Pervez Elahi said the present government was carrying the programme of previous government but had changed their names. "We will support those programmes such as lady health workers and so on, he added.

He said government has not provided relief to the industrial sector and the construction sector will also not be developed which will increase the difficulties of the labours. He said the price of cement has already been increased. The opposition leader said that it is the only government, which supports the long marches and processions against it self. He said about one billion rupees are being spent on the long march.

Meanwhile, President Jamhoori Watan Party (BWP) Talal Bugti said that Rs275 billion defence budget being presented by the government in office had no justification as country and nation were passing through a very grave situation in which such massive defence budget was an excess and injustice with the people.

LCCI President Mohammad AU Mian while terming the federal budget exemplary for agriculture sector stressed the: need for more steps for the industry of the country, which at the moment is under tremendous pressure. Addressing post budget Press conference, the LCCI President said that it is a matter of great satisfaction for the Lahore Chamber of Commerce and Industry that a number of its budget proposals had been accepted. Sarhad Chamber of Commerce and Industry (SCCI) highly welcomed federal budget and held it as historic, most balanced and people friendly, which contained relief for every segment of the society. Addressing a press conference here at Sarhad Chamber after the budget speech, Muhammad Asif, SCCI President said that despite financial constraint and trade deficit the federal government presented a balanced budget and made every effort to pro- vide relief to the common man.

There is no doubt that the preparation of 2008-09 budgets was an extremely difficult task in view of the adversities that the nation economy is beset with at present especially on account of a phenomenal rise in international oil and food prices. The inequitable distribution of economic gains during the post eight year and rising energy shortage resulting in prolonged and frequent power outages, high food inflation and terrorism have injected insecurity and despair amongst the economically weaker sections of society.

It is well known that the mountain of difficulties that we are faced with today would not have been there had the previous government not allowed slippage and decided not to take the requisite measures and make the necessary adjustments because of the adverse political climate that developed as a consequence of the removal of the Chief Justice of Pakistan in March 2007 and the presidential and parliamentary elections that were due to be held later in the year. The Shaukat Aziz government that claimed to its credit the enactment of the Fiscal Responsibility Act and cited it as a protection against the profligacy of governments did not hesitate to violate this law itself. The law requires that the current expenditure can not exceed to the total revenue collected by the Federal Board of Revenue. In other words, the current expenditure will not be financed by borrowings.

Since most of the budgetary measures had been discussed already with the stakeholders and were therefore generally expected, the budget did not spring any surprises. This aspect needs to be lauded and would definitely soften the impact of the taxation measures announced. The Policy Objectives of the Budget have been stated to be: 1) Industrial incentives for growth and expansion, 2) Discouraging imports of non-essential and luxury items, 3) Minimizing the cost of doing business, 4) Cascading principle in tariff rates maintained as a guide (primary raw materials @0%-5% and finished goods @ 20%-35%). This principle of cascading rates of tax has also been applied to income and withholding taxes; and finally amendments in Customs Act, Rules and Procedures for simplification.

The federal budget is not only an accounting exercise but is also the most important policy statement of a government to determine the direction of the national economy. It provides incentives for accelerating investment and economic activity in the desired areas and also, if needed, discourages undesired economic activity in some spheres. Like most previous governments this so called "pro poor' budget too, reflects a tilt towards national economy groups with a high nuisance capacity or traditionally enjoying importance. For instance, there is a high degree of importance attached to spurring growth in agriculture and rightly so because of the worldwide food shortages and high cost of food items, but the livestock sector appears to have been totally ignored. The dairy industry is in its very nascent stage in Pakistan, we have barely scratched the surface as far as its vast potential is concerned. Some plants for milk processing have been established but other products of the milk chain such as butter and cheese have still to materialize as an industry. Meat processing and packaging is virtually non-existent and a huge quantity of fruits still gets rancid before reaching the market place. These areas also possess a big potential for exports, something that Pakistan desperately needs to reduce the huge imbalance in our balance of trade.