BUDGET-NO BREATHER FOR THE POOR
INABILITY TO SPUR GROWTH WILL RAISE POVERTY
June 22 - 28, 2009
In no way the budget for financial year 2009-10 could be termed people friendly. While the budget is not expected to spur growth, imposition of additional taxes on the already documented sectors is likely to fuel inflation, reduce purchasing power and above all create discontentment among the masses.
Ideally, there are two options to alleviate poverty: improve purchasing power or bring down prices. However, the measures adopted in the budget will act like double-edged sword. On the one hand imposition of new taxes and hike in the rates of taxes would erode the purchasing power. On top of this, hike in taxes would initiate the second round of inflation, making every thing more expensive.
Higher energy cost has always been termed the major cause of inflation and higher cost of production. Masses saw a ray of hope when the Supreme Court instructed the government to reduce POL prices. The government reduced the prices, though marginally but imposition of PDL raised POL prices, which in turn would lead to hike in the prices of virtually every commodity. High inflation rate would be used as an excuse for not bringing down the interest rate.
Critics have been saying that inflation in Pakistan is cost pushed, particularly due to rising commodity prices and depreciating rupee. The policy makers have been trying to contain inflation by keeping interest rate high. While the strategy failed in containing inflation, it also slowed down private sector credit growth. It also kept process of industrialization slow resulting in hike in unemployment.
Lately, in an interview Dr Salman Shah, Former Advisor on Finance and Economic Affairs has said that in order to accelerate GDP growth rate demand for all types of goods i.e. capital, consumer durables and consumables has to be created. On the one hand it will help the government in mobilizing extra revenue and on the other hand in creating new job opportunities.
The acts of the present regime show that it is not serious in accelerating the GDP growth rate and all its emphasis is on mobilizing more and more revenue. The government proposed carbon tax on POL products to compensate falling of another controversial levy PDL. In most of the developed countries this tax has been imposed to reduce emission of carbon dioxide but the present regime had surely no intention of using collection under this head for containing pollution. It would have only spread salts on wounds because the proceeds would never be used for containing the ever growing menace of pollution. The government has already announced withdrawal of carbon tax on CNG but refrained from withdrawing this tax on motor gasoline and high speed diesel.
The POL demand in Pakistan is almost inelastic. Any price increase or decrease has hardly any impact on its consumption. Every citizen from a person traveling in highly depleted and overloaded public transport to the most luxurious automobile is paying tax on POL products, it is another thing that incidence of taxes is high on the poor as compared to the rich. In spite of this, the tax collection regime of this country says that very few people in the country pay the taxes.
It may be a little surprise for a few but a fact that motor gasoline has become 'poor men fuel' as the largest volume is used by the motorcycles and rickshaws. It is also said that Pakistan has emerged as the largest consumer of CNG in the world but its use is confined to private cars to a large extent.
Since controlling the reins the present government has not been able to spur industrial activities in the country. Over the months large scale manufacturing has registered substantial decline in output. The immediate and negative implications are poor capacity utilization, decline in exports, and increase in unemployment.
The government also takes pride in initiating 'Benazir Income Support Program'. The move certainly deserves appreciation but its inherent weaknesses have to be removed. Two of the objections need immediate attention 1) alleged to be aimed at rewarding the party favorites and 2) devoid of creating new employment opportunities. The project seems to be aimed at attaining immediate political clout rather than offering sustainable employment opportunities. It is also alleged that it would add beggars rather than workers. It is true that the Program provides immediate relief but it has to be replaced by creating new job opportunities, improving purchasing power and above all creating the will to work rather than living on a dismal stipend.
This week's experience of prolonged outage of electricity has once again highlighted the need for ensuring uninterrupted electricity supply at affordable price. This objective cannot be achieved without containing electricity pilferage and clearing all the outstanding dues. In this regard PEPCO has emerged to be the biggest defaulter and the key culprit responsible for 'circular debt'. Every consumer using electricity must pay for it in time and in full. It is no secret that inadequate supply is adversely affecting the performance of manufacturing sector.
A target of around 3% GDP growth fixed in the budget cannot be achieved without boosting demand, which can only be created by improving purchasing power of the masses. Purchasing power of the general public cannot be improved by running inflation-compliant income programme.
The added burden on Pakistan's economy is the rising number of IDPs. It may be true that international community is providing the funds, but return of the IDPs is not possible without freeing the country from the militants. Militancy is one of the outcomes of sense of deprivation.