FADING HOPES, RISING CONCERNS

BUDGET IS FULL OF TACTICS TO GET MORE FROM COMMON PERSONS

SHABBIR H. KAZMI
(feedback@pgeconomist.com)
July 05 - 11, 20
10

A few of the most disappointing aspects of the federal budget 2010-11 are 1) adding to the burden of already tax payers; 2) continuing elites tax exemption on income from agriculture; 3) relying heavily on development levies on petroleum products and gas; 4) hiking in electricity and gas tariffs in the name of recovery of full cost and 5) depending excessively on borrowing (both internal and external) for meeting the budget deficit.

On top of all no austerity measures have been introduced to curtail non-developmental expenditures. The life style of elected representatives of Pakistan is noting short of the families of oil rich Middle Eastern emirates.

There is very heavy reliance on borrowing. In principal there is nothing wrong about borrowing provided the amount is used in creating new productive facilities, improving the infrastructure and utilities and investing in revenue generating projects. However, least has been allocated towards education, healthcare, public transport and construction of water reservoirs. Pepco, Wapda, Railways, Pakistan Steel, to name a few suffer due to bad governance and incur huge losses every year. Inter corporate debt, also an outcome of bad governance, is crippling the entire energy sector. On top of these are the stories of tax evasion in the name of imports termed Nato supplies.

While every one is made to pay tax through his nose, elites of the elite continue to enjoy tax exemption on earnings clubbed under agriculture income. Federation evades its responsibility by terming it a provincial issue and provinces offer the lamest excuse that it would hurt the small farmers. It is on record that despite various land reforms around two percent of the feudal lords posses 98 percent of the cultivable land.

If income from agriculture becomes taxable only their interest will be hurt and the small farmers would be least affected. The basis of calculation is to 'produce index unit' and determining the threshold level is the easiest. However, the only missing thing is the willingness to impose tax on agriculture income. This is blatant violation of the cardinal principal that all sorts of incomes are tax able irrespective of the source.

It is also necessary to highlight that enhancing allocations for Public Sector Development Program (PSDP) is become a stigma. Though huge allocations are made year after year under PSDP, the quantum of actual spending is about one-third of the amount. This is because of two facts 1) the first axe falls on the development plans when expenditures go berserk and 2) lack of capacity to undertake development projects. The most missing elements are 1) vision, 2) commitment, 3) capacity, and 4) the disputes among treasury and opposition benches. It is a common complaint that there is extraordinary delay in release of funds for the projects being executed in the constituencies belonging to opposition members.

The politicians as well as bureaucrats are never tired of saying that agriculture is the backbone of Pakistan but do the least to facilitate the growers. The only lip service being offered is persistent hike in support price but the key issues are hardly dwelled upon. Pakistan suffers from low production and productivity and the key reasons for this are limited availability of water, quality seeds and pesticides. Over the years the country has achieved self sufficiency in nitrogenous fertiliser but curtailment of gas supply to fertiliser factories necessitate import of fertiliser, which erodes foreign exchange reserves and also necessitate payment of billions of rupees subsidy because import urea costs twice the cost of locally produced one. Curtailing gas supply of fertiliser plants and diverting it to power plants is the worst option as it yields no benefit whatsoever.

It is also a fact that water availability is on the decline mainly because Pakistan has failed in stopping India from construction of dams in blatant violation of the Indus Water Treaty. On top of this whatever quantity of irrigation water is available bulk of it is wasted. The country has highly inadequate water storage facilities and many of the areas suffer from floods during monsoon and drought like situation when rainfall is low. The problem is aggravated because of highly depleted watercourse having hardly any lining. Pakistan has also failed in deploying modern irrigation techniques due to lack of funds. Only paltry allocations are made in annual development plans for the running projects as well as initiating new projects.

Paying or not paying subsidy to electricity and gas consumers is not the issue but ensuring uninterrupted supply at affordable cost is the key issue. Despite persistent hike in tariffs the duration of outages and load shedding are on the rise. It is true that demand is outstripping supplies but the emerging shortfall is due to mismanagement and not because of supply constraints. Power pants are being run at lower capacity to save fuel and gas supply is on the decline due to rising UFG. If the government is serious in resolving the energy crisis more funds should be allocated for revamping transmission and distribution networks to contain pilferages.

Pakistan suffers from two most contentious issues 1) declining exportable surplus and 2) eroding competitiveness of the local manufacturers. Fresh investment for creating new productive facilities has remained low due to political uncertainty and poor law and order situation. Borrowing from the IMF has provided the breathing space but huge debt servicing could plunge the country deeper into the debt trap. Pakistan has to increase its exports which is not possible without bring down cost of doing business.

Any cynic may say that most of the stated issues do not come under the purview of budget but is it not a fact that budget is expression of development plan of the government expressed in numbers? This needs the rare act of balancing revenue and expenditures. The IMF is not doing to impart the training to do this. Pakistani economic managers will have to learn this at their own.