FEDERAL BUDGET 2011-12
UNDERSTATED EXPENDITURE, OVERSTATED REVENUE

SHAMIM RIZVI
(feedback@pgeconomist.com)

June 20 - 26, 2011

The Federal Budget 2011-12 has proved to be an unimpressive document. It appeared to be just an exercise in the figure work without any spark expected from single financial expert. It does not hold much of a promise in either controlling the inflation and thereby providing some relief to the poor nor it is indicative of driving economic growth rate.

All the claims made by the Finance Minister in his speech that the budget was business friendly, progressive and relief oriented are found, on a closer examination, to be unfounded and insipid.

The Budget 2011-12 as unveiled by the Federal Minister, Dr. Hafeez Sheikh may well have catered to the demands of the IMF and may prove useful to the government in obtaining its favour in resumption of loan which it has so far withheld, but as for the poor, who should be the main concern of the budget, there have been no measures affecting their plight. Even the measure on which Dr. Sheikh seems to have taken the greatest pride, the raise given to government servants, fails to have the effect claimed for it. The raise is not substantial enough to meet the rising cost. The 15 per cent raise hardly compensates the inflation of the last year and provides nothing challenging to the ongoing inflation.

Similarly, the rise in pensions will only compensate the erosion of the incomes that have already occurred, only last year, and keep pensioners at the subsistence level at which they exist.

The best thing that the poor could have got from the budget would have been a decline in the prices. That has been very limited as it would happen only in case of a few items which are not used by the poor class of our population such as processed goods, cement, shampoos and beverages. Also, there has been no reduction in the prices of fuel which has resulted in huge rise in transport charges. Just by reducing the sales tax by one percent (which will not be passed on to the citizens) the budget makers conclude that the budget is relief oriented.

As per traditions, there is no adherence to the basic principle of taxation: fairness and equitability. Burden is always increased on captive taxpayers such as salaried class and corporate sector. Income from agriculture has never been touched this year on the ground that now it is a provincial subject. The tax collection is abysmally low due to the feudal structure of the society. The tax culture cannot develop when the leaders and the rulers pay no taxes. If the agriculture is a provincial subject, why the federal government fixes the support price for all the major crops for the entire country. The budgets of the three provinces namely the Punjab, Sindh, and Khyber Pakhtunkhwa have already been presented and none of them has proposed tax on income from agriculture.

The budget has not addressed the tax issues of real estate. It is in common knowledge that that there is huge tax evasion in this sector as almost all transactions are recorded at about 40 to 50 percent of the real market value. The rates at which even this 40 per cent is on the collectors rates which were fixed decades ago and now has no relevance to the prevailing prices. What is required is to revise the collector rates in order to bring them to a level closer to the market rates. It should be mandatory for all property dealers to have a national tax number. Another major tax evading sector is that of retailers. They are earning in billions and are still out of tax net. Our budget makers have not touched this sacred cow.

A well known economist and former financial advisor of Musharraf led government, Dr. Ahfaque Hassan Khan has described the budget 2011-12 presented by Dr. Hafeez Shaikh as non serious budget "because it understates expenditure and overstates revenue and thus injects elements of risks." In an article Dr. Khan commented that there were serious risks associated with revenue, expenditure, budget deficit and financing of fiscal deficit. On the revenue side, the first and the foremost risk is the tax collection target of the FBR itself. The FBR is targeted to collect Rs1952 billion in 2011-12 which is 23 per cent more than the last year revised collection target of Rs1588 billion. Whether the FBR could collect Rs1952 billion next year is dependent upon its collection of Rs1588 billion this year, the chances of which are dim. Any slippages in this years tax collection would make the task even harder for the FBR to collect Rs1952 billion next year. The risks on the expenditure side are even higher. According to him, it is safe to conclude that the budget for 2011-12, far from being people friendly, is a non-serious and nonfunctional budget whose fate will not be different from the current budget.

The manufacturers and the trade bodies representatives have expressed serious concern that the budget makers have almost ignored the prevailing energy crisis in the country which had badly damaged the production activity in the industrial sector and stalled its growth. A meager allocation of about Rs36 billion in the next year budget for power development across the country is just a peanut and shows how serious the rulers are for resolving the energy crisis. The Lahore Chamber of Commerce and Industry, in a press release, has said that the government has failed to give any economic revival program in the budget.