POST BUDGET

SAHAR ATIQUE
(feedback@pgeconomist.com)

June 11 - 17, 20
12

The budget is one of the most important documents that sets out revenue-expenditures priorities and targets of any government. Whether the targets set by the government at the start of the fiscal year are met by the end or not is vital criteria to judge the performance of the government but at this point, it is too early to say anything about that. What we can analyze without bias at this point are the priorities set out by the present government and the potential impact of the measures that it intends to take to address the economic evils that are gripping the country at present.

In particular, since the mandate of the present government is based on its democratic philosophy of improving the welfare of the ordinary people and to encourage the development of the people, for the people and by the people, it seems relevant to analyze its priorities and the potential impact of the budget on the lives of ordinary people especially those belonging to the lower income groups.

This is the first time in Pakistan's history that a democratic government presents its fifth national budget during its tenure. According to the survey, Pakistan has achieved an estimated GDP growth of 3.7 per cent in the outgoing fiscal year, falling short of its targeted growth of 4.2 per cent.

The government has set an inflation target of 9.5 per cent, fiscal deficit of 4.7 per cent, national development outlay of Rs873 billion with a federal public sector development program (PSDP) of Rs360 billion and a revenue target of Rs2504 billion.

Let us start by examining some of the positive features of the current fiscal year budget. The commendable feature is that the government has not budgeted any real increase in tax. No new tax will be applied during this year. Annual income up to 400,000 is exempted from income tax. It is also commendable that the government intends to provide incentives to the employees by giving 20 percent Adhoc relief allowance to federal government employees. Pension of retired government employees will also be increased by 20 per cent.

In terms of direct relief measures, the government has allocated a considerable amount for the Benazir card scheme that pledges to provide Rs1000 per poor family as identified by the Nadra database. While this is a praiseworthy step, previous experience throughout South Asia shows that apart from huge management costs that are associated with such schemes, they end up with problems such as poor identification and targeting as well as leakages.

It is also an admirable step that tax payer honor card will be issued to tax payers for additional facilities and privileges on many places e.g. Nadra, passport office, airports, railways and some other government offices. Government planned to give technical training and internship to 100,000 unemployed young Pakistanis in upcoming year.

Withholding tax limit on withdrawing cash from banks is increased. Now there will be no WHT on up to 50,000 rupees per day. Sixteen per cent general sales tax (GST) will be fixed on all items. It is not hard to conclude that in such a situation, the positive impact of direct relief measures such as raising the salaries of government employees and the Benazir card scheme will be offset by the ever increasing inflation making the poor further poorer.

No matter how creative these relief measures are, they are meant to provide temporary relief. What is needed in the long run is to provide opportunities to the people in terms of health and education and thereby empowering them by enhancing their capabilities. The budget in this sense is quite a disappointment.

No measure has been adopted for betterment of the youth in the budget 2012-13. There is a need to provide people with cheap and quality education and employment opportunities. Generation of employment opportunities for the youth is important and 2.5 million new jobs creation is required every year. No measure was announced for the youth in budget, which would increase their problems. Brain drain from Pakistan continues which could not be criticized as workers remittances are supporting the balance of payments. Thirty per cent labor force is unemployed in the country and announcement of 100,000 jobs creation in budget is inconsiderable.

A recent education for all report indicates that Pakistan is host to the highest absolute number of out of schoolchildren in the world after Nigeria. This is quite an embarrassing situation and the government seems to be completely oblivious to this as is evident from the priority given to this critical sector in the current budget. What are even worse are misplaced priorities within the education sector: Rs15800 million for education is directed towards the higher education commission. This is an unfair allotment on grounds of both effectiveness and equity in public finance

It is highly advisable that the government rethinks its priorities regarding social sector development. Experiences show that whenever governments attempt to reduce fiscal deficits, social sector allocation that is already low is the first one to be slashed. While it is too early to predict this but overall the strategy of this government in reining in the fiscal deficit is no different from the previous governments.

It is hoped that the current government would understand that achieving fiscal discipline and increasing revenues is important, but not over the dead body of poor. If the government wants to address the challenges of inflation, rising inequality and poverty, it must plan a progressive taxation policy that relies less on indirect taxes and more on increasing the tax to GDP ratio by expanding the tax net to untaxed sectors. Moreover, given the dismal human development indicators, there should not be any comprise on the allocation as well as the utilization of social sector spending.