A budget full of promises
By Sultan Ahmed
Thursday,JUNE 14, 2007
ANALYSTS are unanimous that the fiscal package for 2007-08 presented by the government is an election year budget. In an election year, governments try to mobilise the maximum of resources and promise the largest number of relief measures particularly to the poor. The government has just tried to do that and in a very complex situation and come up with a number of relief measures – monetary, material and social welfare.
The government has begun with the large electorate of over four million who are in the employment of the federal, provincial and local governments. It has increased their salaries by 15 per cent and pension by 15 to 20 per cent, with higher relief for the more aged. The grades of the low paid employees have been raised including from grade 11 to 14 which is a substantial rise.
It has also decided to allot 250,000 plots of land and apartments for the low-paid employees and 37,000 plots, houses and 8,500 apartments to the underpaid. It is also subsidising the sale of a variety of goods through the utility stores for which a subsidy of Rs13 billion has been earmarked. But one analysis shows that the food subsidy for the nearly 80 million poor of this country will be only two rupees per head per annum.
The government has great faith in the ability of the utility stores to sell essential goods at concessional rates. So it is increasing the number of utility stores from 1,000 to 6,000. But will the government be able to set up 5,000 utility stores, one each in a union council area within 4 months, well before the elections? There are too many complaints against the utility stores, but now the revamped and refurbished stores are supposed to do better. On their success may depend the success of this government.
While the government is privatising major public sector projects, it is going in for the utility stores in a big way and it is increasing the number of items, including medicines, to sell there. Evidently while the government is helping businessmen in every way possible, it has lost faith in the ability of the businessmen to sell goods at fair prices. This is clearly a dichotomy. But the government is in a hurry to deliver goods less expensively at a time of rising prices and rampant profiteering. Now it is the turn of the grass-roots bureaucracy to deliver as the government wants and as the people need and make it a success.
The opposition has rejected the budget saying it offers no relief to the common man and widens the gulf between the rich and the poor. It has also protested that the standing committee of the National Assembly on finance was not consulted before the budget was presented. That has never happened before under the system of close door budgeting practised by the government. If instead we adopt the open budgeting policy of the US there will be few budget surprises and the committee will be fully consulted. There is much to be said in favour of open budgeting instead of the hush-hush budget making and then hasty amendments one after another.
The opposition complains that the budget shields the rich. It is valid to the extent that the capital gains profits have been exempt from taxes and so also the large profits from real estate which should have been taxed if not by the centre, at least by the provinces.
Earlier it was repeatedly emphasised by the rulers that the budget will have no new taxes, but it provides for additional tax revenues of Rs 44.425 billion to raise the total tax revenues next year to Rs1.025 trillion and that includes the one per cent surcharge on imports excluding a number of items such as vegetables. A new withholding tax of 5 per cent has been levied on purchase of locally manufactured cars above 800 CC. Sales tax on 85 raw materials has been increased. Wealth tax reappears in the form that if you earn more than five lakh rupees, you will have to file a statement. Retail price of cigarettes has been increased by 5 per cent. The travel tax has to be paid on air tickets bought abroad now. Additional General Sales tax has been levied to the extent of Rs 23 billion.
Before the budget was presented it was said the subsidies would be to the extent of Rs200 billion but now these are only Rs114 billion. Ten industries have been given concessions. These include textile spinning industry which gets them in the form of interest reduction. But they have to pay Rs4,600 as minimum wage to their workers. Will they pay that in reality and push up the prices of their products which will aggravate the inflation.
Inflation should not abate if it does not come down due to the concessions given to the farmers including the 25 per cent subsidy on power for tubewells. The government has come up with its largest public sector development programme at Rs 520 billion. If the amount is fully utilised it should create a remarkable increase in employment and production.
Dr Salman Shah says the government wants to reduce the debt-GDP ratio to 20 per cent, but that is not to be done soon but in 10 years and at the rate of 2.5 per cent per year. National debt as a ratio of GDP goes down when the economic growth rate is high and the GDP becomes larger.
In the same manner, the tax-GDP ratio has gone down to 9.5 per cent this year from 10.5 per cent because of the larger GDP following higher economic growth. A lower national debt including domestic debt means less revenue spent on debt servicing and more funds available for development.
Similarly inflation is the outcome of higher economic growth. As more and more money is pumped into the economy and the demand for goods and services increases, the prices go up and the State Bank’s tight monetary policy is not able to restrain that inflation as money comes from many other sources including home remittances to the extent of Rs5 billion and foreign direct investment to the extent of Rs6 billion and as untaxed money circulates very fast.
But now the CBR has come up with an instrument to whiten the black money. How well those with the black money respond to the CBR’s gesture remains to be seen. The Rs1.874 trillion budget also promises a new deal to those under 25 of age. Dr. Salman Shah wants to develop them, train them and equip them for the greater task in life as they are 100 million in number and they are the future of the country.
In this connection the four per cent of the GDP to be spent on education will become handy if the money is well spent. Rs29.4 billion has been earmarked for quality education, let us hope it will help raise the standard of the education in spite of many misgivings. Many promises have been made to the youth who outnumber others in the country but they have not become a reality except in small parts.
In this era of globalisation the youth has to acquire the necessary skills and competence to build a better economy and a brighter future for the country. The budget is full of promises and the ministers have added to them. What matters is to what extent they make them a hard reality.
P.S: Of the three Ds of the Pakistan economy – defence, debt servicing and development outlay– the development outlay has the top most priority now followed by debt servicing both domestic and external and defence. The largest claim of Rs520 billion PSDP is for the development followed by debt servicing and defence.
http://www.dawn.com/2007/06/14/ed.htm#4