23.06.2013 A budget by the rich, for the rich
Economic justice is still a far cry as the new government has failed to tax the rich and give relief to the poor
By Huzaima Bukhari
&
Dr Ikramul Haq
A friend has asked to outline as to what should be an ideal budget for Pakistan. Our answer is simple: the one that deals justly with all economic classes within the society. It must focus on welfare programmes — to help those lagging behind, enabling them to move up economically. It must resent the sight of rich families staying at the top and impose on them high taxes in order to redistribute wealth and income in the society. All our budgets, including the latest one announced by Ishaq Dar, are designed for benefitting the affluent classes — these can be safely be called “budgets of the rich, by the rich, for the rich”.
“No relief for the poor” was the instant reaction of most of the Pakistanis after hearing the budget speech on the evening of June 12, 2013. There is consensus amongst experts that “the tilt of the budget is towards the rich.” Shahbaz Rana, a noted journalist covering economic matters, concluded: “Due to uneven rates, the tax liabilities of the lowest income group having annual income of Rs400,000 to Rs500,000 will be increased by 22 per cent when compared with the liabilities of this year.” The move by the government, he says, “is contrary to the claims of taxing the rich to overcome the economic crisis as it has increased the tax burden on the salaried class by a third, while the tax burden on the non-corporate business class — also known as association of persons — has grown three-fold”.
According to economist Dr Kaiser Bengali, the new government has missed an opportunity to take necessary steps like reintroducing wealth tax in its first budget. He is of the view that “if the government desired to generate revenues in an equitable manner, it should have reintroduced wealth tax to target 700,000 families that have been identified by National Database and Registration Authority (NADRA) and the Federal Board of Revenue (FBR) as affluent but avoiding taxes.
Dr Bengali opined: “Nawaz Sharif won with a clear mandate at a time when “everybody knows that Pakistan is in serious economic crisis. As such, the country was prepared to accept a ‘harsh’ budget, but the government has attempted to present a populist budget — one that would have been presented if elections were round the corner”. He advised the government to amend the Constitution and bring all kinds of income, including from agriculture, within the federal ambit. He said that everyone should pay income tax in Pakistan, irrespective of the sector.
He strongly criticised revenue leakages through the FBR and said that “Statutory Regulatory Orders (SROs) are a major source of revenue loss, but this matter has been swept under the carpet by placing it with a committee to be headed by the chairman of FBR — the very organisation that has vested interest in the whole SRO business.”
Bengali said that “though the budget speech was eloquent regarding relief for the corporate sector, the most damaging part of revenue-generating exercise was the increase in general sales tax to 17 per cent from 16 per cent. This will hit the industry and may hamper job creation.” The budget speech, he said, had a good share for the industry and corporate sector, but it did not mention labour issues.
The Economist (May 27-June 2, 2006) published two studies showing how the Nordic countries have achieved social mobility and economic justice by taxing the rich to raise money for a welfare state. The studies say that “these countries help the children of the poor to do better than their parents.” One might expect social mobility and economic flexibility to go together — in fact, to be two sides of the same coin.
Our budget makers are not inclined towards promoting social mobility taking tough redistribution policies, particularly benefitting those who are at the bottom. There is no desire to follow the Nordic countries where a more supple and less class-ridden education system runs from top to bottom. Education in Pakistan is not only very expensive and a flourishing business industry but it is also pathetically poor in quality and class-ridden. If we judge our economic policies in the perspective of Article 3 of the Constitution, it can safely be concluded that Budget 2013 is totally oblivious of redistributive fiscal policies and social welfare programmes for social mobility.
The finance minister, in his budget speech, noted that “incidentally, the three main subjects of human development, namely education, health and population welfare have been devolved to the provinces under the 18th Constitutional Amendment. However, the responsibility for higher education, regulatory responsibilities and international coordination remain with the federal government. I would like to mention the following initiatives that will be undertaken for the promotion of this sector:
A sizeable allocation of Rs18 billion has been made for the Higher Education Commission, which will support development plans of different universities all over the country. It may be noted that on the current side also a hefty allocation of Rs39 billion is made for HEC. Thus a combined outlay of Rs57 billion will be made for higher education.
The enrollment in higher education will increase from 1.08 million students in 2012-13 to 1.23 million students in 2013-14, showing an increase of 14 per cent in the population of students pursuing higher education.”
The honourable minister forgot that in areas administered by the federal government, law and order and education is still their responsibility. We know the pathetic law and order situation in these areas — especially blowing up of the female schools by the miscreants. The federation has not bothered to develop these areas. In his budget, Dar has proved that education is at the lowest level in our state policies. He ignored the command of Article 25A which says: “The State shall provide free and compulsory education to all children of the age of five to sixteen years in such manner as may be determined by law.” Can the worthy finance minister tell how much allocation is made to fulfill this Constitutional obligation for Federally Administered Tribal Areas (Fata), Islamabad and other areas falling under the control of the federal government?
Our education system, if there is any, is worthless. The federal and provincial governments do not realise that it is not only spending more money on education that matters but how to use the entire system as an effective tool for social mobility. There is a complete lack of understanding of this perception on the part of our politicians and the result is that poor segments of society are condemned to remain mired in abject poverty and their children have no chance to move up as education is either not available to them or is of no practical use. Budget 2013-2014 is lacking this perspective is yet another routine exercise of balancing the books (that too by window dressing).
Pakistan needs meaningful redistribution policies that can uplift the downtrodden. There is nothing in this budget towards this goal — like all previous ones, it is a disappointing document.
The writers, tax lawyers and authors of many books on Pakistani tax laws, are Adjunct Faculty at Lahore University of Management Sciences (LUMS).