- Shakeel Ahmed Ramay
Executive Director, Zalmi Foundation
Federal Budget 2019-20 has been approved by parliament, recently. Government and opposition parties are playing their conventional roles. The government presented it as best suitable budget in the prevailing circumstances. The opposition is trying to portray it as the worst budget that will effect the poor and all the segments of society in every possible way. So, there was nothing new in the debate on the budget in parliament. However, the alarming factor this time is that academia, scholars, and media are also following the suit of parliament. They have been divided into segments and groups according to their political affiliations. They are trying to toe the policy of its political affiliation and not providing objective analysis, which can show the real picture.
Historically budget had been analyzed by using political economy’s rule to make it understandable for a wide range of stakeholders. Political economists use the lenses of politics and economics together. Budget is defined as an economic instrument to achieve political millage and goals. Therefore, it is used to measure the political direction of political leadership. People also measure the performance of political leadership through the budget; therefore the politicians always try to present a well accepted budget. It helps them to attract votes and extend their government. PTI government did not follow the suite and presented a tough budget.
The current budget is not offering many reliefs to people. It has also introduced some measures which will contribute to increasing inflation and people will have to re-adjust their living standards. Government is also re-adjusting tax slabs and trying to expand the tax base. The government increased the target for tax collection and now it is proposing to collect 5.5 trillion PKR through the taxes. The new target is 1.2 trillion PKR higher than the previous years. Government is re-designing the program for tax collection to meet the targets. The proposed increased will be met through direct and indirect taxes. Indirect taxes will be 773 billion PKR and direct taxes would be 407 billion PKR. A major portion of indirect taxes will come from income tax (363 billion PKR) and custom duties (265 billion PKR). Sales tax has also increased on consumer products, which will impact on market prices and inflation will be on the rise. These measures will negatively impact the consumer. The middle class will deteriorate further in a miserable condition.
Government has also withdrawn some exemptions and trying to bring more sectors under the tax net. It has also fixed cooperate tax rate at 29 percent, which government will try to bring it at 25 percent during the next five years. Government is also trying to bring in other sectors like education, retail, beauty parlor, goldsmiths and property dealers in the tax net. The success of the government in these will help to expand the tax base. Moreover, the government has also increased the policy rate and now it is 12.5 percent. Although the government claims that it has increased the policy rate to encourage saving but it will negatively impact the investment as investors will not be able to attract financial resources. Simultaneously it has also been argued that in the current scenario it is required to control the outflow of money.
On the allocation side, the story is mixed and interesting. Allocation for education and health has been decreased at a national level. However, provinces have increased their allocations for education and health. For example, Punjab’s allocation for education and health are 382 and 308 billion PKR respectively. Punjab government also increased allocation for the agriculture sector and this year total allocation is 113 billion PKR which is 23 percent higher than the previous year. Sindh government also increased allocations for health and education sectors, the allocations for this year are 178.4 and 114.6 PKR billion, respectively. KPK government also increased allocations simultaneously. Another important indication is increasing in the allocation of basic services of government and social safety nets.
The federal government has also kept a good amount of about 289 billion PKR for the agriculture sector. It was direly needed, as agriculture is still the backbone of our economy. Although its’ share in GDP has decreased still it is the largest employer with 43 percent. The contraction of share is not due to exponential growth in the industrial sector or the advancement of the economy. It is due to ignorance of government. Successive governments have remained consistent to ignore the sector. The obliviousness of sectors introduced many problems but on the top is lower productivity, weak supply chain management, wastage of water and low-quality inputs, etc. Now the government has signed an agreement with China for agriculture development. A comprehensive framework has been developed to modernize the sector and create opportunities for farmers.
Government has also designed a comprehensive social protection program with the name of EHSAS. The program will take care of most of the poor in the country and the government has allocated a sum of 190 billion PKR. It will be used in multiple sectors including health, education, skills, and food, etc. Government is also collaborating with the government of China to reduce poverty in the country and has signed an agreement for social programs. It will definitely give breathing space to the government.
Above discussion gives rise to a question, why PTI did not present a budget which can create some breathing space for government in the current situation. The answer is very simple yet complicated. The government had the choice to present populous budget by borrowing and avoid tackling the structural issues on a long term basis. However, the government adopted a difficult course of action and it tried to present a tough budget which can help the country in the long run.
Although the government introduced some measures for the most vulnerable groups, the focus is on fixing the issues. Government has focused on fixing the strategic problems of the economy. The measures seem to be very tough, but it is need of the time. Pakistan has to pay 2.2 trillion PKR on debt servicing. Pakistan is also facing the problems of fiscal and current account deficits which limit the playing space for the government. The government will have to pay for debt servicing and generate resources for minimizing fiscal deficit. The available options for the government increase tax collection revitalize economy or go for borrowing. Borrowing is not a good option, as whatever Pakistan borrow, it will have to pay back tomorrow with interest.
Therefore, the government decided to explore the options of expansion of the tax base and revitalize the economy. In reality, these do not option; these steps are the necessity of the time. Economic revival will take time, but tax collection can help in the short run. It is an only available opportunity in the short run to generate the resources. However, in long term strategy, the government would have to focus on economic revival. The government must have to understand that only fixing the structural issues and leaving economic revival aside will not serve the purpose. The benefits of all interventions can only be ensured by reviving the economy especially the productive sectors like industry, agriculture, and others. The budget can only be called a strategic budget, if it gives due importance to economic revival otherwise it does not qualify for it.
Previously, Pakistan tried to implement all the structural programs without giving due importance to the productive sectors. Therefore, the economy could not kick start and Pakistan had to knock the door of IMF again and again. Pakistan needs to change the course of action this time. CPEC provides the government with an excellent opportunity to materialize the dream and fulfill its promises. If the government fails to achieve it, this budget will be remembered as a strategic mistake.
