The minister paid lip service to the notion that the government needs to increase the share of direct taxes in its overall revenue in order to make the tax code more progressive. DESIGN-FAIZAN DAWOOD/FILE
Finance Minister Ishaq Dar appears to have been put on earth to make his predecessor Hafeez Shaikh look good by comparison. For all his flaws and inability to run a responsible fiscal policy, Shaikh at least tried to introduce more transparency in the budget process and did not try to artificially make the numbers look good. Dar, by contrast, relied on a combination of obfuscation and inaccuracies to make his record look better than it actually is.
Let us start with some of the headline numbers: the budget deficit is projected to be 5.8% of the total size of the economy during the outgoing fiscal year 2014, compared to the 8.2% of GDP it was the year before. That sounds impressive, unless you consider the fact that Dar artificially inflated the 2013 deficit by transferring a massive chunk of circular debt payments to that year. Without those, the 2013 deficit would have been closer to 6.5% of GDP. This year’s deficit is lower, yes, but not by as much as the minister made it look.
And then there are the specific components of the government’s strategy to reduce the deficit. One of the biggest ways the federal government reduces the overall deficit is by forcing provincial governments to run a surplus, in effect trampling the fiscal sovereignty guaranteed to them under the constitution and the National Finance Commission Award. But the legal niceties are not even what is most wrong with this policy.
The provincial governments are where we spend money on health and education. By forcing those governments to run surpluses (which Islamabad achieves by not releasing the money on time), we are effectively eviscerating the country’s ability to invest in the health and education of our citizens. In other words, Dar is willing to let schools and hospitals crumble in order to make his numbers work.
Indeed, Dar appears to be so obsessed with making the numbers work that he seems to have forgotten that budget numbers have meaning, that they represent choices of where the government wants to lead the nation and the economy, and that ignoring their effects can have devastating consequences. Unfortunately, it seems that the minister appears to have relied far too much on tired old advice from unimaginative bureaucrats who see their job not as managing the economy, but balancing the government’s books.
It certainly did not have to be this way. Unlike almost any of his predecessors, Dar got a full year in office before he had to present what could justifiably be called his first budget, giving him unparalleled opportunity to shape the document according to his own vision for the economy. Unfortunately for the country, it appears that either he does not have a vision for the economy or, in the few places that he does, it is to benefit the already privileged economic elite of the country.
The minister paid lip service to the notion that the government needs to increase the share of direct taxes in its overall revenue in order to make the tax code more progressive. However, in the entire budget speech, I counted precisely zero ideas that would make the tax code more progressive. Oh, to be sure, there were plenty of proposals to increase what the government calls “direct taxes”, but they are levied as withholding taxes, in a manner identical to that of indirect taxes, effectively rendering them as regressive as regular indirect taxes.
The only time Dar even mentioned an increase of taxes for the economic elite was in very general terms when he announced that all Statutory Regulatory Orders (SROs) would be eliminated over a period of three years. SROs are issued by the Federal Board of Revenue, often flouting existing tax law, and reduce the effective tax rate for some of the largest and most profitable businesses in the country. A firm commitment to end all of them is good, but without specifics, it is a hollow promise.
On the crucial matter of ending unaffordable energy subsidies, the minister said little beyond generic statements. In short, this budget does nothing to eliminate the structural weaknesses of the Pakistani economy. Indeed, in some ways, it may end up exacerbating them.
It is a terrifying thought to be pining for the good old days of Hafeez Shaikh.
Published in The Express Tribune, June 4th, 2014.
COMMENTS (11)
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The same númber fudging was done by this govt and Dar Sb in the 1990s.....and it was exposed by IMF and WB when the govt was kicked out by Gen M......
The circular debt of Rs 480bn as of Jun13 pertained to the previous 2-3 years. Therefore, it was only logical to account for its payment/resolution in FY13. Just like the newly created circular debt of Rs 400bn+- accrued and will be paid-for in FY14. The FY14 fiscal deficit provides for this 400bn payment and thus makes for an apple to apple comparison.
Similarly, the provinces, despite the 18th Amendment, have a miserable tax-to-GDP ratio. 3 out of the 4 provinces haven't met their revenue collection (growth) targets. The requirement of producing a surplus, therefore, isn't that uncalled for. Provinces should increase their spending on education/health but only after mobilizing own resources.
A very forced, contrived effort to come up with a criticism. The headline takes the cake though, it seemed as if the whole budget document had wrong figures.
There is some truth in the article, contrary to what the headline suggested...however, I don't blame Dar for this...he's not an economist per se, Hafeez Sheikh was... So no comparison between ability of both...the real person who think he's the genius Is Finance Secretary Waqar Masood Khan...completely wholesome lay a self interest person with links to vested interests... If there is any doubt, I will shortly reveal his hidden operations through his brothers... So, good luck Pakistan..with such scoundrels playing with the economy...to keep their PIB colony interest ahead of the country!,,
Its the same-old-same-old.........relief for the rich at the expense of the poor (country). Good write up and apparently quite true.
Largely agree with the article. Dar and nawaz sharif will have us on our knees within a year. Irresponsible bluster is the hallmark of this FM. Zero progress towards making this a progressive sustainable economy. We will never break out of this cycle of a few good years and then a few bad years but in the aggregate remaining stuck in a rut. SROs will be phased out over 3 years? Right! We believe you! Helloooo FM? You've been in power for one year. How many steps have you taken in this one year to make a dent in any of the special concession and rent seekers that are sucking the blood out of the economy?
Another failure of Noora league. Pmln only watches the interests of the industrialists and the rich class. Wake up Dar sahib, give something to the poor as well. It's amazing they allocated peanuts for the education sector.
If the circular debt was paid in 2014 for energy consumed in 2013, then showing that expense in 2013 that's exactly the right way to do it.
Such a pathetic article.
the articles title suggested that all figures were wrong, but the writer only provided one, that I would argue with him on. Useless article.
ET will you publish this?
Good article. FDI numbers are also not correct as Pakistan Euro Bonds of $2 billion (which in reality is loan) has been shown as FDI.
FBR has become inefficient and lazy and only way it realises that it can collect taxes is by withholding refunds and by new withholding tax provisions