Budget framework: Fiscal deficit, energy crisis and high inflation major challenges next year

Total outlay expected to be Rs3.5 trillion, new taxes worth Rs100b planned .

ISLAMABAD:

The proposed Rs3.5 trillion new budget, which includes over Rs100 billion of new taxes, will revolve around the government’s ability to tackle issues such as the budget deficit, soaring inflation and the energy crisis, as the opposition has called the proposed budget framework “a pack of lies”.

Most of the targets presented on Wednesday to a National Assembly (NA) panel seem highly unrealistic, as the government does not seem to be in a mood to learn from the mistakes that has made the current budget a big failure, observed economists and politicians.

The Ministry of Finance gave a pre-budget briefing to the National Assembly Standing Committee on Finance, apprising the parliamentarians about the broader parameters of the budget and the risks involved.

The ministry outlined the budget deficit, inflation, energy shortages and declining investments as major challenges to the new fiscal framework, the same issues that disturbed this year’s fiscal framework.

NA panel chairperson Fauzia Wahab, after the meeting, told the media that the budget’s total size would be slightly over Rs3.2 trillion and would be presented in parliament on May 28. However, sources said the total outlay of the consolidated budget, both of Centre and provinces, would be around Rs3.5 trillion, out of which the federal budget size would be around Rs2.9 trillion.

Shahid Khaqan Abbasi of PML-N attended the meeting as an observer due to the opposition’s boycott of the standing committee for the last few months, demanding removal of Wahab due to misconduct.

Abbasi said the Ministry of Finance presented “misleading statistics and was sweeping the fiscal deficit and circular debt issues under the carpet.” He said the numbers were not realistic as the government claimed that the public debt would decline next year, which seemed highly unlikely. An MNA from the ruling coalition, after the meeting, accused the ministry of lying to parliamentarians.

Wahab said the government has proposed a Rs1,952 billion tax target for the Federal Board of Revenue (FBR). However, the target’s merits and demerits would be discussed in the next meeting.

An official of the Federal Board of Revenue said the next target has been worked out on the basis of current year’s expected collection of Rs1,580 billion – Rs88 billion less than the original target.

On the projections of 12 per cent inflation and 4.2 per cent economic growth next year, he said nominal GDP growth will be 17 per cent, bringing windfall revenue of Rs268.6 billion. To achieve the Rs1,952 billion tax target, the government will have to levy Rs103 billion in new taxes, including generation of money through administrative measures.

“The tax target of Rs1,952 billion, like the current one, is highly unrealistic and FBR will happily accept it, knowing it will be revised downwards later,” said Dr Ashfaque Hassan Khan, a renowned economist.

Fauzia Wahab said the government would levy tax on agriculture income from the next fiscal year, but the mechanism has yet to be decided. She said the ministry has informed that subsidies on fuel, electricity and other food items would also be phased out from next year.

Published in The Express Tribune, April 28^th, 2011.