Budget 2018-19: Focus is more on voters rather than economy

Tax concessions are appealing, but will reduce overall state revenues

Shakeel Ahmad Ramay April 30, 2018
Tax concessions are appealing, but will reduce overall state revenues PHOTO: EXPRESS

ISLAMABAD: The budget document presented in the National Assembly is full of promises - from tax concessions to ambitious development plans.

The government has generously offered a change in tax slabs with the objective of lowering the burden on taxpayers. It is a good initiative that the middle class had demanded.

The corporate sector has also been offered real tax concessions in a stepwise manner. Corporate tax rate will be brought down to 25% by 2023. Super tax will be eliminated in the next four years.

These proposals to lower the tax rates seem fantastic, but they will push down overall revenues. However, the government hopes it will be able to collect Rs4.4 trillion in overall revenues next year.

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The government has also earmarked a big chunk of money for development programmes and initiatives, a sea water desalination project in Karachi and enrolment of each and every child in school.

The proposals indicate the government is giving priority to the country’s citizens. Moreover, by looking at the state of economy presented by the government it seems everything is going well, the country is moving in the right direction and its trickle-down impact will be visible soon.

However, an analysis of the indicators tells a different story. Let’s start with the economic growth rate of 5.8%. This economic expansion has been achieved only due to the China-Pakistan Economic Corridor (CPEC)-related investments, but government documents miss that point.

In 2015, it was estimated that due to CPEC investments, there would be an addition of 1.5 percentage point to the national gross domestic product (GDP), which would also encourage private-sector investment in different sectors. On that basis, it was estimated that the annual GDP growth would stand above 6%.

However, Pakistan could not be able to cross the 6% target and the economy grew 5.8% in FY18, which was slightly lower than the estimate. If the contribution of CPEC-related investments was set aside, then the GDP growth would be hardly above 4%.

It clearly depicts that government policies and their execution remained weak and directionless. Though the government highlighted the growth in industrial and manufacturing sectors, it did not correspond with the export performance. Over the past five years, the export base has shrunk alarmingly.

Trade deficit has been on the rise and in the near future it could be extremely difficult to control it. The government has set the export target at $28 billion for next year, but economic indicators and industrial sectors do not support it.

The government must share the list of actions and export industries, which will transform the export performance in a year. The development budget is much more interesting.

The government has allocated almost Rs1.3 trillion with the objective of transforming the lives of people. Among the development projects was the sea water desalination scheme in Karachi, but its fate may remain uncertain.

Records show that successive governments did not invest in water conservation in order to improve efficiency and ensure judicial distribution. Pakistan is among the most inefficient water users. Water mafia has exploited the situation because of inefficiency of the government in Karachi.

The government also announced the start of a war against deficiencies in the education sector. It declared that it would initiate a programme to ensure every child was enrolled in school.

Conservative estimates suggest that there are almost 24 million children out of school and it excludes the number of pupils studying in religious seminaries.

The Pakistan Muslim League-Nawaz (PML-N) government has been ruling the country for the past five years and the largest province – Punjab – for the last 10 years. It could not bring about any significant change in the education system in that period and how could it do so in future, only time will tell.

In the meantime, the Punjab government is in the process of handing over public schools to the private sector, which will make education expensive. On the one hand, the government is expressing its inability to run the schools, but on the other hand, it insists it is going to revolutionise the education sector.

More importantly, from where the required financial and other resources will come for such a revolution as the government has kept mum on this issue. The government has also allocated a handsome amount of Rs125 billion for the Benazir Income Support Programme (BISP). It is a welcome move, but now time has come to move beyond this social welfare programme.

The government must come up with policies that can provide a sustainable source of income to the vulnerable instead of subsidies to ensure they are able to make both ends meet. There is a need to focus more on the Sustainable Development Goals (SDGs) - a more comprehensive list to transform the lives of people.

‘Taxation essential for country’s development’

On the agriculture front, the government allocated almost Rs1.1 trillion for credit flow to the farmers. However, the figure cannot be trusted in the backdrop of previous unfulfilled promises.

The government had announced a Rs342-billion Kissan Package, but it failed to meet the objectives in the absence of a steady flow of financial resources.

In the meantime, the state could not ensure timely payment of just and fair prices for agricultural commodities. The most recent victims in this regard are sugarcane farmers.

These examples clearly show that the budget is not based on hard facts and figures. It seems that the purpose is to set high and attractive targets just to turn voters in their favour. Therefore, it is much like a ‘PML-N manifesto’ rather than the annual federal budget.

The writer is the Head of Centre for Future Policy and Head of Research Coordination Unit, Sustainable Development Policy Institute


Published in The Express Tribune, April 30th, 2018.

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