PTI’s budget — the old normal
If you were thinking the balance of Rs805 billion would be realised by tax reform, think again
The writer is a senior economist. He can be contacted at pervez.tahir@tribune.com.pk
The “new Pakistan” brigade continues to dither — and disappoint. Its finance minister, the only senior PTI leader whose portfolio was announced well in advance, took a whole month to discover that the economy is in ICU. Everyone knows that the economy has been in a critical condition in the last year of the couldn’t-care-less PML-N government and during the hamstrung caretaker regime. Going by its claims about ready-to-implement plans prepared after long drawn out debates in its think tanks consisting of competent overseas and resident Pakistanis, the presumption was that the PTI would take extraordinary steps in an extraordinary situation. What has come out in the form of supplementary finance bill is old wine in the old bottle. If it reflects the thinking of the Economic Advisory Council (EAC), one cannot vouchsafe its quality. And if the EAC was ignored, the self-respecting members should be reconsidering the decision to sit on it. Left to itself, the finance bureaucracy would have produced the bill in the very first week, saving precious time in a deepening crisis.
As always, the action starts with deciding the size of required adjustment, an IMF term for tinkering. It was 2.1 percentage points of GDP or Rs814 billion. The easiest thing to do is to apply the axe to development budget, especially when it is prepared by an outgoing government. A hefty Rs225 billion was cut here. As in the past, no attempt was made to milk the sacred cow of non-development budget. Perks and privileges of the political class have been slashed down, but the miltablishment has been left out. In fact, the non-development budget has been increased by Rs234 billion, nearly neutralising the effect of reduction in development budget. In other words, the adjustment of Rs814 billion is provided for by only Rs9 billion by the jugglery on the expenditure side.
If you were thinking that the balance of Rs805 billion would be realised by tax reform, think again. It is too much to expect from a budget prepared by the finance bureaucracy. The practice here is that the devil you know is better than the devil you don’t know. So tax the taxed more. Some of the reductions in income tax rates given by the PML-N government have been amended to yield more. Due to ease of collection, the burdensome indirect taxes are the favourite of ‘revenuecracy.’ No wonder, the import and excise duties have been imposed with impunity. There is an attempt to restrain inessential imports and reduce cost of imported inputs for exports, but it is woefully inadequate, given the massive current account deficit.
In the overall additional resource mobilisation effort, the largest amount of Rs92 billion is expected to come from the infamous miscellany of improved administrative measures, this time based on technology. If this black box had any potential, there would be no need for tax reform. Before the announcement of the bill, there was the talk about reintroducing wealth tax. Perhaps the realisation dawned in time that its abolition happened during the Musharraf period for reasons that the present political set-up lacks the spine to doubt.
One needs a macroeconomic framework to ascertain the direction given to the economy by a budget. The lack of it confirms that the Planning Commission was kept away from the exercise. In terms of relief, the lucky ones are a small group of workers, textile tycoons, fertiliser factories and farmers. The poor will find roti price up at the gas-based tandoors.
Published in The Express Tribune, September 21st, 2018.
As always, the action starts with deciding the size of required adjustment, an IMF term for tinkering. It was 2.1 percentage points of GDP or Rs814 billion. The easiest thing to do is to apply the axe to development budget, especially when it is prepared by an outgoing government. A hefty Rs225 billion was cut here. As in the past, no attempt was made to milk the sacred cow of non-development budget. Perks and privileges of the political class have been slashed down, but the miltablishment has been left out. In fact, the non-development budget has been increased by Rs234 billion, nearly neutralising the effect of reduction in development budget. In other words, the adjustment of Rs814 billion is provided for by only Rs9 billion by the jugglery on the expenditure side.
If you were thinking that the balance of Rs805 billion would be realised by tax reform, think again. It is too much to expect from a budget prepared by the finance bureaucracy. The practice here is that the devil you know is better than the devil you don’t know. So tax the taxed more. Some of the reductions in income tax rates given by the PML-N government have been amended to yield more. Due to ease of collection, the burdensome indirect taxes are the favourite of ‘revenuecracy.’ No wonder, the import and excise duties have been imposed with impunity. There is an attempt to restrain inessential imports and reduce cost of imported inputs for exports, but it is woefully inadequate, given the massive current account deficit.
In the overall additional resource mobilisation effort, the largest amount of Rs92 billion is expected to come from the infamous miscellany of improved administrative measures, this time based on technology. If this black box had any potential, there would be no need for tax reform. Before the announcement of the bill, there was the talk about reintroducing wealth tax. Perhaps the realisation dawned in time that its abolition happened during the Musharraf period for reasons that the present political set-up lacks the spine to doubt.
One needs a macroeconomic framework to ascertain the direction given to the economy by a budget. The lack of it confirms that the Planning Commission was kept away from the exercise. In terms of relief, the lucky ones are a small group of workers, textile tycoons, fertiliser factories and farmers. The poor will find roti price up at the gas-based tandoors.
Published in The Express Tribune, September 21st, 2018.