Amidst noisy protests from the opposition benches Federal Finance Minister Abdul Hafeez Shaikh announced what can best be described as a predictable budget, where the government proposes to once again give away most of the money to debt-servicing, defence and in subsidies.
Opposition members hooted and indulged in classroom antics, forcing the prim and proper World Bank-trained finance minister to first put on his earphones to block out the noise and then wind up his speech earlier than expected.
The Pakistan Peoples Party-led coalition government Friday proposed a Rs2,767 billion deficit budget with predictable spending increases in defence and debt servicing.
The 2011-12 budget presented an overambitious fiscal framework which proposes to bring down the budget deficit to Rs851 billion or 4 per cent of the economy’s size, from Rs1,212 billion in the outgoing fiscal year.
Significantly, the new deficit target is 0.6 per cent, or Rs127.8 billion, less than what Pakistan sought from the International Monetary Fund and this does not take into account the impact of 15 per cent increase in federal government employee salaries.
According to the finance ministry officials the government had to table a “very tight budget” in the hope of convincing the IMF team, scheduled to visit Islamabad in July, to restore its suspended $11.3 billion program.
In comparison, the proposed budget size is 8.1 per cent, or Rs208 billion, more than the federal budget for the outgoing financial year.
In 2010-11, the government had presented a budget with an outlay of Rs2,423 billion which eventually ended up rising to Rs2,559 billion.
In the coming year’s budget, out of Rs2,767 billion an amount of Rs1,034 billion has been earmarked for debt servicing and repayment of foreign loans. This amount is almost 38 per cent of the total budget.
Another large expenditure head is defence, which has been allocated Rs495 billion which is almost 18 per cent of the total budget outlay. In addition, Rs166 billion has been allocated for subsides. Together, this trio accounts for 61.3 per cent of the total budget spending.
An amount of Rs730 billion has been proposed for the annual development plan, of which a major chunk of Rs430 billion would be spent by the provinces while the rest will be spent by the centre.
In his speech, Dr Shaikh requested parliament to support the government’s bid to promote tax culture in Pakistan and encourage the government’s efforts to bring 2.3 million identified tax evaders into the tax net. “The government has huge reforms agenda and the time has come that all stakeholders including the provinces should join hands to usher an era of growth for creating jobs,” he said. Few in the National Assembly building seemed to care.
Dr Shaikh explained that the government has worked out a figure of Rs2,732 billion in revenue out of which Rs1,952 billion comes from the FBR’s tax target, Rs120 billion from the petroleum levy and Rs658 billion income from non-tax revenues, mainly profit of the State Bank of Pakistan and defence services.
Significantly, Rs75 billion is expected to be raised by auctioning telecom sector licences. Of total revenue, the centre proposes to transfer Rs1,313 billion to the provinces. Of this, the provinces are expected to return Rs110 billion to the federal government on account of loans repayments and interest.
Despite a “difficult economic situation” the minister said that the cabinet has decided to increase the salaries of the federal government employees, both in the civil and armed forces, by 15 per cent. The move would cost the taxpayer Rs45 billion.
The government also proposed to merge five ad-hoc relief allowances in basic salaries, a proposal that would largely benefit pensioners.
Compulsory monetization of transport facility to civil servants in BPS-20 to BPS-22 has also been proposed in the new budget. The monetization is expected to save Rs1.5 to Rs2 billion annually.
For the benefit of the pensioners who retired on or after July 2002, the finance minister announced a 15 per cent increase in pensions and for those who retired before 2002, the raise is to be 20 per cent.
The government also decided to increase conveyance allowance for employees in BSP 1-15 by 25 per cent and announced that all civil servants and personnel of the armed forces would also be entitled to conveyance allowance at the prescribed rate, irrespective of their place of duty.
To appease the country’s most significant minority – the taxpayers, the government also announced an increase in the income tax threshold to Rs350,000 from Rs300,000. It is claimed that this move would benefit 80,000 people. The other major relief given has been to reduce the sales tax rate to 16 per cent from 17 per cent.
In an optimistic claim, the finance minister announced that 700,000 individuals will be added to tax net in the next fiscal. 71,000 such persons (10 per cent of the target) have already been served notices to file their returns, he informed the lawmakers. Currently among the 2.8 million registered income tax payers in the country, only 1.5 million actually pay taxes, he noted.
While the finance minister was presenting the budget speech, members belonging to the opposition PML-N party gathered in front of the speaker’s dais and chanted slogans. In a new low seen in parliament, a PML-N female parliamentarian threw bangles on the finance minister as the visibly ruffled minister continued to speak. Another senior opposition figure presented the minister with a Naan in what was later described as a symbolic gesture.
In his speech, Dr Shaikh said last year the government provided 5 per cent tax credit to a company in the first year of its enlistment. From next year, this rate will be increased to 15 per cent. The government has also decided to increase the limit for adjustment of minimum tax on turnover from 3 years to 5 years. He said capping of Rs500,000 will be deleted to encourage investments in voluntary pension schemes, he added.
As is practice, the finance minister later tabled the money bill 2011-12 in the Senate. Both houses of parliament will start general debate on the budget from Monday. The Senate usually sends its recommendations on the money bill to the National Assembly. As per the decision of the house, the business advisory committee of the National Assembly which has major role in money bill is expected to pass the budget by June 24.
Published in The Express Tribune, June 4th, 2011.