Not exactly a ‘historic’ budget, dear minister

During the budget debate, parliamentarians should focus on expenditure efficiency, tax reforms, and reduce wastes.

The government is running an expensive media campaign titled ‘Democracy Delivers’, extolling the virtues of its fourth budget. Former prime ministers Zulfikar Bhutto and Benazir Bhutto must be turning in their graves, seeing the abuse of their names and photographs on a crass campaign trying to project another ‘business-as-usual budget’ as a good budget. The fact of the matter is that it is long on rhetoric and inconsequential stuff, and short on substance.

The budget speech is replete with the word “historic”. Everything has been termed as a historic high. Foreign exchange reserves have been said as being at a historic high, even though a bulk of the increase is a result of loans from the IMF and the World Bank. The government may think that this ‘feel-good’ slogan may be useful in giving hope to people but it ignores the fact that this makes it lose its credibility when the country is facing the historic ‘lows’ (or rather ‘highs’ in this case) of poverty, inflation, unemployment and economic stagnation. The parliament is praised for its high standards of debate and honourable conduct. This level of sycophancy is at a historic high, for neither has the parliament exhibited a high standard of debate nor is the conduct of parliamentarians honourable — a majority are tax-evaders, abusing their office for personal gains.

Turkey’s first lady is praised for donating her personal necklace for flood relief. Perhaps by mentioning this donation by a foreigner, the finance minister wanted  to shame our leaders and their wives for the appallingly small donations made by them — when compared to the millions in their bank accounts in Geneva, London and Dubai, and the  diamond jewellery, diamond-crusted watches and Gucci bags of the first ladies.

The speech rightly highlights the squandering of the fiscal boom by the previous government but conveniently overlooks the four consecutive ‘business as usual’ budgets. A new concept in economics has been introduced in the budget speech — the ‘Government Sacrifice’ of Rs50 billion. One can understand individual sacrifices, but its not clear how a government sacrifices. Unless, of course, the reference is to the gang of the crooks and the corrupt, all pervasive in the government, being unable to get their hands on the Rs50 billion. That indeed would be a great sacrifice.

During the budget debate, parliamentarians should focus on the following issues. First, as in the past, current expenditures are underestimated and revenues are overestimated. Thus in Fiscal Year 2010-11 (FY11), actual current expenditures were Rs300 billion higher — and tax collection Rs100 billion lower — than that provided in the budget. Compared to actual FY11 results, the fiscal year 2011-12 budget is assuming a meagre Rs20 billion increase in current expenditures and a Rs300 billion increase in tax collection. Such heroic assumptions, in the absence of deep expenditure and tax reforms, is akin to bordering on fantasy. The actual outcome will be much higher expenditures and much lower taxes, leading to debt going up by another Rs1 trillion and the private sector getting crowded out once again.

Second, the budget’s Achilles heel will be tax revenues. The rhetoric on the Federal Board of Revenue’s (FBR) achievements and corruption-free refunds is outside the realm of possibility, given the complete absence of fundamental tax reforms, including elimination of tax havens and benami transactions. The step to bring the wealthy in the tax net is good, but its credibility and fairness would be undermined by the absence of any effort to get elected officials to pay their fair share. The FBR should first audit tax returns of all elected officials so that the tax evaders and tax avoiders among them could be sent notices, before sending notices to others. No tax effort can succeed unless the top leadership and the cabinet lead by example. Pakistan needs a national tax reform programme that has been approved by the assembly.

Third, parliamentarians must take note that the government is failing in its role as the guardian of public funds by not making serious efforts to reduce waste in current or development expenditures. The following examples are symptomatic of the callous and inexcusable attitude towards scarce tax resources: (i) an expensive media campaign on the budget; (ii) overseas trips by the high and mighty, including the economic team, without much to show for these; (iii) absolutely no belt-tightening by the very rich president, prime minister, cabinet or parliamentarians on their salaries, perks and privileges. In fact, parliament’s budget has been increased by over 50 per cent!; (iv) salaries have been increased for government employees — who are privileged enough in having a steady job, unlike the other 50 million poor who are self-employed and whose incomes have fallen because of inflation and economic stagnation. It is more a government for its employees, rather than a government of the people.

Parliamentarians should insist on a comprehensive programme to improve effectiveness of expenditures comprising the following  (i) at least a 15 per cent cut in current expenditures, which could save at least Rs100 billion. Of course there will be some pain, but such cuts are necessary to improve effectiveness of expenditures and increase development expenditures; (ii) thorough scrutiny of the Public Sector Development Programme which comprises over 1,200 projects. While there are many good projects, there are hundreds of dubious projects driven by contractors, cabinet and politicians. The People’s Works Programme should be axed, with money diverted to the Benazir Income Support Programme; (iii) a serious debate on enhancing value for money of the largest spender of resources, i.e. defence, especially on the military’s large involvement in commercial activities, and purchase of expensive military toys — missiles, jets, submarines, etc — at a time when the government is broke.

Fourth, the parliament should require initiation of credible programmes to resolve, once and for all, the issue of loss-making Public Enterprises. The reform programme proposed in the budget is more of the same — the ‘tried and failed’ kind. On an urgent basis, all commercial public enterprises must be privatised, even given away free to local businessmen, to avoid incurring billions of losses every year.

Parliamentarians need to realise that bold tax and expenditure measures are necessary to reduce deficits, debt and inflation, accelerate growth, and increase pro-poor expenditures. It is time that parliamentarians show citizens that they care about Pakistan, and that ‘Democracy can Deliver’ a sound budget.

Published in The Express Tribune, June 11^th, 2011.