Budgeting for 2010-11

There is much that we disagree with what Finance Minister Dr Abdul Hafeez Sheikh said during his budget speech on the floor of the National Assembly on June 5. Defending the substantial rise in defence expenditures, from Rs378 billion last year to Rs442 billion for 2010-11 (an increase of almost 17 per cent), the minister said that security was the government’s “topmost” issue. While that indeed may be the case to an extent, given Pakistan’s participation in the war on terror and the massive impact its fallout has had on the people of Pakistan and the economy, the fact is that there is more to this debate. For instance, over the past five years or so, governments have spent a mere 0.5-0.6 per cent on health and just two per cent on education. In any case, given that debt servicing for 2010-11 — like last year — will be almost double the defence budget allocation, one can well understand the heavy burden of debt that hangs over all of us like a millstone.

For a country which ranks so badly on the UNDP’s Human Development Index, this kind of neglect and failure to increase allocations on both education and health borders on the criminal. Besides, while security may be the government’s “topmost” priority, what good is security if the people are impoverished, don’t have enough to eat, are diseased and illiterate? Surely, a more educated and healthier population translates into a more productive workforce and that in turn means more potential for growth. One can only hope that the increase will be directed towards strengthening the military’s counter-insurgency capability because that is crucial to winning the war against militancy.

Moving on, instead of cutting down on the cost of running itself, the government has further increased it, by pledging an increase of 35-50 per cent in the basic pay of all federal government employees. Some measures are more salutary and need to be applauded, in particular the proposal to levy a tax of one rupee per cigarette. This is likely to be fought tooth and nail by the tobacco lobby but the government would do well to resist it and implement it. As for the much-heralded and debated Value Added Tax, its implementation has been delayed till Oct 1 of this year, though the minister did say — and commendably so — that collecting tax on services was the right of the provinces as agreed upon under the Seventh National Finance Commission award and that the centre intended to respect that. A tax of 10 per cent has been proposed on air-conditioners and refrigerators, the rationale being that they use a lot of electricity.

The minister claimed that the budget deficit would be brought down to four percent of GDP in 2010-11. However, given that the State Bank had said that for the outgoing fiscal year it would be around 5.6 per cent of GDP, the intended reductions for 2010-11 seems more like wishful thinking. In this regard, a pay cut of 10 per cent for ministers may seem well-intentioned but is hardly going to have any impact on reducing non-development expenditure. However, one good proposal is that the government intends to cut subsidies to PIA and Pakistan Steel, both organisations that have for years been relying on handouts from the government. Hopefully, this may force them to bring about some much-needed financial discipline. The minister said that the government wanted subsidies that targeted the poor and so the allocation for the Benazir Income Support Programme would be increased. However, we urge the government to make the disbursement process transparent since if misused its very purpose will be defeated. The main tool of the government for improving the quality of life and standard of living for the population in general is social sector spending as contained in its public sector development programme. For 2010-11, this will rise only marginally, from Rs646b billion during 2009-10 to Rs663 billion for the next fiscal year. This means that it is likely that there will not be many new schemes in this regard. Clearly, that will not be good news for the majority of Pakistanis.

Published in the Express Tribune, June 6^th, 2010.