Gambit pays off: Budget sails smoothly through parliament

Major features of the finance bill remain intact.

ISLAMABAD:

President Asif Ali Zardari’s new coalition appears to have passed its first test, with the Rs2.8 trillion federal budget for fiscal year 2012 passing the National Assembly by a comfortable margin, with none of the opposition’s proposed amendments to the bill being incorporated into the budget.

The ruling Pakistan Peoples Party (PPP) was joined by its coalition partners, the Pakistan Muslim League Quaid (PMl-Q) and the Muttahida Qaumi Movement (MQM) in voting for the budget which ensured that the opposition was unable to prevent any of the major provisions of the finance bill from passing.

Unlike last year, when the Pakistan Muslim League-Nawaz boycotted the vote, the main opposition party chose to remain in the chamber, proposed several amendments and then vote against the bill. The PML-N did, however, stage a walkout after the vote, but over an unrelated discussion over the recent verbal sparring match between party leader Nawaz Sharif and President Zardari.

While none of the opposition’s amendments were accepted, the government incorporated 20 of the 66 recommendations made by the Senate, including one that grants substantial retirement privileges to legislators. The upper house of Parliament is constitutionally barred from voting on the bill, but does send comments and recommendations.

The retirement plan for legislators includes perpetually free medical treatment for all parliamentarians, access to VIP guest houses, use of VIP lounges at airports, special passports and permanent access to all government departments and offices with special privileges on getting government appointments.

This package was the only amendment on which the PML-N did not oppose the government, though it initially objected that the retirement privileges should not be part of the money bill. National Assembly Speaker Fehmida Mirza ruled that, given the financial implications of the plan, it could be incorporated as part of the budget.

“Bureaucrats will be left at the mercy of politicians,” said one senior official on the implications of the new post-retirement privileges for legislators.

Most of the major features of the budget that had been initially proposed by Finance Minister Abdul Hafeez Shaikh appear to have been retained in the money bill, including a massive cut in subsidies, a removal of sales tax exemptions for several sectors, and a lowering of the overall sales tax rate from 17% to 16%.

The opposition’s proposal to lower the sales tax to 10% and raise the corporate income tax rate on banks from 35% to 40% was rejected by the treasury benches along with several other amendments.

Despite giving in to lobbying pressure and retaining some subsidies on agricultural inputs such as fertilisers, the government has not yet reflected the costs of its backtracking in the bill that passed the legislature on Wednesday. The budget deficit target remains at Rs851 billion, or about 4% of the total size of the economy.

Much of the government’s ability to meet that target depends on the degree to which the Federal Board of Revenue (FBR) can improve its efficiency and crack down against tax evaders. The FBR claims it has identified 700,000 tax evaders and will be sending them tax notices over the next several months.

Most analysts have labelled the Rs1,952 billion revenue collection target “overambitious” and are sceptical of the government’s ability to stick to its fiscal promises. Up to 90% of the budget deficit is expected to be financed by borrowing from local banks, which is expected to crowd out the private sector and keep interest rates high for the fiscal year.

The finance bill also approved the quirk proposed by the finance minister that abolishes the special excise duty and lowers the sales
tax rate on importers on June 20, ten days before the rest of the country will have the same rates.







Published in The Express Tribune, June 23^rd, 2011.