Socio-economic implications of budget

Budget preparation and presentation have recently become more of a ceremonial exercise, primarily aimed at reassuring lenders about fulfilled promises or demonstrating the intent to secure the next round of funding.

Once the dust settles on the post-budget debate, the average citizen is left to wonder just how deeply the knife has cut this time.

Meanwhile, as the finance minister wrapped up the budget debate, an unusual scene unfolded at the Karachi Press Club. Members of the so-called “Salaried Class Alliance” held a press conference, airing their grievances.

Although the Q-block, as usual, turned a deaf ear to their demands, this unprecedented event could very well be the first drop of rain before an impending storm.

As we delve into details following budget discussions, a bleak picture emerges: 40% of Pakistanis languishing below the poverty line feel utterly abandoned by their government, seemingly left to their own devices in a relentless struggle for survival.

With the tax contribution by the salaried class increasing sevenfold over the past 11 years, the financial squeeze has become unbearable.

The recent budget presented by Finance Minister Muhammad Aurangzeb has generated significant discourse, particularly concerning its implications for the lower and middle classes. While the budget emphasises growth and economic stability, it appears to sideline the pressing issues facing the majority of the population, particularly those related to poverty and income inequality.

One of the most contentious aspects of the budget is the new tax measures, which are expected to affect the salaried and lower-income groups disproportionately. The government has increased the tax burden on these segments, which is likely to exacerbate economic hardships.

For instance, the budget includes an increase in sales tax and excise duty on essential goods and services, which will directly impact the cost of living for the ordinary citizens. This move is widely criticised for its regressive and inflationary nature, as it imposes a heavier burden on those with lower incomes.

Additionally, the budget has failed to introduce substantial measures to curb inflation, which remains a significant concern for the lower and middle classes.

With rising prices for necessities such as food, fuel, and utilities, many households are struggling to make ends meet. The absence of effective inflation control mechanisms in the budget further amplifies the economic strain on these families.

Also, the persistently high inflation could keep the interest rate higher for longer, creating a vicious cycle of economic downturn.

The projected economic growth rate of around 2.3% for the coming fiscal year is another point of concern. While this modest growth may appear positive on paper, it is insufficient to generate the number of jobs required for the country’s expanding labour force.

The lack of job creation is a critical issue, as unemployment continues to rise, pushing more people into poverty. The budget’s failure to address this issue means that the lower and middle classes are unlikely to see any improvement in their economic conditions.

The budget’s emphasis on economic stability and growth appears to be heavily influenced by the need to secure a deal with the International Monetary Fund (IMF).

Pakistan has been in negotiations with the IMF for a bailout package, which requires the implementation of stringent fiscal and structural reforms. These reforms often include measures such as reducing subsidies, increasing taxes, and cutting public expenditure, all of which tend to disproportionately impact the lower and middle classes.

In this context, the budget’s focus on increasing revenue through taxation rather than expanding the tax base or curbing tax evasion and government expenditures reflects the government’s myopic approach to fulfilling IMF’s preconditions at any cost.

However, this approach has serious implications for the lower and middle-income salaried class, which does not have any pressure group or representation in the power corridors. This brewing sense of abandonment has resulted in a significant increase of up to 119% in brain drain in 2023 on a year-on-year basis, as per the Economic Survey 2023-24.

While those not “fortunate enough” have so far resorted to just a press conference, however, the brewing social unrest as a result of the regressive tax regime cannot be ignored any more.

The writer is a financial market enthusiast and is attached to Pakistan’s stocks, commodities and emerging technology