Election years are a slippery slope for the country’s finances – but the government insists it will remain disciplined.
For the next financial year 2012-13, the government plans to not only reduce its budget deficit by 0.5%, compared to the current fiscal year, but also increase the tax target to roughly Rs2,375 billion.
In a meeting of the Economic Advisory Council (EAC) – a consultative body comprising independent experts and government functionaries – Finance Minister Dr Abdul Hafeez Shaikh said the “government will keep following path of fiscal discipline”.
The meeting had been convened to discuss proposals for the upcoming budget, the last one to be presented by the incumbent ruling alliance.
Dr Hafiz Pasha, convener of the EAC, said the government has assured the body that elections will not disturb the budget.
The EAC has also been assured by the finance minister that macroeconomic stability will take precedence over politics and budget deficit will be reduced by 0.5% next year, he added.
For the next fiscal, the government has projected 4.5% economic growth and is expecting inflation to hover between 10.5 and 11% – the sixth consecutive year of double-digit inflation.
The size of the national economy is expected to grow to Rs24 trillion next year, from the current Rs21 trillion.
According to Dr Pasha, budget deficit in the outgoing fiscal will remain at 5% of GDP, or Rs1,050 billion, excluding Rs391 billion in debt payments.
He added though that the finance minister has insisted that the government would try to keep the deficit at 4.7% of GDP.
The minister also expressed fears that Rs75 billion in sales of 3G licences and Coalition Support Fund receipts may not materialize this year, causing a massive shortfall in non-tax revenues.
Though the government has not yet finalised the Federal Board of Revenue’s (FBR) tax target, Dr Pasha said that for ensuring macroeconomic stability, the EAC has advised the government to increase tax-to-GDP ratio by 0.5 percentage points to 9.8% of GDP.
According to this, the next year’s tax target would be Rs2,352 billion.
A senior official of the FBR, who also attended the EAC meeting, said that the authorities are considering fixing the target in the range of Rs2,350 billion to Rs2,375 billion, an increase of Rs423 billion over the current year’s target.
The additional target will not be raised by levying new taxes though.
A major part of that target, or about Rs315 billion, will be automatically collected as the economy grows at a nominal rate, i.e. including inflation, of 16%. The remaining Rs110 billion will be raised either through new taxes or administrative efforts.
Meanwhile for the first time, Chairman FBR Mumtaz Haider Rizvi hinted that the government may miss this year’s tax collection target of Rs1,952 billion. He blamed the violence in Karachi as the single reason for this shortfall.
“The FBR’s target cannot be seen in isolation and there is very steep decline in collection in March,” Rizvi said.
“We will still try to achieve the Rs1,952 billion target”, he added.
Published in The Express Tribune, April 8th, 2012.
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