Fiscal prudence in election year: Govt defends ‘responsible budget’

Finance minister says it shows the world that Pakistan is a responsible nation, even in times of crisis.

ISLAMABAD:

Defending the budget a day after its announcement, Finance Minister Dr Hafeez Shaikh said the government has presented a “balanced budget” that provides “relief” but does not compromise on economic stability, despite the upcoming elections.

“It is a responsible budget … the government will try to borrow as less as possible, and increase tax collection, to avoid inflationary impact of the budget,” the finance minister said while addressing a post-budget press conference on Saturday.

For the next fiscal, the government has estimated Rs1.18 trillion in budget deficit, against a total outlay of Rs2.96 trillion.

The budget has been prepared on the basis of four principles – ensuring macroeconomic stability despite global and domestic economic crises, ensuring the country remains on a growth trajectory, increasing tax collection and bringing inflation down to single digit, the finance minister said.

The budget gives a message to the world that Pakistan is a responsible nation even in times of crisis, he added.

Facilitating taxpayers

A primary focus of the budget is to collect tax from individuals with high income who evade paying taxes.

“It is a distinction of the present government that it has been adding an additional Rs400 billion into revenue through taxes for the last two years and the trend would continue in the next year as well,” he said.

“We promised taxpayers that we would provide relief in the new budget and we have fulfilled that promise,” he said, adding that tax simplification will provide relief to 1.4 million taxpayers.

A person who earns Rs50,000 monthly will now pay only Rs1,500 in tax as opposed to Rs5,000 under the previous regime, he added.

Shaikh said after consultation with the business community, turnover tax on business income was slashed by 50%. “Turnover tax on total income has been brought down to 0.5% from 1% - a move that will increase liquidity and cash flow,” the minister said. Tax initiatives will not only reduce burden of honest taxpayers but also minimise dependency on foreign aid, he added.

Power, employment

Shaikh said Rs183 billion have been allocated for power subsidies, and another Rs115 billion for power sector development projects, to add more electricity in the grid in the next year.

“The shortfall cannot be dealt with just by allocating finances – the resolution of the issue demands improvement of administrative infrastructure and governance,” Shaikh candidly admitted.

The minister said that solar tube wells would be introduced in the country to improve agriculture productivity and to reduce oil import bill. The government will share the burden with farmers and the proportion of subsidy will be set in a few days.

Shaikh said the government will try to rationalise the use of gas since imported gas is twice as expensive. The collection under gas development surcharge will be used to finance the Iran-Pakistan and the Turkmenistan-Afghanistan-Pakistan-India gas pipelines.

The government has decided to provide jobs to 100,000 educated youth, the finance minister said.

As many as 60,000 jobs will be given to Masters degree holders, and another 40,000 to Bachelors degree holders, he added.

New loan with the IMF

Shaikh also criticised Governor State Bank of Pakistan (SBP) for giving a statement about the implication of upcoming international loans repayments on foreign currency reserves.

“Those who have been sitting at important posts should know that their statements carry weight and have implications for the country,” Shaikh said.

Governor SBP Yaseen Anwar, in an interview to an American newspaper, had said that Pakistan may seek an IMF programme due to the adverse impact of repayments of loans. The statement had unnerved the market, resulting in steep depreciation of the rupee against the dollar.

Shaikh avoided a question on signing a new programme with the IMF and said that the country will honour its all payments to the bank, according to the pre-arranged schedule.  

Published in The Express Tribune, June 3^rd, 2012.