Think tank: Suggestion of Rs4t federal budget

IPR proposals aimed at shifting mode of policies from stabilisation to revival.

ISLAMABAD:

What appeared to be a realistic assessment of the economic situation, a credible independent think tank has suggested a federal budget of Rs4 trillion for the next financial year and proposed Rs200 billion in tax measures while urging to capture incomes of stock market and power producers. 

The Institute of Policy Reforms’ (IPR) proposed shadow budget is about 6% or Rs220 billion higher than what it has assessed the actual spending of Rs3.8 trillion in the outgoing fiscal year.

Institute of Policy Reforms Managing Director and former finance minister Dr Hafiz Pasha shared the blueprint of the budgetary proposals for the financial year 2014-15 on Wednesday. While trying to remain as realistic as possible, the IPR budgetary proposals are aimed at shifting the mode of economic policies from stabilisation to revival.

Dr Pasha criticised the government’s approach, what he called a ‘mad rush to borrow’.

He said that so far the government has indicated to borrow $52 billion in the next five to 10 years, which is almost equal to size of total public debt.

For the next fiscal, it has assessed the net income of the federal government, excluding provinces’ shares, at Rs2.1 trillion against the expenditure outlay of Rs4 trillion, showing a gap of Rs1.925 trillion or 6.5% of Gross Domestic Product that has to be bridged through borrowings.

Expenditures

In IPR’s view, for the next fiscal year, the interest payments could be Rs1.4 trillion, higher by 16% of its estimates of this year. It has worked out Rs714 billion defence budget, showing a 12% increase. Similarly, it has assessed the subsidies at Rs440 billion, lower by about 8% over this year’s assessment.

The IPR says that given the security situation, defence spending remains the second largest head. It said National Security Policy of Pakistan identifies additional expenditures on establishment of Rapid Response Force to improve the security situation in Pakistan.

It has suggested that restructuring and privatisation of Pakistan International Airlines and Pakistan Steel Mills will increase grants component by 13% in the next budget. The IPR has proposed reducing the size of federal government by decreasing numbers of federal ministries and divisions.

Against the government’s plans to allocate Rs525 billion for development budget for the next fiscal year, the IPR has proposed development budget of Rs420 billion aimed at to keep it realistic and avoid cuts during the course of the year. It has suggested to set aside another sum of Rs150 billion to pay of circular debt in the next fiscal.

The IPR has differed with the government’s assessment of Rs220 billion power subsidies for the current fiscal year and projected that the outstanding circular debt is Rs355 billion by end June and the government may have to retire half of this amount in the next few weeks.

Against the IMF’s target of 5.8%, the annual budget deficit of the federal government will be close to 7% of GDP or Rs1.821 trillion, if the government decides to retire the circular debt in the next few weeks, said Dr Pasha.

Revenues

While suggesting Rs2.7 trillion tax target for the Federal Board of Revenue (FBR), the IPR has proposed Rs200 billion new tax measures for the next fiscal year. It has urged the government to raise minimum Rs110 billion by withdrawing income tax exemptions. Dr Pasha said the entire focus on withdrawing custom duties exemptions was misplaced.

Dr Pasha said Rs68 billion can be raised by withdrawing income tax exemptions to Independent Power Producers. The government is unlikely to accept this proposal, as these exemptions are embodied in binding agreements.

The think tank has proposed a Securities Transaction Tax at a rate of 0.5% of the tradable value of a share aimed at collecting taxes from booming Stock exchange whose contribution in taxes is negligible. It said by capturing gains on property and shares, next year the government can raise Rs20 billion. It urged the government to withdraw huge benefits given to pensioners.

Its working suggested that government can raise Rs40 billion by withdrawing customs duties exemptions and Rs50 billion on withdrawal of sales tax exemptions.

Outgoing year

Dr Pasha reprimanded the FBR stating that the body continued lackluster performance this year as well. “We will be lucky if the FBR collects Rs2.255 trillion in revenues this year, which are Rs90 billion less than this year’s downward revised target of Rs2.345 trillion and Rs220 billon against original target of Rs2.475 trillion,” he said.

Published in The Express Tribune, May 8^th, 2014.

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