A visionless budget

"Funds are nothing compared to the enormity of the energy crisis and the criticality of its resolution"

The sound and fury with which the federal budget for 2014-15 was presented signified nothing for the people and not much for businesses. The only difference was that everybody who is somebody in the business sector was consulted, while the wretched of the earth would be taxed without representation. Tax reform, the major structural issue facing the economy, was skirted around the fringes. The bulk of the additional taxes are billed to come from direct taxes, but the adoption of the indirect and failed means of electricity bills, withholding agents and advanced payment is unlikely to improve the catch. It does, however, provide an excuse to reduce the tax rate on the corporates, capital gainers and importers. Deadlines have been imposed to clear all refunds, as if to compensate the businesses for the little extra that they might have to pay. They have also been compensated through subsidised credit. SRO elimination will take three years and the larger issues of tax reform have been left to a commission.

As in the past, expenditure priorities are auto-selected: debt servicing, defence, civil administration and pensions — in that order. Again, only the subsidies affecting the poor more have come down. The claim to increase the amount and the allowance of the targeted programmes like the Benazir Income Support Programme (BISP) sounds hollow when you look at the low actual disbursements against hefty allocations. The attempt to shift the burden of funding this programme to tax-exempt voluntary contributions to an income support fund has miserably failed. Finance minister Ishaq Dar thought that the PML-N’s main vote bank — the traders — would help him get rid of the PPP relic, the BISP. He should have known better, as he admits now, that traders want to keep the taxman away. No wonder they get a special treatment in the budget.

The new tax measures and intended cuts in the current expenditure still leave a gap between revenue and current expenditure of 0.7 per cent of GDP. This revenue deficit plus the development expenditure of 4.2 per cent constitute an overall fiscal deficit of 4.9 per cent of GDP. To keep this deficit under five per cent, the provinces will be forced to generate a surplus of Rs289 billion. In a disguised manner, this practice rolls the NFC transfers to the provinces back to the federal government to finance its deficit.

Like last year, energy is not the major priority of the budgeted Public Sector Development Programme. The Water and Power Development Authority (WAPDA) and the Atomic Energy Commission together get Rs115 billion and the National Highway Authority is given Rs112 billion. True, WAPDA and other power sector companies have to generate an equivalent amount from their own sources. Even if these funds are fully mobilised and released, they are nothing compared to the enormity of the energy crisis and the criticality of its resolution. Its economic and social costs far outweigh the benefits expected from motorways to be built by the National Highway Authority. The emphatic declaration by the finance minister that the Lahore-Karachi motorway will be built within the PML-N’s tenure reflects the development philosophy being followed. In simple words, the approach is to build monuments to development that can be completed within the tenure of the government and sold as visible achievements to the electorate. In the famous words of John Maynard Keynes, we are all dead in the long run. Investment in energy, unfortunately, yields benefits in the long term. Is it any wonder that the much-trumpeted Vision 2025 and the 11^th Five-Year Plan found no mention in the budget speech? According to these documents, 2014-15 is the second year of the Plan.

Published in The Express Tribune, June 6^th, 2014.

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