Budget reporting: Husain puts weight behind local governments
Allocating funds to local councils will earn public trust, encourage taxation.
Former State Bank Governor and Dean IBA Dr Ishrat Hussain explaining to reporters about the budget. PHOTO: ONLINE
KARACHI:
It is important for Islamabad to empower local governments for carrying out development work in their respective areas, said Institute of Business Administration Karachi’s Dean and Director Dr Ishrat Husain while addressing a discussion forum on ‘Budget Reporting’ at the Karachi Press Club on Saturday.
Taking advantage of the forum, meant for the training of journalists who cover federal, provincial and local government budgets, Husain advised the participants to highlight the issue of the local government.
The central bank’s former governor said local governments are dysfunctional and people don’t trust them with their tax money. When they see development at their doorstep, they are more inclined to pay taxes.
Giving the example of Karachi, the technocrat said most of the development work was carried out when the local government was functional in the city – regardless of which political party was in power.
By allocating development funds to Union Councils, Tehseel Councils and District Councils, Husain said the government can earn public trust and encourage them to pay taxes and file income tax returns.
Tax collection has remained government’s biggest challenge for years. The country’s tax-to-GDP ratio – tax revenue as proportion of GDP – is appallingly low in the 10% range, as less than 1% people pay taxes and even fewer file their returns.
On the other hand, government’s spending as percentage of GDP remains very high.
This higher spending and poor tax collection leaves the government with a very tight fiscal space – the country’s budget deficit stands at Rs1.4 trillion or 4.5% of GDP as of fiscal year 2015. Moreover, nearly half of the government’s revenue is spent in debt servicing – interest payments on previous loans – leaving little funds for development programmes.
While advising participants, Husain said the media can play an important role by focusing on real issues associated with the budget rather than focusing on certain aspects or sensational journalism.
Giving an example, the SBP’s former chief said privatisation has become a negative term in the media, when it is not.
Quoting another example, this time from the energy sector, that eats up close to Rs250 billion in government subsidies, Husain asked the participants to compare the performance of K-Electric with Hyderabad Electric Supply Company.
Referring to the loss-making public sector entities, Husain said paying Rs500 billion a year in bailout packages to these companies is not a good policy – if saved, the same amount can reduce the fiscal deficit by more than one-third. The economist, however, added that the government should have a strong regulator when privatising these companies.
He also clarified that he was not in favour of privatising certain companies the government treated as strategic assets, but simultaneously stressed the government on providing a level playing field to all players.
Before Husain, the forum was addressed by the country’s most sought-after expert on taxation, Shabbar Zaidi, who had similar advice for the media: avoid sensational journalism and understand the important numbers in the budget document and their impact on the economy.
Deficit is not always a negative term, said Zaidi who is a partner at A F Ferguson & Company. “If expenses are made in the development of education sector, it will yield dividends in the future, therefore, it is for good reasons, he said.
The accountant, however, said the government should increase its revenues by more than Rs1 trillion to make up for the deficit amount. It is time we took big decisions; he said.
Published in The Express Tribune, May 24th, 2015.
It is important for Islamabad to empower local governments for carrying out development work in their respective areas, said Institute of Business Administration Karachi’s Dean and Director Dr Ishrat Husain while addressing a discussion forum on ‘Budget Reporting’ at the Karachi Press Club on Saturday.
Taking advantage of the forum, meant for the training of journalists who cover federal, provincial and local government budgets, Husain advised the participants to highlight the issue of the local government.
The central bank’s former governor said local governments are dysfunctional and people don’t trust them with their tax money. When they see development at their doorstep, they are more inclined to pay taxes.
Giving the example of Karachi, the technocrat said most of the development work was carried out when the local government was functional in the city – regardless of which political party was in power.
By allocating development funds to Union Councils, Tehseel Councils and District Councils, Husain said the government can earn public trust and encourage them to pay taxes and file income tax returns.
Tax collection has remained government’s biggest challenge for years. The country’s tax-to-GDP ratio – tax revenue as proportion of GDP – is appallingly low in the 10% range, as less than 1% people pay taxes and even fewer file their returns.
On the other hand, government’s spending as percentage of GDP remains very high.
This higher spending and poor tax collection leaves the government with a very tight fiscal space – the country’s budget deficit stands at Rs1.4 trillion or 4.5% of GDP as of fiscal year 2015. Moreover, nearly half of the government’s revenue is spent in debt servicing – interest payments on previous loans – leaving little funds for development programmes.
While advising participants, Husain said the media can play an important role by focusing on real issues associated with the budget rather than focusing on certain aspects or sensational journalism.
Giving an example, the SBP’s former chief said privatisation has become a negative term in the media, when it is not.
Quoting another example, this time from the energy sector, that eats up close to Rs250 billion in government subsidies, Husain asked the participants to compare the performance of K-Electric with Hyderabad Electric Supply Company.
Referring to the loss-making public sector entities, Husain said paying Rs500 billion a year in bailout packages to these companies is not a good policy – if saved, the same amount can reduce the fiscal deficit by more than one-third. The economist, however, added that the government should have a strong regulator when privatising these companies.
He also clarified that he was not in favour of privatising certain companies the government treated as strategic assets, but simultaneously stressed the government on providing a level playing field to all players.
Before Husain, the forum was addressed by the country’s most sought-after expert on taxation, Shabbar Zaidi, who had similar advice for the media: avoid sensational journalism and understand the important numbers in the budget document and their impact on the economy.
Deficit is not always a negative term, said Zaidi who is a partner at A F Ferguson & Company. “If expenses are made in the development of education sector, it will yield dividends in the future, therefore, it is for good reasons, he said.
The accountant, however, said the government should increase its revenues by more than Rs1 trillion to make up for the deficit amount. It is time we took big decisions; he said.
Published in The Express Tribune, May 24th, 2015.