Government proposes a 50 percent reduction: pay raise for public sector employees

The government has proposed a 50 percent reduction in the raise given in the salaries of public sector employees in budget 2010-11, as part of expenditure control, measures and imposition of additional taxes to contain the fiscal deficit at 5.4 percent for the current fiscal year, it is reliably learnt.
Sources said that a cut in salaries was proposed for a period of six months on Wednesday during talks with Pakistan Muslim League (N) team on economic reforms agenda and the latter has agreed to the proposal, provided this cut is applied across the board and not to the government employees alone.
Ishaq Dar who is heading PNL-N side was quoted as saying that the proposed cut in salaries should also be applied to the prime minister, president, and ministers. The increase in salaries of government employees would be reduced to 25 percent from 50 percent announced by Finance Minister Dr Abdul Hafeez Sheikh in his 2010-11 budget speech.
The government also proposed a saving of Rs 10 billion from flood relief assistance of Rs 70 billion received from the international community for rehabilitation of flood affectees and Rs 31 billion revenue by imposing 10 percent flood surcharge and raising federal excise duty from one per cent to two per cent.
The expenditure and revenue measures to contain the fiscal deficit at 5.4 percent would be finalised by both the sides in today's (Thursday) meeting and if an understanding is reached, these measures would be presented to the International Monetary Fund (IMF) mission likely to visit in next two weeks.
An official on condition of anonymity said that the budget deficit is likely to remain around 5.4 per cent even if all these measures were adopted because expected shortfall in foreign inflows and non materialisation of euro bonds of 500 million dollars which were budgeted for deficit financing for the current fiscal year.
Talking to media after the meeting Finance Minister Hafeez Sheikh and Dar said, "We don't have any choice and have to take measures for revenue increase and cut expenditure to control the biggest challenge of fiscal deficit. Dar said that everything would be all right if the fiscal deficit would remain in control otherwise it would continue to stoke inflation. Dar said PML-N also proposed some suggestions and more information would be shared by the government in today's meeting. He said that this would be collective exercise to control the rising fiscal deficit.
The Finance Minister said some progress was made on the proposals government presented to PML-N for expenditure control and revenue increase and received some comments from them. In reply to a question about achieving 4.7 percent target of fiscal deficit agreed with the IMF, the minister said some people expected that fiscal deficit for first six month would 3 percent but measures taken by the government contained it 2.8 percent. The minister said that political leadership of the country would not allow fiscal deficit to reach such a level, which could be disastrous for the economy.
On Wednesday, the government and PML (N) teams discussed proposals for increase in revenues, reduction in expenditures by 30 percent by the federal government and keeping the budget deficit at a reasonable level. The government wants that the enforcement of Reformed General Sales Tax (RGST), Flood Surcharge and increase in Special Excise Duty should be made an integral part of 10-point reform agenda, official sources said. Secretary Finance Dr Waqar Masood told media that the provinces surpluses have reached Rs 80 billion so far.