“I am from the corporate world”, Muhammad Aurangzeb, Federal Finance Minister, proudly stated in a post-budget interaction on a private channel – pride, one may assume, for his experience in taking informed financial decisions that paid dividends rather than what is generally attributed to a corporate entity: limited liability of the shareholders as to the company’s debts.
There is no doubt that his selection by all the incumbent stakeholders was premised on his corporate experience as the focus is on luring foreign direct investment (FDI) into the country as a means to deal with the ongoing economic impasse.
With FDI no more than a trickle, less than 650 million dollars in the outgoing year, though expectations remain highly buoyant, the question is whether Aurangzeb’s background in the corporate world has led to any marked difference, read out of the box solutions, from previous budgets in terms of expenditure priorities and taxation measures.
That unfortunately is not the case – current expenditure has been upped by 21 percent compared to the revised estimates of last year – as opposed to the budgeted raise of 26.5 percent in 2023-24 when compared to the revised estimates of 2022-23.
Federal Board of Revenue (FBR) target has been raised by a whopping 40 percent compared to the revised estimates of last year – with a 27 percent raise in last year’s budget compared to the revised estimates of 2022-23, which incidentally registered a shortfall of 162 billion rupees according to the budget documents.
The Finance Minister emphasized the need for structural reforms, a need highlighted by his predecessors as well given that reforms were identified decades ago though never implemented.
As in previous years four major reforms were highlighted by the Finance Minister but not reflected in the budget. First, the budgeted power sector subsidy was raised by 103 percent when compared to the revised estimates of last year and disturbingly the privatised K-Electric was budgeted 174 billion rupees under the head of tariff differential subsidy which begs a question: why do the taxpayers’ have to foot the bill for a subsidy to a company that was privatised nineteen years ago?
And if the policy of tariff equalization is not to be abandoned then what is the net value of privatizing other distribution companies as they, like K-Electric, will be eligible for the tariff differential subsidy unless this policy is abandoned; additionally, 120 billion rupees has been budgeted as additional power subsidy which needs clarification.
Second, all new government recruits - civil and one would assume military personnel though that was not clarified - would contribute to their pensions with the taxpayers’ no longer funding their pensions entirely. While this must be fully supported yet this policy implies that its positive impact would be delayed by a generation.
Thirdly, the salaries of government employees consisting of 7 percent of the total labour force have been raised by a rate that is well above the inflation rate while the private sector employees would continue to struggle to meet their kitchen budgets and pay higher indirect taxes – not a recipe for public contentment.
And finally, while FBR collections are budgeted to rise by 40 percent, collections that form part of the divisible pool to be shared with the provinces according to the 2010 agreed National Finance Commission award, yet Aurangzeb has budgeted a higher rise - 64 percent in non-tax revenue.
The reason: it is not part of the divisible pool - a raise that necessitated the proposal to raise the petroleum levy limit from 60 to 80 rupees per litre on petrol and high speed diesel, a highly inflationary policy, that is budgeted to account for 26.4 percent of the total non-tax revenue for next year.
And what should be a source of even more serious concern to all stakeholders are two assertions made by the finance minister. First, that the government must engage only in essential services and not be in business.
One wonders if he is aware that “strategic assets” held by the government that Prime Minister Shehbaz Sharif stated recently must not be privatised have still to be defined; and in addition he needs to determine whether the government has the capacity to implement this policy on existing institutional owned and operated businesses that account for serious anomalies in the tax system.
The finance minister pledged that his policies would be market driven, which indicates poor understanding of how markets operate in this country. In Pakistan perfect competition does not prevail even in those markets where the number of buyers and sellers is large enough for neither to be able to influence price.
Price in sugar and cement sectors is set by market forces in other countries due to the large number of buyers and sellers but in Pakistan they have formed associations, duly registered with the Securities and Exchange Commission of Pakistan (SECP), a platform from which they exert considerable influence on policy and associated sub-sectors that provide their basic inputs.
This is explained by the export subsidy on sugar paid for by the taxpayers and an upping of the price at which sugar is available in the domestic market. And given our large porous borders with output next to zero in Afghanistan, smuggling of items across the border is routine.
The industrial sub-sectors are similarly well organised and registered with SECP and routinely seek to use their considerable political clout to ensure fiscal and monetary policies that favour them (including electricity at cheaper rates).
In the farm sector wholesale market, aarthis, with a generational history of lending to growers, make windfall profits – paying the growers less than the market value and selling it at a rate well above their purchase price.
Even the stock market has a few major players and government after government has been able to manipulate the market to show a bearish or bullish trend as and when politically required and in return the taxes that this sector generates are no more than 2 to 3 billion rupees against the 100 billion rupees plus generated from the stock market in India.
Muhammad Aurangzeb acknowledged publicly that the negotiations with the IMF for a successor programme are at an initial stage.
And the PPP Chairman Bilawal Bhutto Zardari, (without whose party’s support the budget cannot be passed as their votes are critical to get the simple majority needed) expressed serious reservations at the government’s failure to take the party on board which prompted the prime minister to engage with the PPP Chairman and an agreement was reached this Thursday though its details have not been shared.
To conclude, this budget is unlikely to remain in its present shape before its passage from parliament as the PPP issues are expected to be resolved and as and when the IMF negotiations begin to fine-tune the conditions (upfront and during the course of the programme) more tweaks should be expected in months to come.
Copyright Business Recorder, 2024
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