Rich-poor gap widening

Macroeconomic stability is a highly desirable goal for any country, especially for those which suffer from chronic resource shortage and whose industrial potential is constrained in the confines of sunset sectors like sugar and low value textile goods and whose agricultural potential continues to remain in the profligate and decadent grip of feudal aristocracy which as a class has been lording over countries like Pakistan for decades. The age-old trick in the hands of the ruling elite is to feed the nation at large during the annual budget making season with feel-good stories that the multilateral donors like the World Bank, Asian Development Bank and the lender of last resort, the International Monetary Fund (IMF), readily provide on request to keep the debtor coming back for more and more dole to be spent on the import of unnecessary goods from important member countries which no one in the world wants to buy and; at times to get the recipient to promote the global political interests of these very powerful member countries such as the US, UK, Germany and France.
Another feel good story of the season is about remittances. As usual these have already increased significantly. But what is noteworthy here is the significantly long jumps that remittances from the UAE have been taking year after year lately despite the fact that job opportunities in the Gulf region have been stagnating since the financial crisis of 2008. These remittances are over and above the investments the Pakistanis have been making in real estate in Dubai and Abu Dhabi since at least 2009. Corruption money is smuggled to these economically 'free-for-all' countries through a number of routes- sea, air and over land and part of it comes back whitened in the shape of remittances for use in legitimate business in Pakistan but the bulk is kept out and invested in real estate.
Another feel good story that is circulated by the officials during the budget season is the government's determination to start broadening the tax base by next fiscal year (which never happens) and its plans to phase out another batch of tax-exempting Statutory Regulatory Orders (SROs) from the next fiscal year. Such decisions even if taken at the time of budget announcement are invariably withdrawn subsequently on pressure from politically powerful lobbies.
However, the most interesting feel good story is about what the IMF thinks about Pakistan's current state of the economy and the good tidings that the Fund has as a result of such remarkable achievement (made possible in recent times by a steep decline in world oil prices) of the official economic managers released the tranche due around this time of the year.
There is no country on the face of this earth which after having been treated by 'Dr IMF' had survived economically. Most of the time the doctor's diagnosis itself goes off the mark by miles. But even if it had read the disease correctly its one cure-fit-all diseases has only been worsening the ailment. So, while macroeconomic stability is a highly desirous goal yet by the time a country succeeds in achieving this goal it invariably ends up with resource constraints becoming even more chronic and the unemployment rate shooting through the ceiling.
Indeed, the economic policies being followed over the last several years have facilitated a handful of Pakistanis to corner almost the entire national wealth as well as the sources that generate it. This is happening due mainly to the 'neo-liberal' economic policies that we have been forced to follow since mid-1980s by the proponents of the infamous Washington Consensus.
The most devastating side-effect of these policies has been the emergence of an enormous and constantly expanding inequality gap between the rich and the poor. Meanwhile, this policy of minimal government interference and free market forces hyped as a guarantee for social justice has reduced the state to a skeleton incapable of formulating a way out.
Eminent economists the world over do seem to recognise the malaise but they are not yet willing to come out of their denial mode as most seem to have deluded themselves into believing that the 'free market' forces would eventually dispense social justice and reduce inequality.
Some local independent economists of international repute who have studied the ups and downs of Pakistan's economy from close quarters seem to have come to the conclusion that the inequality gap would continue to widen unabated unless land reforms are introduced without any further loss of time and concurrently all incomes irrespective of their sources are brought into direct tax net.
The ownership of agricultural land has been identified besides property and financial assets to be the primary manifestation of inequality in Pakistan. Small farmers with less than 5 acres of land constitute as much as 65% of the farming population in Pakistan, but own only 19% of the farm land. There are about 26,000 farmers only (0.4% of total) who own as much as 14% of the land. Large landlords have preferential access to irrigation water and own tractors, tube-wells and other agricultural equipment.
And since they also wield enormous political power (Majority of MNAs/MPAs are large landowners, especially in Punjab and Sindh) they have successfully frustrated all attempts to introduce land-reforms and have also seen to it that their incomes continue to remain outside the tax net. Furthermore, the top 20% of population accounts for almost 52% of property income while the top one per cent of bank depositors account for 80% of the deposits. Banks extend 77% of the credit to the top one per cent of borrowers.
There are an estimated one million shareholders of publicly quoted companies. The market capitalisation amount is part of the wealth of these one million individuals. Family ownership of companies still dominates the corporate world making them too vulnerable to the vagaries of the market. These wholly family owned corporate entities, in order to offset the effects of such risks to their incomes and assets, indulge in tax evasion and pilfer public utilities.
Lobbyists of big business buy political influence to ensure governments, no matter what kind, keep making 'business friendly' taxation policies. Meanwhile the incidence of poverty in the country is rising steeply. And due to continued underinvestment on the people, especially in education and health, the rate of improvement of the Human Development Index of Pakistan is estimated to be slowing down considerably.
One way of taking care of the immediate hurdles in the way of liberating the national economy from the clutches of 'neo-liberal' policies is by introducing a tax policy focusing on more progressive direct taxation with the key areas of focus on agricultural income, property and unearned capital income from financial assets; eliminating regional disparities, an issue to be tackled by NFC and Provincial Finance Commission (PFC).
The PFC will have to design an appropriate revenue-sharing formula to tackle intra-regional inequality.
One very quick way of reducing inequality could be: 1.To focus on maximum employment in potential sectors like agriculture, rural development, small scale manufacturing and construction while making development allocation; 2. Take in hand social protection policies, especially designed to help workers, women, youth and minorities; 3. Fixing appropriate pricing of agricultural inputs, support prices for inputs and income supplement programmes and; 4. Allocating higher share of public expenditure to social services, especially education and health.