The decision by the MQM, a coalition partner, to stage a walkout in both the National and Sindh Assemblies in protest against the just under 10 percent announced rise in the price of petroleum products and to give a three-day ultimatum to revert the price rise has placed the ruling PPP in an awkward position again.
However, more disturbingly, it has raised the ugly spectre of the country being pushed towards an unsustainably high budget deficit that would bring in its wake, relatively higher inflationary figures than if the rise in domestic oil prices, in alignment to the rise in international prices, is allowed to remain effective. The MQM was joined by the PML (N) in its condemnation of the price rise. The question that begs an answer is the raison d'etre of the opposition by these two parties to a rise in the price that has been witnessed throughout the world.
But first it is critical to note the actual ingredients of the oil price in this country. Oil and products sold in this country are taxed: the Petroleum Levy (PL) was targeted to generate 110 billion rupees in the budget for the current year, a target that was unlikely to be achieved after the government withdrew its decision to raise prices a few months ago, due to the ratcheting up of political pressure by the MQM and the PML (N) through their nine and 10-point agendas respectively. This decision automatically led to a commensurate reduction in tax collections negatively impacting on the budget deficit. In addition, the government also levies sales tax on the sale of oil and products. Thus the domestic price of oil at any given time consists of the import price plus PL and sales tax. The money collected through these taxes is used for budgetary support. The government decided to raise POL prices on Monday, a day before the International Monetary Fund (IMF) technical team was due in the country with the objective of restarting the stalled Stand-By Arrangement (SBA) talks. However, the announcement indicated that the POL price rise would include a significant increase in the PL on all oil products: from 2.20 to 6.25 rupees per litre on petrol, 4.84 to 9.80 per litre on HODB and from 0.55 to 3.75 rupees per litre for HSD. Why tax an item that is witnessing an unprecedented rise in the international market as it would have a major trickle-down impact on nearly all sectors of the economy, argue the MQM and the PML (N).
The government's rationale is that it needs to meet its commitments/obligations with respect to the stalled SBA which has effectively compromised the release of all external assistance for budgetary support. The agreement with the IMF requires the government to contain the deficit to 5.1 percent of the Gross Domestic Product (GDP), which would not be possible without sustaining the targeted revenue from PL - an 8.3 percent deficit figure is being quoted until tax collections improve or expenditure is massively slashed. The government further accuses the country's parliamentarians and other influentials of continuing to successfully resist the imposition of a value added tax that seeks to enhance documentation and end exemptions and points to the parliamentarians collectively refusing to entertain an income tax on the rich landlords, with the PPP parliamentarians on the same page in this regard.
The answer is the same for both the MQM and the PML (N): expenditure reduction must be supported that includes improved governance, reducing leakages including the 300 billion rupee annual bailout packages for the state-owned entities (SOEs). These are legitimate recommendations, however they are not doable in the short-term. The MQM and the PML (N) point out that the government has been in power for over three years and has not yet even begun formulating a strategy to contain corruption in the FBR while, disturbingly, it continues to appoint loyalists as senior officers in SOEs, as well as in the investigative branch of government, thus openly flouting the principle of meritocracy with a consequent impact on the SOEs financial fortunes.
This is certainly a valid point. However, there is a need to deal with the economic crisis that the country is grappling with today. The PML (N) as the party that has formed a government in the centre in the past is more aware of the pitfalls that the incumbent government is trying to circumvent by increasing PL as it is the easiest to collect. The MQM, too, must understand that documentation of traders is critical if the country is to embark on a path towards raising the tax-to-GDP ratio. Holding the government hostage to its economic compulsions is unlikely to be in any one's interest, least of all in the interest of the political system, able to bar the entry of adventurers. In short, there is a need for all sides to come together on this issue, desist from giving ultimatums and if the MQM and the PML (N) are serious about ending the culture of the rich not paying taxes then let them table and support a tax on the income of the rich landlords.
At the same time when push comes to shove and its political fortunes are threatened, the PPP has shown a partiality for allowing its coalition partners, at the centre or erstwhile in the province of Punjab, to hold its economic decisions hostage to its political compulsions. That must change. The government must accept that today its major responsibility to the people of this country is to turn the economy around. While the PPP must desist from announcing upward price revisions without consultations, the MQM complained that the committee designed to debate proposals was not convened prior to the oil price rise announcement, yet once consultations fail then it is the responsibility of the government to ensure that unpalatable decisions are taken if they are in the national economic interest.
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