Fiscal oddities

At a time when fiscal situation was under a great deal of stress, it was expected that the government would be very keen in cutting corners in order to reduce the expenditures to the minimum possible extent. Strangely, however, authorities of the country appear to be moving in the opposite direction. According to a report in this newspaper, the Prime Minister has directed the Ministry of National Food Security and Research to aggressively tackle the issue of hunger and malnutrition under the "National Zero Hunger Action Plan" launched by the government on a top priority basis. In pursuance of the Prime Minister's directive, a Letter of Intent (LoI) has been signed between the Ministry of National Food Security and Research and the World Food Programme (WFP), whereby government of Pakistan would donate 0.5 million tons of wheat to WFP for conversion to high nutrition diets for distribution among the target groups. To start with, it has been proposed that 0.2 million tons of wheat out of Passco's stocks of 1.2 million tons may be provided to the food insecure/poor people of Pakistan through WFP. The cost of wheat amounting to Rs 6.25 billion would be picked up by the Government of Pakistan while WFP would cover other associated costs to the tune of Rs 3.1 billion. Finance Division is reported to have opposed the proposal, probably due to the financial burden on the exchequer. However, since the LoI has already been signed and the PM has shown a very keen interest, ECC is likely to approve the donation of wheat, the quantity of which may be somewhat different from the original proposal. The behaviour of provinces also seems to be at variance with sound fiscal management. For instance, the deficit budget announced by the Punjab government proposes generous subsidies and high spending on schemes like grant of interest-free loans, subsidised tractors and yellow cabs as well as free laptops to the people of the province, particularly the youth. The government has allocated Rs 15 billion for the youth-related initiatives, Rs 34 billion for subsidy on food, Rs 2 billion for public transport, Rs one billion for the provision of solar panels to 50,000 households. Surprisingly, the budget with a total current and development outlay of Rs 782.85 billion is devoid of commitment to raise provincial tax revenues by seeking effective taxing of the under-taxed sectors like agriculture and real estate or broadening the tax base. Instead, the Finance Bill tabled before the provincial assembly proposes certain tax relieves which, no matter, however puny, would have budgetary implications. Banish the thought that other provinces would rise to the occasion and follow the principles of good housekeeping. In all probability, they would follow the elder brother and also announce similar schemes that would please their constituencies. It needs to be mentioned that these kinds of budgetary proposals appear to be highly attractive on paper but in a situation of financial stringency like the one being faced by Pakistan, are usually no more than a lollipop to show that the government is seriously concerned about the plight of ordinary people and trying hard to do something about it. In fact, most of the time wasting money on the implementation of these schemes is counter-productive because expenditures on such schemes are met through higher level of deficit financing which increases inflationary pressures and is quite painful for the poor. Such an approach, therefore, is known as inflation tax and is regressive in nature due to its higher burden on the common man to finance populist, vote getting measures. The ordinary people should rather be wary instead of adopting a welcoming attitude towards such self-serving proposals. We know that measures like "zero hunger programme" or employment creating schemes could be popular in the current situation in Pakistan but these need to be financed either by pruning expenditures from other heads or raising more revenues by bringing the exempted sectors into the tax net and broadening the tax base so that their financing through more "money creation" does not stoke inflation further. Other issues related to such measures also cannot be ignored. Obviously, the scope of these kinds of schemes cannot be enlarged to cover the whole population of the country. As such, the segments of population outside its ambit would feel deprived and show their resentment in one form or the other. Sometimes, the dependency syndrome or unnecessary comfort level adversely affecting the working habits of the beneficiaries is a negative point of such schemes. The involvement of bureaucracy in such efforts could also place extra burden on its working and affect its efficiency. Overall, we feel that such schemes should be proposed and implemented only on rare occasions to save lives or in emergencies. Competition between various political parties to win goodwill of the voters through these schemes is mere hypocrisy or like using others' money for selfish motives.