EDITORIAL: The Minister for State for Finance and Revenue Ali Pervaiz Malik has stated that the point of pushing through a tough and unpopular budget was to use it as a stepping stone for an International Monetary Fund (IMF) programme, which will be the twenty-fifth during the seventy-seven years since independence, adding that “there are no major issues left to address, now that all major prior actions have been met, the budget being one of them.
“ This claim contradicts the Federal Minister for Finance and Revenue Muhammad Aurangzeb’s reference to “our home-grown reforms agenda…aimed at achieving macroeconomic stability and sustainable growth” during his 10 June budget speech which he then diluted on 30 June during his press conference by stating that “the IMF programme is our assurance in terms of macro stability. We are taking it forward; it is inevitable. I’m very optimistic that we’ll be able to take it through the finish line for an Extended Fund Programme, which is going to be larger and longer in nature.”
Two observations are obvious. First, use of the phrase ‘home-grown’ in economic reforms has a political flavour as it not only strengthens the capacity to think out-of-the box by the incumbent economic team leaders but also sends a clear message to the stakeholders that harsh but corrective policies will be implemented even at the cost of losing political capital.
Sadly, this is not reflected in the budget for 2024-25 as it raised current expenditure allocation by 21 percent, an outlay with no contribution to growth of the economy though with heavier than ever reliance on borrowing does raise the debt servicing element of the budget, which is a highly inflationary policy, and the envisaged increase in revenue sources are from existing taxpayers (with higher tax rates applicable on the salaried class) and through widening the ambit of sales tax on goods such as packaged milk and stationery items, which would imply that the disposable income of the middle to lower middle to poor will erode further.
True that the present government is meticulously adhering to the IMF prior condition to ensure that utility prices meet full cost recovery objective but reforms within the poorly performing sector remain focused on privatisation of distribution companies without recourse to basic federal government policy flaws that has forced government after government to extend large annual subsidies to Discos because of its utter failure to stem theft that is estimated to cost around 500 billion rupees – the rate of income tax on the salaried class has been increased to such an extent that it is rendering the tax structure even more unfair and anomalous than it was previously.
And to add insult to injury the decision to raise salaries of civilian and military personnel by 20 to 25 percent at the taxpayers’ expense, comprising only 7 percent of the total labour force, and allowing senior officials tax-free sale/purchase of land allotted by the state, has generated anger amongst the remaining 93 percent of the workforce that has been grappling with plus 20 percent inflation for the past two to three years with no salary increase due to the ongoing economic impasse.
In addition, given the appalling state of the economy, diverting funds for parliamentarians’ discretionary schemes, which the opposition members reckon is to shift the political dynamics in time for next elections, should have been deferred to better times.
Second, the design flaws in the IMF programme have not been corrected – flaws that include a focus on total revenue and on raising it as a percentage of GDP rather than on focusing on reforming the tax structure by reducing the existing reliance on indirect taxes, to the tune of 75 to 80 percent, whose incidence on the poor is greater than on the rich, increasing the outlay on current expenditure rather than on the vulnerable (Benazir Income Support Programme remains about 3 percent of total current expenditure in the current year’s budget) and insisting on a discount rate with an existing differential of around 8 percent from the Consumer Price Index and the core inflation, which is throttling private sector borrowing with implications on private sector output while raising the borrowing costs of the government that accounts for unsustainable budget deficits and inflation.
Copyright Business Recorder, 2024
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