Vision: the missing attribute

In recent years, budget making has been reduced to a ritual; it's glossy but unachievable promises are meant only to incite loud applause from the parliament's treasury benches, and thereafter begins an unending process of the promised budgetary targets being revised downwards although, from day-1, they are unachievable because they are not backed by sincere strategies for achieving them.
The Federal Budget 2014-15 is to be announced on June 3, but the pace at which its contents are being finalised (and trade bodies being asked to keep quiet) suggests that it may be delayed. That said the fact is that the practice of announcing the budget before June 30 always leaves the tax revenue collection estimates doubtful; a saner policy would be to announce the budget in the second week of July to base all projections on credible figures.
On May 23, a crucial meeting of the Annual Plan Co-ordination Committee (APCC) which finalises its priorities for different projects and accordingly allocates funds there for was called off after the Prime Minister expressed his dismay over the committee's proposed allocations; he sought allocation for some projects on a priority basis to fulfil PML-N's manifesto.
So far, the indications are that the Federal Budget 2014-15 will provide for an overall outlay of Rs 3,864 billion and the planned resource outlay comprises Rs 3,290 billion in current expenditure, Rs 525 billion in PSDP, and Rs 49 billion in 'net lending'. Transfers to the provinces under the NFC would amount to Rs 1,703 billion, leaving the federation with net revenue of Rs 2,234 billion.
Tax collection is estimated to be Rs 2,810 billion (grossly overoptimistic) and non-tax revenue Rs 817 billion, which will leave a deficit of Rs 1,630 billion or 5.5 percent of the likely GDP. Finance Ministry insiders say that the fiscal deficit would be reduced to Rs 1,404 billion (4.4 percent of the GDP) because provinces will end up with revenue surplus of Rs 226 billion.
During 2013-14, tax revenue collection estimates were twice revised downwards and their eventual recovery may be slightly over Rs 2,000 billion. Against this backdrop, their 2014-15 projection implies a rise of almost 40 percent. It is this optimism that surprises the observers, more so because the Finance Minister has repeatedly promised that no new taxes will be imposed in 2014-15.
But jacking-up existing rates wasn't promised though, that exercise warrants being non-damaging for sectors that are the key sources in terms of external revenue and employment. Yet FBR proposes to hike the rate of sales tax on export-oriented sectors including textile, leather, carpets, surgical instruments and sports goods from the existing 2 percent to 5 percent, and on finished goods from 5 to 17 percent.
While allegations that some exporters have been indulging in questionable practices in documenting the export transactions are credible, the fact is that the majority doesn't indulge in these criminalities. It is also undeniable that due to the ever-expanding gaps in Pakistan's physical infrastructure - power and energy sectors - exporters have been losing their competitiveness.
Pakistan lost its competitiveness in recent years as shown by the latest statistics of the Global Competitiveness Report of the World Economic Forum; it shows that, for the fourth consecutive year, global competitiveness of the country went down; from its global ranking of 101 in 2010-11. Pakistan is now ranked at 133 among the 148 countries ranked in that report.
The less damaging option - expanding the tax net - seems a low priority because you hear nothing about progress on, for instance, FBR's plan to tax the retail sector; the option being exercised is doubling the sales tax levied via electricity and gas bills - from 5 to 10 percent - in the consumption bills of unregistered businesses to "double the tax recovery from the undocumented sector."
Over a year ago, in a petition filed by Transparency International-Pakistan (TI-P) over tax evasion, the Supreme Court had directed TI-P to submit its proposals for checking this menace, and on October 30, 2013 proposals drafted by University of Georgia's International Centre for Public Policy were submitted to the court according to which annual tax evasion was over Rs 1,800 billion.
During 2014, FBR did make an attempt to net the tax evaders but its notices based on addresses of the evaders as per their NICs proved inconsequential. TI-P claims that FBR failed because it didn't implement the strategy recommended by TI-P, which could have increased revenue collection to Rs 4,000 billion. TI-P's claim may be overoptimistic but huge tax evasion is a reality. While the PML-N remains focused on motorways, youth loans, laptops, etc, Pakistan's harshest reality remains its trade deficit reflecting a prolonged failure to prioritise import-substitution.
Ironically, FBR regrets the fact that, after the rupee's recent quick appreciation, revenue from import tariffs couldn't increase because the landed rupee cost of imports went down, though the Rupee appreciated only in the last quarter of 2013-14. Import-substitution doesn't imply attaining self-sufficiency in everything under the sun, without enjoying a cost advantage therein.
This is the age of specialisation, of producing quality at the lowest price. It calls for reaching an agreement with the regional countries on who should produce what, based on a fair assessment of comparative advantage, and then sticking to that agreement. Indeed this means abandoning some industries and expanding others offering compensating opportunities. These hard choices entail pain in the short-term but well-conceived choices and realistic time frames for phasing out marginally profitable industries could finally ensure fairer prices for raw materials, trading in cost-effective lots, and optimising domestic production capacity utilisation.
This alone will help conserve domestic resources to cut unemployment, poverty, environmental pollution, and undo bad labour practices, but requires a resolve to rationalise inter-state relations on trade rather than take unfair advantage of each other. Saarc was created for this purpose but failed to deliver primarily because it was used as a showpiece by the leadership of its member states. But now with "business-friendly" prime ministers in India and Pakistan - the big Saarc members - this form must deliver.
IMF and the WB must help contain the pain during the transition period so that resulting social disruption doesn't destabilise the governments opting for this strategy. This is also the route to confronting the crippling ongoing recession. Nawaz Sharif's delayed decision to join the oath-taking ceremony of the new Indian premier Narendra Modi was odd; all it did was to suggest that some sections of the establishment (you know who) opposed his visiting Delhi - the confusion-type that Hindu nationalists sections of the Indian media thrive on. It was sheer visionless politics on the part of Pakistani politicians.