Ishaq Dar Federal Finance Minister has left me completely baffled. Not because of the out-of-the-box solutions that he should but did not include in the budget, not because he failed to make some serious effort to increase revenue through broadening the tax base (other than to impose penalties for the non-compliant whose very non-compliance in terms of not filing returns is their safeguard against paying taxes), and not because he did not increase the social safety net for the vulnerable sufficiently (118 billion rupees is appallingly low for his own figure of 90 million living below the poverty line) but because the extent of data manipulation in the budget was so high that analyzing it appears to be completely a waste of time and energy.
Be that as it may, commenting on the budget is my compulsion as I do it every year and I would consider it amiss of me to simply dismiss the budget as too unrealistic to merit a comment. To restate the disturbing finding of the Social Policy and Development Centre the Finance Minister downgraded the growth rate for 2011-12 (two years before he was given the charge of the Finance Ministry) from 4.4 percent to 3.8 percent so that he could make the rather inane claim that Gross Domestic Product growth for 2013-14 was 4.1 percent - the highest during the past six years. And not surprisingly his own growth rate is challenged by the International Monetary Fund (IMF), which has uploaded a growth rate of 3.1 percent on its website though Jeffrey Franks, the mission leader, mentioned on 10th May this year that the rate has been upgraded to 3.3. One wonders what changed between 10th May and 3rd June for the GDP rate to be upgraded to 4.1 percent, which explains why independent analysts simply do not find the 4.14 percent figure remotely credible.
Dar in his over two-hour long budget speech, and he can certainly claim that he has gone down in our history as delivering the longest budget speech ever, harped on his government's commitment to the poor and boasted yet another year that it was he and not the PPP who proposed the Benazir Income Support Programme (BISP) in 2008 - the year he briefly held the Finance portfolio and a year when he did not present the budget. He also, small-mindedly, commented that the PPP spent Rs 40 billion only in 2012-13 on BISP, the election year, and that PML-N raised the funding to 75 billion rupees in 2013-14 with the budget documents revealing that only 70 billion rupees have so far been disbursed under BISP. In his post-budget briefing Dar also claimed that it was PML-N that established Baitul Mal (which by disallowing a carry-over of funds from one year to the next) or for the state to use these funds in its education and health programmes has been the subject of much criticism).
While one could understand a politician taking political mileage out of a social safety net programme yet perhaps Dar needs to face a rather obvious fact: BISP, contrary to PPP pre-election expectations, did not translate into votes. The reason heavy loadshedding, rising prices especially food prices and a tax structure that continued to rely heavily on withholding tax thereby leaving the parallel illegal economy undocumented. At present there is heavy loadshedding (with the government manipulating demand figures to show lower shortfall than is actually the case), inflation remains a major concern of the IMF as stated by Franks on 10th May this year, and Dar's heavy reliance on withholding taxes (advance tax on electricity bills above a certain minimum as well as on business and first class air tickets) which would leave the documentation drive by the wayside.
Irrespective of Dar's claims the following facts are irrefutable: (i) yes Dar did retire the inter-circular debt on Saturday, 29th June, 2013, but the debt has since resurfaced (besides recent reports indicate that the interest payments on the debt would be passed onto consumers) and his claim of 1700MW additional generation as a consequence of debt retirement is being challenged as no more than 700 to 800MW and given the annual increase in demand of electricity it does explain massive ongoing loadshedding; (ii) food prices continue to rise even though their weight in calculating inflation was downgraded by 6 points by Dr Hafeez Sheikh; and (iii) the Finance Bill does not take any bold tax measures. He announced major shopping malls would be brought into the tax net, which makes one wonder why this delay of very visible commercial enterprises till now, but there is no mention of many small extremely profitable shops. Exemptions have ended, he added, but he then proceeded to what he claimed was relief to the capital market by not levying the tax rate agreed between the capital market key 40 odd players and Hafeez Sheikh when he was the Finance Minister. The reason: the market players delivered to Dar as they did to his nemesis Shaukat Aziz by showing a favourable performance just when criticism against Dar's policies mounted though on budget day itself there was a fall as Altaf Hussain, MQM leader, was arrested in London. The stock market therefore will not generate its potential revenue capacity of 100 billion rupees with the Dar compromise.
Subsidies budgeted at 203 billion rupees are simply too unrealistic given the state of the energy sector - down from the 323 billion rupees in the revised estimates of the current year (83 billion rupees more than budgeted to date with the year not over yet). Allocation for National Income Support Programme (inclusive of BISP) is to be raised from 70 billion rupees in the revised estimates to 118 billion rupees (from 75 billion rupees budgeted this year) and 1500 rupees per beneficiary. This rise is unlikely to be enough to pay for the electricity and water bills of anyone earning up to 12000 rupees per month (minimum wage) - a wage that is largely un-implementable because of the large parallel illegal economy which the Finance Bill has not touched. However, Prime Minister's various schemes are to receive 21 billion rupees (including fee reimbursement scheme, interest-free loans, business loan scheme) compelling one to wonder what happened to the 100 billion rupee loan scheme administered by Maryam Nawaz announced in January this year amidst much fanfare.
And laughable is Dar's abandonment of two of his pet measures last year that he was at great pains to extol. One was the income support levy, and he claimed that he had paid the levy making one wonder whether the abandonment had more to do with his refusal to pay for another year rather than the stay order granted by the courts, and the new initiatives under PSDP that were not funded because he did not release funds, not even after the 1.5 billion dollar Saudi gift. Inexplicably the Saudi gift is parked under Development Expenditure outside the PSDP as cash and it is unclear whether it would be used as budgetary support or support for reserves or indeed for any specific project.
I and I would hope others would be willing to extol a bad budget if only Dar agrees to delink the data gathering machinery from his control - in letter and spirit because where the spirit is unwilling as in the case of granting State Bank autonomy the letter does no one any good. Realism must not be sacrificed for the political ambitions of one man because that in itself compromises that man's ability to formulate a credible budget.
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