'Pro-people' budgets

A friend asked to outline as to what should be ideal budgets for Pakistani people at federal and provincial levels. Our answer is simple: an ideal budget is one that has long-term vision of prosperity by doing justice with all economic classes within society. It must ensure growth with equality. Such a budget deplores the idea that citizens should remain mired in poverty. The federal and provincial budgets must have focus on welfare programmes by helping those lagging behind, enabling them to move up economically.
Budget as tool of fair economic policy must be resentful towards rich families holding the reins of political control through money power. Fiscal policy must aimed at collecting taxes at lower rate from broadest possible base along with spending the same for public welfare programmes, especially empowering people through education and facilitating free markets for employment generation. This is the only way to ensure socio-economic mobility in the society. On the contrary, all our budgets, including the latest ones for the fiscal year 2016-17, to be announced soon by federal and provincial governments have been designed for benefiting the affluent classes. In other words, in an elitist economy, these are the "budgets of the rich, by the rich, for the rich."
"No relief for the poor" has been the instant reaction of most of the Pakistanis every year after hearing the budget speeches of federal and provincial finance ministers. Every year, tax liabilities of the lower income groups are increased even if rates are not enhanced because their purchasing power is dwindling. They bear heavy cost of education and health while the governments conveniently violate the command of Article 25A of the Constitution. More indirect taxes by the federal and provincial governments in the name of restricting fiscal deficits only go onto burden the poor and middle class, while the rich and mighty are left to amass more and more wealth. At the federal level, rich tax evaders have permanent immunity in the form of section 111(4) of the Income Tax Ordinance, 2001, which they abuse with impunity.
Since super-rich families, identified by National Database and Registration Authority (NADRA) skilfully avoid taxes, our economic woes continue unabated. Federal and provincial governments are unwilling to sit together and take necessary steps to tap the real tax potential which is not less than Rs 12 trillion by restructuring the entire system. The details are available in policy paper, 'Towards Flat, Low-rate, Broad & Predictable Taxes', published by Prime Institute, a public policy think tank.
Unfortunately, no serious effort has ever been made in Pakistan to devise rational tax policies by all governments for encouraging economic growth. The sole stress on irrationally-fixed revenue targets-with main incidence on the weaker segments of society-has created an ugly fiscal mess. The most damaging part of revenue-generating exercise is high rate of sales tax on goods (ranging from 17% to 50%) and exorbitant rates on services that are hurting the industry and hampering job creation. The persistent failure of successive governments to broaden the tax net, confiscate untaxed assets and ill-gotten wealth, spend public money prudently and remove socio-economic imbalances has pushed Pakistan into a 'debt prison' which we can get out of, provided there is a leadership having competence and unshakeable determination to pursue a pragmatic reform agenda to transform Pakistan into an egalitarian State-true social democracy with justice for all.
Federal and provincial governments are least bothered to devise policies for social mobility and economic justice. Education has long been recognised as the most important single trigger of social mobility-see example of all four Nordic countries. Our budget makers never seem inclined towards promoting social mobility by taking tough redistribution policies, particularly benefiting those who are on the lower rung of the ladder. There is no desire to introduce a uniform educational system that is neither class-ridden nor discriminatory in any respect so that constitutional guarantees of equality and opportunities are ensured. Education in Pakistan has not only become a flourishing business industry and highly expensive but is also pathetically poor in quality and is definitely class-ridden.
Our education system, if there is any, is worthless. The federal and provincial governments do not realise that it is not just spending more money on education that really matters but how to use the entire system as an effective tool for social mobility and inculcating a sense of dignity for human beings in particular and humanity in general. There is a complete lack of understanding of this perception on the part of our politicians and the result is that poor segments of society are condemned to remain mired in abject poverty because their children have no chance to move up as education is either not available to them or is of no practical use. Our federal and provincial budgets lack this perspective and are merely routine exercises of balancing the books. Pakistan needs meaningful redistribution policies that can uplift the downtrodden. This year too there would be nothing in federal and provincial budgets towards this goal-like all previous ones, these will be disappointing documents devoid of any vision for making Pakistan prosperous and self-reliant.
Federal and provincial governments must consider measures for fundamental reforms in the tax system for accelerated growth of economy. An efficient model for growth requires removal of irritants prevailing in the tax codes, procedures and implementation processes. Pakistan needs at least 8% growth rate to provide 1.5 to 2.5 million jobs every year. Existing tax systems at all levels of government are anti-growth. We need to replace these with a simple and flat-rate taxation.
Tax systems should be fair and simple making cost of voluntary tax compliance less than cost of evasion or avoidance. It is possible only through a national agency that can ensure: "We collect money to fund the public services as our duty fixed by Parliaments. We give you a service that is even-handed, accurate and based on mutual trust and respect. We also want to make it as easy as we can for you to get things right".
(The writers, tax lawyers and partners in HUZAIMA, IKRAM & Ijaz, are Visiting Faculty at Lahore University of Management Sciences (LUMS).)