The mini budget is finally announced. At first, Asad set the record straight to show the fiscal situation PTI inherited from what PMLN is no different from what latter got in 2013 - on net basis there is no improvement in the past five years.
This is followed by portraying real picture of budgeted fiscal deficit - according to his calculation without doing anything actual deficit to slip by Rs886 billion due to overstated revenues of Rs350 billion, expenditure understatement of Rs250 billion and wishful thinking of expecting Rs286 billion provincial surplus.
Adjusting to ground realities, without any intermediary measures, the deficit to reach Rs2.77 trillion (7.2% of GDP) from budgeted Rs1.9 trillion (4.9% of GDP). It's is a good approach to be transparent whereas the successive governments used to have practice of running over optimistic picture.
But there is no fun in exposing the previous governments face, Dar did the same in 2008 and 2013 while he adopted the policy to show rosier picture for his performance. Let's see how Asad would react in 2019 and in subsequent years before one can really comment on his honesty.
The nutshell of first part of his 30 odd minutes speech is that times are difficult ahead and parliamentarian as a country men should all join hands to take the economy out of a mess. This is a right approach and no doubt the twin deficit inherited by PTI is much worse than what was given to Dar's kitty.
But Asad and team left no opportunity to criticize in past, as opposition, even on good or tough imperative steps taken by others; it's hard for expecting change of heart from the opposition; nonetheless, for the betterment of country opposition parties should support PTI.
Asad vouch for bringing fiscal deficit in FY19 close to 5 percent without adding any burden on to the poor and middle class, and exporting sector. The idea is to transfer the tax burden to rich; not poor. And he added that stabilization measures can only stop catastrophe; but these cannot excel economy which requires industries and exports to grow to generate employment and foreign exchange.
He announced some reliefs to zero rating exporting industries in the form of lowering gas prices (Rs44bn benefit to industry in Punjab) and promised to have similar steps on electricity tariffs too. He waived regulatory duties on 82 items which are used as raw material or intermediary good for value addition in exporting industries.
While the duties are maintained on other goods; along with increase in duties on luxury food items and 1800cc and above automobiles. The idea is right to curb non-essential imports whilst give a boost to exports. But these measures may not yield enough results as in past these did not work much to the tune of expectations.
The revenue measures are announced for Rs183 billion; half of it (Rs92bn) to be raised by using technological tools and better administrative measures by FBR to enhance taxes on existing base and rates. The philosophy was same when the budget was announced by Miftah; all what Asad did is to take the budget announcement by PMLN on face value to take credit on to be better yield on existing base. There is nothing wrong in it as it has to be done by his regime and they have all the rights to take credit.
The rest of revenues are to be added by higher WHT tax on banking transaction, duties on luxury imported items and revision of tax relief given to the individuals. He maintained the tax gains already announced for individuals earning upto Rs200,00 per month and rightly so revised up the rates on upper slabs. The good news is that the rates are still lower than what were in last year; only the expectations are killed.
The good step of Miftah and Abaasi of disbarring non-filers to buy real estate and cars is abolished; the argument presented was to facilitate expats who do not need to file returns at home. That is naive; they could have allowed it under special condition; this opens back conduit of parking grey money. They could have political compulsion of rewarding Karachi real estate clout of PTI; and of course this will re-boost DHA's transfer revenues. Seeing a documented naya Pakistan will remain a dream.
Anyhow, the major cut in development expenditure is made to lower fiscal deficit. The federal government funded PSDP is slashed from Rs800 billion to Rs575 billion. This will hurt growth which is already compromised by depreciation infused inflation. The focus for two years should only be on stability; and the mini budgeted stated that.
The subtle but very important commitment is to slash tax exemptions by Rs350 billion. This is like breaking jaws of rent seekers; they would surely resist to change. Good luck Asad!
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