Predicting the budget

Predicting anything is a Mug's game, except if you are a celebrity anchor, or a senior analyst, on the electronic media and make sufficiently numerous predictions to ensure that the law of averages makes at least one of these predictions come true, thereby giving you an opportunity to brag about it for the next one year at the minimum. Albeit when it comes to the budget, one particular prediction is a perfectly safe bet across the globe; even if a rupee of tax is imposed, it will be the common man who will end up paying it. The rich are in the business of extracting monopoly rent, not of paying taxes, unless of course it's an amnesty scheme in which case they can laugh all the way from their bank to the tax office. And to make a prediction in passing, end of May, Pakistan's rich elite might be a jolly lot.
Historically, as those belonging to the days of yore will testify, the budget time in Pakistan has always been worrisome; I cannot recall if we ever had a surplus budget or one which at least, in real terms, alleviated the troubles of the common Pakistani. Notwithstanding, if you think about it, planning to borrow so that you can spend more than you earn should hardly be referred to as budgeting, or deemed prudent for that matter. Another mind boggler is the practice of deeming public debt and public account as capital receipts; all of that is a debt too! In fact worse, it is a time bomb whose ticking is ominously getting louder and louder with time. Dear Readers, those who are aware that our budgeted revenue receipts for 2016-17 don't even cover our debt servicing and defence spending, kindly bestow upon your own selves the honorary "You Da Man" certificates. With all this history as a benchmark, and considering that it is election year budget and development budget has to go up, it is a walk in the park to predict in passing that the government in this budget will plan to borrow at least a cool Rs 2 trillion.
I also predict that all those who know everything about anything will, at this juncture, enthusiastically attempt to ridicule these carefully packaged concerns about the rapidly increasing national debt, retorting that the nation has been borrowing since as long as they can remember and nothing happened. This view even contradicts the fifth Universal Law: The Law of Cause and Effect. In the first instance, something has happened over the last few years; debt servicing surpassed defence spending as the largest expenditure item in the budget by hundreds of billions of rupees. An amusing analogy is the horse cart in the old movie, "The Day they robbed the Bank of England"; the greedy thieves keep loading the horse cart with gold bricks, until that final brick when the weight becomes too much for the cart. Except in this case, it's not gold bricks which will break through! Accordingly, to predict that debt servicing will continue to be the bane of balancing the budget for the government is a no brainer.
Easy to predict is the government insisting that it is a people-friendly budget and the opposition insisting it is not. After the recent spate of extended unexpected load shedding, the masses are already in an uproar; a cracking budget designed to manage the fiscal deficit will break the common voters back, which the government can ill afford. Election year is all about spending and lax monetary policy thereby flooding the economy with money to create a perception of good times. While, at least to my mind, a people-friendly budget, like a benevolent dictator, is ab initio a myth, this time around the government will have its hand full trying to even classify the budget as such, much as it would be desperate to do so to keep the voters happy. Accordingly, it might be safe to predict that contrary to much needed austerity measures, the government might opt for a bigger development budget and for increasing subsidies and payouts to the lower middle class and the poor in one form or the other.
Some factors remain largely uncontrollable and can have an overbearing effect on the all is well illusion that the government will want to foster. Firstly, commodity prices are on the rise internationally and if, especially, oil prices even temporarily move adversely, inflationary pressures will wreak havoc with the domestic economy. Secondly, all is not well on the foreign front; curtsey worryingly declining exports and even more worryingly falling workers' remittances, both of which factors are playing havoc with the Current Account. Consequently, the Government is already seeking emergency loans to meet its looming foreign debt obligations and had it been not for the Chinese coughing up around US$ 1.2 billion, might have had a tougher time. Under these conditions maintaining a stable rupee and at the same time keeping interest rates in check will be a herculean feat, both of which are conditions precedent to avoid an even worse scenario on the debt management front.
If all that were not enough, taxation options are rather limited too. It would be very difficult to play around with indirect taxes which optically and substantively impact the common man in the street. Even in the case of withholding taxes, if you exclude them from indirect tax which perhaps is an incorrect classification, the options are limited; let's not forget that non-filers in general are largely not the rich and wealthy. Beyond a few snips here and there it is, if not impossible, rather improbable for the Government to further burden the populace with regressive taxes in an election year, especially with an extremely belligerent and overzealous opposition. So where is the money coming from?
With a serious decline in agriculture economy, and industry already struggling due to various factors, luxury imported goods and service sector are expected to be the only remaining usual suspects to bear the brunt of the budget proposals. This is not good news for the Tobacco industry, which in spite of already being at the wrong end of the Laffer curve, might get taxed more. Bank stakeholders perhaps might also not be sleeping easy; after all, heightened media spotlight on their profits is bound to make the tax collector's mouth water eventually. Other sectors in the crosshair probably include telecom and hospitality, which can largely be classified as non-necessary spending. A key policy decision the government might need to tackle with is reverting, in these difficult times, to across the board higher tariffs on imports, excluding the bare necessities of life. This will obviously provoke criticism by international institution and multilateral agencies, and can have an adverse impact on future calls for help; which scenario cannot all together be eliminated.
Undoubtedly, the government over its term has admirably reversed the macro trends, however, as someone has rightly said, the devil lies in the details. Admittedly, budget alone is not sufficient for the much-needed revolutionary changes in the micro economy, except that the bigger problem is that the domestic economy seems immune to conventional policy initiatives designed in the West. Frankly, while predicting the budget was easy in light of the known constraints and limitations, it must be extremely hot in the driving seat right now. For my part, I can only wish those driving the economy all the best and hope that they can strike the elusive perfect balance between taxes and growth.
(The writer is a chartered accountant based in Islamabad. Email: [email protected])