The June 3 parliamentary session for presentation of the Federal Budget became a rare display of protest because it outlasted the session and the Finance Minister couldn't complete his budget speech. The right of dissent is undeniable but, in recent times, angry parliamentarians everywhere crossed the limits of rationality and decency.
Budgets are the performance records of in-power regimes as well as their future plans based on their performance. It is imperative that parliaments scrutinise the budgets, pinpoint past performance flaws, and force the regimes to align the budgets with ground realities created by their past good or bad conduct. Tragically, on June 3, the parliament didn't display a sense of this solemn obligation to the electorate.
The House Speaker triggered the protest by not allowing an MNA from the PML-N to speak, in all probability, about the prioritisation of a debate over the confusion engulfing the formation of the commission to inquire into the US May 2 attack to kill bin Laden, and the non-formation of a commission to inquire into the attack on PNS Mehran.
Given the public pressure for the formation of these inquiry commissions, it was politically prudent to let the PML-N parliamentarian express his view, and assure to him that his worries would be addressed soon after the parliament concluded its debate on the Federal Budget.
Although the Finance Minister couldn't present the budget to the parliament in its entirety (a legal imperative), its documentary version is being studied by the electorate - a lot for which lawmakers don't always display requisite concern - and, given the regime's past record, the target for revenue collection seems overly ambitious.
According to reports, in a post-budget press briefing, the Finance Minister said that the budget for 2011-12 had been carved out keeping in view the political and election considerations of the regime. Even if this misinterprets what he said, the budgetary proposal appear geared largely to meeting these objectives.
The budget exhibits a restraint in increasing existing taxes that could tax the already taxed, and envisages helping the low-paid by (a) raising the threshold for annual taxable income from Rs 300,000 to 350,000 (b) waiver of regulatory customs duty on 352 out of 397 items and (c) reducing GST to 16 percent (on sugar to 8 percent).
These measures may soften the inflationary impact, but strengthen fears about a failure to contain the fiscal deficit within the planned Rs 850 billion given the past revenue collection record, embezzlements, irregularities and mismanagement in state offices detected by the Auditor General, and the rising demands for public expenditure.
On the one hand these fears arise out of the consistent failure of the regime to cut revenue waste and on the other due to its amazingly slow efforts in the last 3 years in increasing the tax net, a shocking example of which is the regime's continued insistence on letting the provinces tax the income from agriculture.
This is despite the Finance Minister's admission that, in Sindh, Rs 500 million was collected in 2010 which has tumbled to Rs 150 million in 2011. He did not elaborate on how this performance built his hope in the provinces' ability to become more self-sufficient, instead of seeking higher relief from the federation year-after-year.
The Finance Minister said that the absence of result-oriented efforts to improve the revenue outlook had been a failure of all the governments in the last 50 years; they kept on increasing expenditures. Consequently, they had to borrow heavily to bridge the fiscal gap. But is the in-power regime ready to change this reality?
He promised that "this government has laid down a new foundation to resolve the revenue issue, and the process to steer the taxation system towards correction has begun." But the budget doesn't give the outlines of that process. Doesn't it begin with putting the house (the FBR and the ministries) in order to cut corruption and waste?
In this context, the issue that the media didn't notice was that the over Rs 1 trillion fiscal deficit in 2010-11 includes the carry-over effect of past deficits, the major contributors to which were irregularities, embezzlement and mismanagement in state offices. The budget also didn't include facts on recovery of the tax revenue so lost.
According to the Auditor General's Report these leaks contributed nearly Rs 585bn to the fiscal deficit in 2009-10. To plug this huge gap, the state resorted to unprecedented borrowing from the SBP and the financial market that crowded out the commercial and industrial sector and drastically reduced GDP growth in 2010-11.
The budget document says virtually nothing about the measures to check these baffling leaks. More worrying is the fact that, as yet, no one has pointed out this critical error in the budget; pointing out this was error was more important than pinpointing the numerical errors (later admitted by the Finance Minister) in the budget.
Regarding hopes of containing the fiscal deficit within the Rs 850bn range, the minister said that if the FBR manages to recover income tax from even 250,000 of the current target of 700,000 (of the identified 2,300,000) tax evaders, it would be a milestone. A rough estimate of additional revenue from this success is just Rs 70bn.
It is such expectations that put in doubt the collection of Rs 1,952 billion in taxes. Besides, the casual attitude to checking waste and corruption, and continued state reliance on borrowing from the SBP and financial markets does not build hopes of stopping the slide in economic growth, which has been the worst in decades.
The proposal to offer 5-year tax exemption on investment made exclusively from equity funds is a signal to the private sector to let the state to borrow even more from the banking sector. Is this how we rebuild investment sentiments that have been shattered by many other factors as well, and can it materialise 4.5 percent GDP growth in 2011-12?
State enterprises, that bank borrowing is keeping alive, can't plug the gap being created by the private sector's contraction. Will the Finance Minister's promise to make it mandatory for every public sector company to get enlisted on the stock exchanges (to assure transparency of their business activities) make these outfits truly efficient and productive to fill the gap referred to above? Short of a miracle they can't. Without a credible overhaul of the whole system, the Federal Budget 2011-12 is an exercise in self-deception.