EDITORIAL: The federal finance minister, Muhammad Aurangzeb, presented in the National Assembly his and the Shehbaz Sharif-led government’s maiden budget constrained by the International Monetary Fund’s (IMF’s) prior conditionalities.
The budget proposals vividly reflect the government’s effort to comply with the IMF diktat that has been embraced and named ‘Home Grown’ as there is no ‘Plan B’, according to the finance minister, except seeking an IMF programme.
The dilemma that the national economy faces and the reasons for the present quagmire are well known and so is the solution.
The factor that has constantly been in play thus far has been the reluctance of our successive governments to end the elite capture of our economy and catch the proverbial bull by the horns by summoning enough courage and resolve to enforce the writ of the state. Now the economic situation has deteriorated to the level that no further dithering is possible and there is no other option but to do it.
The budget strategy for FY2024-25 is stated to be anchored in principles of sound fiscal and debt management, providing a pathway for economic revival and stability; outlining strategic directions for revenue generation and spending priorities of the government and laying the basis for addressing fiscal deficits and reducing inflationary pressures in the short to medium term.
In pursuance of this strategy the main objectives that the budget FY25 seeks to achieve are: (i) economic stability and growth through fiscal consolidation, (ii) bringing the public debt to GDP ratio to sustainable levels (level not defined), (iii) prioritising improvements in the balance of payments position, (iv) revitalising the private sector, fostering entrepreneurship, encouraging investment and promoting innovation to stimulate growth, (v) pro-poor initiatives to support the vulnerable, (vi) funneling more funds into the Public Sector Development Programme (PSDP) to improve service delivery/public good, (vii) education and skill delivery of youth, and (viii) integrating green and gender responsive budgeting into public finance management.
The total size of the proposed budget is Rs 18,877 billion that projects Rs 12,970 billion as the total revenue to be collected by the FBR for the federal Consolidated Fund and non-tax revenue of 4,845 billion rupees.
After adjusting for the provincial transfers from the Consolidated Fund, the net revenue receipts of the federal government would be of Rs 10,377 billion. A sum of Rs 8,500 billion is projected to be generated through bank and non-bank borrowings, net external receipts and privatisation proceeds of Rs 30 billion.
As against these resources, the federal government’s current expenditure alone would be of 17,203 billion rupees. Instead of curtailing the runaway current expenditure, this budget unfortunately proposes an increase of around 20 percent in the salaries and pensions of government employees, which would lay the justification for a similar increase in the salaries of personnel belonging to semi-government organisations and autonomous bodies setting in a round of inflation that has just begun to ease. This presents a glaring example of the ‘old habits die hard’ addiction of our governments of ‘living beyond means’.
Sales Tax continues to be the largest contributor to the pool of federal taxes projected at Rs 4,919 billion followed by income tax at Rs 5,512 billion. However, it is the latter that is expected to grow the most with more that 50 percent increase over last year’s revised estimates of Rs 3,721 billion. This projected increase, though suspect, is perhaps based on a host of significant upward revisions in rates of taxes, introduction of new category of taxpayers named as ‘Late Filers’ besides the existing categories of Filers and Non-Filers and a change in tax treatment for certain categories of taxpayers.
The exporters that had thus far enjoyed the ‘presumptive tax’ regime would now be subjected to the normal tax regime for businesses. This is bound to attract a severe pushback from exporters and it remains to be seen how steadfast would the government be in its resolve. Advance income tax rates on immovable property transactions have been significantly increased and made progressive on the basis of transaction values.
This measure would rake in substantial revenue for the government but carries the risk of slippage, if property transactions reduce significantly as a result of this levy.
Another impost on property transactions is a 5 percent Federal Excise Duty on commercial properties and first sale of residential properties. This measure is likely to be challenged in the court of law and would also receive a robust pushback from the elite whose properties are exempt from Section 7E of the income tax law.
A rather harsh measure is the increase in the maximum tax slab for income of non-salaried class of taxpayers like proprietorships and Association of Persons.
The Small and Medium Enterprises (SMEs) that the government is keen to bring into the formal sector from the informal economy is comprised of this category and this proposal would militate against the government’s declared objective.
It is generally believed that this measure has been proposed to deflect the pressure from the Fund to increase the tax on the salaried class, which the government did well to resist.
However, this is an extremely harsh proposal and would undermine the development of the SMEs in the formal sector.
The budget document is shorn of customary details, which perhaps would surface in due time when a discussion in parliament begins. Just before its presentation in the National Assembly and after its approval by the federal cabinet, the main ally of the Pakistan Muslim League-Nawaz (PML-N) government, Pakistan People’s Party of Parliamentarians (PPPP) decided to boycott the proceedings on grounds that they were not consulted in the budget exercise.
Later, they were successfully persuaded to attend the session, which they did reluctantly but obligingly. This episode strongly indicates that it may not be all smooth sailing for the government in parliament and it may have to accommodate its coalition partners on some proposals.
The thrust of the budget proposals remains consolidation, and rightly so. Although we are notoriously famous for changing course when we reach the last mile, it is, however, imperative that we stay the course and desist from taking any misstep that might possibly derail the whole process.
We hope that stern attitude of the lender of last resort and the fatigue of our time-tested friends to our perennial dependency on borrowings to support our habit of living beyond means would serve as an eye opener and make us mend our ways without any further loss of time.
The complacency that has been enveloping our economic conundrum for quite some time must be replaced with a strong sense of urgency and concern.
Copyright Business Recorder, 2024