As has become the norm, expenditure allocations and revenue targets for the forthcoming fiscal year have been leaked to the media a couple of weeks before the budget announcement in parliament. Unfortunately though it has rarely, if ever, caused panic buying or selling given that influential groups are confident of reversing tax measures through either putting pressure directly on the executive or indirectly through strike action. A rise in taxes on existing taxpayers including sales tax which is passed on, in its entirety to the end user, has rarely if ever caused the government much concern (as was evident when Ishaq Dar raised sales tax by one percent - from 16 to 17 percent last year). The reason is that the majority of the general public is not organised enough to come out on the streets in protest against a rate rise though one would speculate that come election time this factor may play a role, especially in the voting patterns in our cities.
What has brought the general public out on the streets is loadshedding, which has necessitated higher subsidies than budgeted, and a rise in fuel prices with a consequent impact on transport costs. What is significant, however, is that government after government, including the incumbent one, has understated subsidies in their budgets, particularly to the power sector by hundreds of billions of rupees each year. Resultantly, by the final quarter of a fiscal year, if not earlier, depending on the inter-circular debt, the government has been compelled to divert the budgeted allocation for development to finance subsidies to the power sector. Last year with inter-circular debt estimated at around 480 billion rupees total subsidies to the power sector were budgeted at 185 billion rupees while the revised estimates indicated releases amounting to 349 billion rupees. This year the circular debt is to be around 355 to 400 billion rupees, receivables having risen to around 80 percent of total billed amount while the budgeted amount was 220 billion rupees. One merely has to do the math to evaluate how much further subsidy is required to ensure that loadshedding is no more than 6 to 7 hours a day as directed by the Prime Minister during the remaining period of the current year.
The federal finance minister has pledged to the International Monetary Fund that he would generate around 200 billion rupees from eliminating statutory regulatory orders and increase audit from 3 to 5 percent. In the event that he proceeds to implement his pledges, it is a foregone conclusion that the affected industries would vigorously protest not only in the power corridors but also on the streets. They will argue with a degree of credibility that with escalating tariffs, a low rupee-dollar parity which is hurting our exports, gas shortages on which a large portion of the textile industry operates, any cessation of incentives contained in SROs would sound their death knell. And that would have implications on the government's growth and revenue targets. And most disturbing of all is the fact that the budgeted revenue targets for the current year were revised downward thrice because, as Dar explained, premised on the fact that the base was lower than expected or in other words the revenue for 2012-13 was lower than expected, which accounted for revising the target for the current year downward. And sources in the Federal Board of Revenue have indicated to Business Recorder that they do not have the capacity to increase audit by as much as pledged by the Finance Minister. In other words, there will be considerable shortfalls in revenue targets next fiscal year. However, the targets would enable the Finance Minister to claim that he would bring the deficit down.
Current expenditure is expected to rise significantly because if (i) defence allocation is to be 700 billion rupees, 73 billion rupees more than budgeted and 63 billion rupees more than the revised estimates, ie an 11 percent rise from what was budgeted last year and a whopping 22 percent rise from what was budgeted by the PPP-led coalition government in 2012-13, (ii) interest payments is to rise to 1,347 billion rupees which is 17 percent higher than what was budgeted in the current year and 12.8 percent higher than the revised estimates for the current year. However, in comparison to 2012-13 the amount is 36 percent higher in the revised estimates of the year, (iii) pensions are to rise to 215 billion rupees - 25 percent higher than what was budgeted this year while running of civil government would receive 9 billion rupees more allocation relative to the current year amounting to 285 billion rupees.
These significant rises in current expenditure would not deter the Finance Minister from allocating 525 billion rupees for federal Public Sector Development Programme, premised on flawed revenue figures, which would be slashed by the end of the year to accommodate current expenditure and show a deficit that would be closer to what has been agreed with the IMF. It is no wonder that economists have come to regard budgetary figures not even as indicative figures but merely as an exercise that may lose its relevance on the very first day of the start of a new fiscal year.