Please Visit our Sponsor (Ads open in separate window)
Budgeting for growth Perhaps for the first time in Pakistan’s history a federal budget was not announced at the weekend. Breaking this tradition, the state minister for finance, Omar Ayub Khan, read out in the National Assembly on Monday a long list of budgetary proposals for the year 2005-06. Most of these measures appear to be aimed at sustaining the robust economic growth rate achieved in the outgoing year. On the face of it, these measures provide the private sector with a number of fiscal incentives and concessions needed to accelerate investment and expand economic activity. Now it is up to the private sector to make the best of what has been offered and, at the same time, help in creating employment opportunities, further improving overall living conditions, bettering social indicators and strengthening the country’s physical infrastructure. It would not be out of place to mention here that with the IMF no longer breathing down the government’s neck, the budget makers were provided with enough room to liberally tinker with the sales tax regime and also be a bit generous with subsidies. The overall size proposed for the next year’s budget at over Rs. 1.09 trillion and its allocations under various heads, including the social sectors, is very impressive. But more impressive is the fact that such a huge outlay has been provided for without adding any undue burden for the people at large. In fact, most of the additional resources amounting to Rs. 100 billion that the budget measures propose to mobilize through tax revenue amounting to Rs. 690 billion is expected to come from expanded economic activity as a result of the growth of 8.4 per cent achieved during the current fiscal year. The new taxation measures will perhaps yield no more than Rs. 10 billion after providing for a wide range of new relief measures. The average increase by about 15 per cent in the salaries of government employees, enhancement of the minimum wage from Rs. 2,500 to Rs. 3,000 and the proposal to revise downward the minimum and maximum income tax rates should alleviate to an extent the miseries of wage-earners and the salaried classes affected by galloping inflation. The defence budget at Rs. 223 billion and debt amortization amounting to around Rs. 300 billion account for almost 50 per cent of the total outlay, while the development budget, though generous by previous standards at Rs. 272 billion, still appears too small if one takes into account the rate of population increase and the current and projected rates of inflation. Also, with the peace process taking what is described as an irreversible route, there is hardly any justification for such a huge defence budget. A part of the resources could easily have been diverted to development without in any way undermining our defence capabilities. As it is, we are being fully paid by the Pentagon for our anti-terrorist campaign in the tribal areas. And we have been promised 75 F-16s out of the US military aid. On the resource front, the income of about Rs. 980.46 billion to finance a budget of Rs. 1.09 trillion appears adequate with only Rs. 98 billion to be mobilized through bank borrowing. However, if the external resources, most of which are loans (about Rs. 191), with only about Rs 21 billion in grants, are considered, the overall budgetary deficit appears to go up to around Rs. 300 billion. Officially the budgetary deficit is estimated at about 3.8 per cent. This is within what is called the normal range. However, with the kind of macro-economic stability that the country has been able to achieve over the last three years, the budgetary deficit by now should have reached two or less than two per cent of the GDP. The main reason why this is not happening is because our tax-to-GDP ratio is still pegged at nine to 10 per cent and even today in this country of 160 million people only about 1.1 million pay income tax and out of them only 55,000 show their incomes to be more than Rs. 250,000 a year — an obviously ridiculous figure. Under the Constitution, the National Finance Commission is obliged to announce every five years the formula for resource distribution between the federation and the provinces and also among the provinces. If for some reason the NFC fails to come up with an award in time, the Constitution provides a way out through the Council of Common Interest (CCI) which has to be convened to sort out differences among the contending parties and finalize an award. However, for the last three years, the NFC has not been able to finalize a new formula because of lack of consensus among the provinces over the new distribution formula. The federal government has indicated that it is ready to give the provinces 50 per cent from the divisible pool. However, the provinces have failed to come up with an agreed formula for distribution of resources among themselves. The CCI has not been convened to sort out these differences. Instead, a totally unconstitutional step was taken a couple of weeks back when the president convened a meeting of all the four chief ministers and their finance ministers to unravel the NFC tangle. The new budget was unveiled without resolution of the NFC differences with an unconstitutional promise that after the award was announced, the budget would be adjusted accordingly, giving rise to a new controversy as to the dislocation it would cause not only to the federal but also the provincial budgets. On the face of it, it is a bold budget — a budget without the IMF dictating conditions, and a budget in respect of which the government is under no obligation to borrow left and right to meet even its barest needs. And neither was it under pressure to unduly add to the tax burden on the general public. The main objective appears to be growth and growth alone. The fiscal room available to the budget-makers could have been so distributed as to let both the rich and the poor share the burden of progress. But perhaps that would have been too bold, and perhaps the budget-makers were not so sure if such a budget would help in sustaining the higher growth rates. Perhaps it would take the country at least about another five years of sustained high growth to achieve the fiscal room that would enable them to think of equity as well without the fear of retarding growth. The danger in perusing growth single-mindedly without any consideration of equity is that the expanding sea of poverty may at some point engulf the islands of prosperity, sweeping away all the achievements resulting from accelerated growth. That is perhaps why in China today, while practicing the market economy, education, health and housing facilities to an extent are still free in that vast country of over a billion people. Similarly, in India, which has an almost equal number of mouths to feed, clothe and shelter, there is a scheme to provide the unemployed a minimum fixed salary for 100 days of the year. This has been guaranteed in the Indian constitution. INTELLIGENCE appears to be the thing that enables a man to get along without education. Education appears to be the thing that enables a man to get along without the use of his intelligence. —A.E. Wiggan ENEMIES could become the best companions. Companionship is based on a common interest, and the greater the interest the closer the companionship. What makes enemies of people, if not the eagerness, the passion for the same thing? —Bernard Berenson Please Visit our Sponsor (Ads open in separate window)
