Inflation, economic base key areas: Sugar price issue under probe: adviser
By Khaleeq Kiani
ISLAMABAD, June 6: The budget 2006-07 is focused on four issues: strengthening of economic foundations, maintaining the macroeconomic balance, reducing inflation and sustaining growth potential.
Adviser to prime minister on finance Dr Salman Shah told reporters at his post-budget briefing on Tuesday that tax adjustments under the budget would yield net additional revenue of Rs8.5 billion and added that four new measures would have a total revenue impact of Rs25 billion.
He said the 20 per cent raise for old pensioners would benefit retired military officials to the tune of Rs1 billion.
In reply to a question as to how may retired government servants over 89 years of age were still there to receive the 20 per cent increase in pension, he said that most of the beneficiaries were non-commissioned officers and junior commissioned officers who retired before 1977 in early ages and it would cost the government Rs1 billion per annum.
He said the total raise in pensions had been estimated at Rs3.675 billion. The adviser parried questions as to why the government had kept its $3.2 billion foreign exchange reserves with foreign banks at two per cent interest rate while it was borrowing foreign exchange through bonds at more than seven per cent interest rate, losing $120 million per annum.
He also did not explain as to why foreign exchange reserves of $13 billion still stood where they were three years ago despite the fact that over $4 billion had been realised in the past three months in the shape of foreign direct investment, privatisation proceeds, $800 million bonds and $700 million earthquake-related inflows.
He said four areas had either been brought into the tax net or their tax rates had been increased, including taxes on real estate and foreign travels and increase in taxes on stock market transactions and banking services. Answering a question about sugar price cartelisation, he said the government was conducting a study on the sugar chain — from growers to millers to the wholesale market — to ascertain their returns and would accordingly take policy decisions.
About a mismatch in the budget size, he said there should be no confusion because the overall size of the consolidated budget was Rs1.5 trillion, including provincial programmes and centre’s capital expenditure to the tune of Rs1.315 trillion.
He said subsidies had been provided in sectors of agriculture, services and industry.
Describing the outlay as the ‘highest ever relief and development-oriented budget,” he said most of the funds out of Rs1.3 trillion capital expenditure would be spent on improving the physical infrastructure and social sectors.
He said the budget had been prepared with next year’s elections in mind and added that the thrust was to promote investment and growth and broaden the tax net.
Dr Shah it was also one of the main objectives to create jobs and provide relief to the fixed income group as well as the common citizen. “Our new budget has been designed to strengthen the economic fundamentals and maintain the inflation.”
Another important feature of the budget, he pointed out, was the Rs109 billion subsidy for power sector, industry and agriculture.
In reply to a question, he said that debt servicing for next financial year was estimated at Rs295.8 billion which was lower by 3 percentage points over the current year’s revised estimates of Rs305.8 billion.
He said the 44.3 per cent of the Rs435 billion Public Sector Development Programme had been allocated for physical infrastructure and social development. Another Rs35 billion, he added, had been allocated for improving infrastructure at the district level under the Khushal Pakistan Programme.
Asked why the government had preferred to keep the agriculture income out of the tax net, he said it was a provincial subject and as such the federal government could not do anything about it.
He said the government would make sure next year that support prices were offered to farmers and added that the government was considering extending the support price to pulse growers so that in case of its import they did not face any loss.
He said that one important thing would be to ensure the availability of pluses for which Rs2.5 billion subsidy would be provided in the next financial year.
He said the issue of sugar prices had not died down as the government was still collecting information to get hold of hoarders and profiteers. “You would soon hear about it as we have not closed our eyes about the sugar issue.”
He said a number of big dams would have to be built to remove the water shortage, adding “each dam would cost at least $6 billion and we need to allocate more resources for this purpose”.
He explained that Rs126.9 billion expenditure on running civil administration was 23.1 per cent higher than the current year’s estimate of Rs103.1 billion and attributed it to relief measures announced by the government.
Minister of state for finance Omar Ayub, who was present at the briefing, said a Rs7.8 billion programme was being introduced to increase the income of farmers in 13,000 villages. “The programme will start in 1,000 villages in 2006-07,” he said.
