How will the government find enough resources to finance the anticipated Rs2.25 trillion new budget? Answers are not easily forthcoming. Those who are at the helm of the affairs are reluctant to talk about the income and expenditure gap in the budget 2008-09.

The Public Sector Development Programme (PSDP) has been firmed up at Rs541 billion as against Rs535 billion for the current financial year. It comprises Rs371 federal PSDP and Rs170 for provincial ADPs.

An official involved in the budget-making process conceded that no firm funding assessment has been made so far. A heavy reliance is being put on foreign borrowing to finance the PSDP - 39 per cent. The rest of the 61 per cent is to be financed by domestic resources.

The official said it was tentatively planned to increase capital value tax on real estate and bring the under-taxed or not-taxed services’ sector into tax net. He agreed that it seems that like in the past, the development budget will be the first causality in case of insufficient resources. The previous PML government and the caretaker administration had cut federal PSDP by Rs70 billion and Rs30 billion, respectively.

The official said that federal PSDP has been increased by Rs2 billion up to Rs373 billion. “But there is a provision that Rs50 billion will not be released in case the government continues to experience serious financial crunch”. For all practical purposes, the federal PSDP, he pointed out, will be to the tune of Rs323 billion.

He said the share of the provinces in the PSDP has been unofficially reduced from Rs170 billion to Rs150 billion. “Provinces will be released only Rs150 billion and not Rs170 as was decided by the NEC”, the official said adding that one of the major reasons to delay the budget was the “constant failure” in identifying resources including for prime minister’s pro-poor relief package and increase in the salaries of the government employees.

“The prime minister needs to know the exact funding requirements and the resources available for this purpose”, the official said.

The preliminary estimates indicate that there will be Rs50 billion shortfall in the federal PSDP for the next financial year. There will be sector-wise cut in the PSDP for managing resources.

The official also explained that growth rate of 5.5 per cent has been projected at Rs10478 billion or $166 billion GDP at current market prices.

Chairman FBR Abdullah Yousuf when contacted told Dawn that former finance minister Ishaq Dar and senior people in the government believed that new resource mobilisation should be achieved by taxing stock markets, real estates, services sector and if possible, by taxing the agriculture income, more effectively.

Responding to a question, he said that new resource generation was a big “question mark” due to which only priority development projects had been recommended.

He said, “new tax measures” were inevitable to meet the situation. However, he did not like to divulge the details.

If an estimated Rs2.25 trillion budget was to be announced, it warranted new resource mobilisation which was currently being identified by the government.

Secretary Finance Mr Farruk Qayyum when approached said that the resource gap will be plugged by using funds which remained unutilised during the outgoing financial year. The operational shortfall in PSDP funding will be managed by adopting traditional methods.

He said that there was no serious resource gap which could not be managed in 2008-09.

Independent analysts however point out that the government has borrowed record $550 billion from the central bank so far – a figure that exceeds the targeted Public Sector Development Programme of Rs535 billion for this year. This has widened the trade deficit and reduced

the fiscal space for formulation of the next budget.

Additional Secretary Budget, ministry of finance Mr Ayub Khan Tareen said that there were financial problems which were not as serious as being generally viewed. There will be bank borrowing, non-bank borrowing and external funding to finance the new PSDP.

Analysts said it is possible that return of National Savings rates may be increased significantly to access domestic savings which are not so inflationary particularly when the funds so mobilised are used for productive purposes in a prudent manner.

In its report on “fiscal choices in budget 2008-09”, the Social Policy and Development Centre has proposed a broad –based sales tax on services which cater primarily to the demand of upper income groups and to corporate entities. Their revenue contribution is very limited. It has also proposed 10 per cent regulatory duty on imports of luxury goods. Its taxation proposals including high tax on private companies and real estate, according to the SPDC, can generate additional revenues of Rs70-85 billion.