THERE was never any doubt that the PTI government would have to announce a new set of painful fiscal measures soon after coming to power. Just like every other government before it for at least 30 years, this one has also begun its career by pointing to a broken economy, bankrupt treasury and stratospheric levels of debt to argue that a painful adjustment is necessary to stabilise the economy. That moment inevitably arrived for the PTI government on Tuesday when it presented its ‘mini-budget’. The presentation also ended weeks of a gruelling wait to discern the policy direction the new government intended to take.

It would have been better, though, given the amount of time that has gone into drawing up the supplementary budget, if a more coherent policy vision had emerged. On the one hand, the government is trying to raise revenues, while on the other, it has given sweeping benefits to non-filers of income tax returns by withdrawing the ban on their purchasing new cars and property. One of the better policy directions to come out in the last five years was the steady tightening of the noose around non-filers of tax returns. This began with imposing banking transaction taxes on non-filers. In due course, the process should have moved towards further penalties and restrictions for non-filers on the purchase of tickets for foreign travel, renewing of passports and much more. Instead, the government caved in to the special interests that had been actively campaigning against this ban since it went into effect in July. The property market has seen lacklustre activity since July, and automobile bookings were reduced from 20pc to 50pc depending on the model.

It was also interesting to see how the finance minister made it a point to emphasise that none of the cuts in development spending would touch the CPEC projects. The rapid climbdown that the government has demonstrated from the commerce adviser’s words in a now infamous interview is striking, with the finance minister’s budget speech being only the latest example. This comes when other projects are seeing cuts of up to Rs225bn from the core development budget of Rs800bn. Beyond the tax hikes and development cuts, the government now faces the prospect of implementing round two of the stabilisation agenda, which must include greater action on the exchange and interest rates, both of which will impact growth, investment and inflation. In short, the finance act is a small step towards a policy direction, with much more yet to come. Given the government’s track record thus far of submitting to special interests and shying away from the real problems that the economy faces, confidence is dimming on its ability to keep a firm hand on the tiller through the choppy waters ahead.

Published in Dawn, September 20th, 2018