Finance Minister Miftah Ismail on Saturday said the priorities of the federal budget are "fiscal consolidation" and providing relief to the underprivileged public, as he spoke of reversing the "damage wrought by Imran Khan" at a post-budget press conference.
"Growth and inflation are our targets, but our first target is fiscal consolidation, to move the country away from the point where Imran Khan left it at," Ismail said in the media briefing alongside Information Minister Marriyum Aurangzeb and Minister of State for Finance and Revenue Dr Aisha Ghous Pasha.
Fiscal consolidation entails policies aimed at reducing government deficits and debt accumulation, according to the OECD.
"Our second target is to give relief to our poor people and for which we are taking difficult decisions," he added, stressing that the government was trying to save the country's finances and not allow it to become another Sri Lanka.
Yesterday, he presented the coalition government's federal budget 2022-23 in the National Assembly, which had a proposed an outlay of Rs9,502bn, almost a trillion rupees higher than last year's outlay.
In his presser today, Ismail began by cautioning that the country was going through an unprecedented period, which he described as "very difficult".
"I have never seen a more difficult time in the past 30 years where on the one hand the international environment is very challenging and [on the other] the government or administration has worsened [the matter] and nothing was done to resolve issues," the finance minister said.
He offered some figures for what the government had been doing in the current fiscal year. With regard to electricity subsidies, he said Pakistan paid more than Rs1,100bn for the purpose.
Moreover, he said, the government is compelled to pay Rs500bn in circular debt.
Ismail said that despite having "one of the most efficient units of power generation in the world", Pakistan is producing electricity at costly rates. "Why is it pricey? It is because of poor administration," he added, referring to the previous government.
Speaking of energy, he said when there was a loss of "Rs1,100-1,600bn" to the federation, "it will sink the company".
He said he was "not being alarmist", but Pakistan's economy "cannot bear it". He said the Rs1,600bn amount is more than the defence budget and what is spent on running civilian government combined.
When it came to gas, Ismail said a subsidy of Rs400bn was given in the current fiscal year. “You are buying gas for $20 and selling it for $1-2 — from where will the state bring the money?”
He asked people to look at who was giving the subsidy and who was receiving it. “On average, those giving the subsidy have an income of less than Rs50,000 per month and those receiving it have income in the hundreds of thousands.”
'We have to set our economy right'
He made the case that the government needs to "fix things". "It is unfortunate that we have to approach other countries for packages, loans or deposits," he lamented. "Pakistan is an honourable country and a nuclear power. We have to set our economy right."
He added: "We cant afford expenditure for which we don't have the capacity."
The minister then went on to question how the country was run by the PTI. "I don't want to criticise but I will say that the subsidies that Imran Khan gave in February in violation of the IMF deal. Basically, he gave a cheque when he didn't have any money in his account.
"We see this happening in the market. People give cheques and flee abroad. He did an act like this. In Karachi, we call it topi ghumana. Are countries run like this?"
He told the journalists present there that they and those in the federal cabinet were privileged, but the common man was not. "If you will drown them and make a Sri Lanka-like situation, the nation and history will not forgive you, and your conscience will also not forgive you."
He then stressed: "So if difficult decisions have to be taken, they will be taken. There is no choice but to take tough decisions."
Ismail said the country had reached this point because of "mismanagement", but "henceforth the government will do management".
Addressing the reporters, he requested their cooperation to not be so hard on the government for taking the tough decisions. "If I raise the petrol price, I don't take it home, I deposit it in national treasury, and your country cannot endure losses."
He said subsidising fuel was no longer an option as that would eventually lead to increasing interest and inflation, which would make it difficult to borrow.
Ayesha Pasha then spoke to stress that the budget philosophy was to "burden people as little as possible" and there were many measures in that respect in the budget.
She also addressed the "complaints" about the budget not having any anti-inflationary measures. "Can we change the global cycle? But we did what we can. We did not raise indirect taxes or impose agriculture taxes."
'There will be some pain'
Ismail said there will be a tightening of fiscal policy to decrease the deficits. "We have increased tax, but the IMF is not happy. We have tried to reduce personal income tax but there will be some pain. I don't think oil prices will fall this year," he added.
He said the government's latest proposals are designed to bring more people into the tax net, but cautioned that the measures will be debated upon in parliament, and the premier had also rejected some of his proposals. "So there will be some changes in the next 15 days," Ismail added.
Budget FY23 at a glance
The government has budgeted the total current expenditure at Rs8,694bn for FY23, which is 15.5pc higher than last year's budgeted figure.
Interest payments, or debt servicing, account for 45.4 per cent of the total current expenditure, having been increased by a whopping 29.1pc from last year to Rs3,950bn. Meanwhile, defence expenditure has been budgeted at Rs1,523bn, which makes up 17.5pc of total current expenditure and is 11.16 per cent higher than last year.
The total revenue budgeted for FY23 stands at Rs9,004bn. After subtracting provincial transfer of Rs4,100bn as part of the National Finance Commission (NFC) Award, net revenue comes out at Rs4,904bn, nine per cent higher than last year.
The government has set the tax collection target for the Federal Board of Revenue (FBR) at Rs7,004bn for FY23, which is 20.1pc higher than last year's Rs5,829bn.
Key budgetary proposals
- Petroleum levy of Rs750bn proposed
- No tax on salaries of up to Rs100,000 per month; previously minimum taxable salary was Rs50,000/month
- Taxes proposed on real estate holdings (property valued over 25m) and capital gains on property sale
- Minimum tax bracket for small business persons to be raised from Rs0.4 million to Rs0.6m
- 15pc increase in salaries of government employees
- Sales tax exemption on import of solar panels and distribution
- Advance withholding tax will be collected from those sending remittances abroad via credit, debit and pre-paid cards
- Advance tax will be increased on cars above 1,600cc
- Exemption of complete custom duty on pharmaceutical ingredients
- Rs51bn proposed for education projects
- Rs24bn for health sector
- People earning an annual income of Rs300 million or more per year are proposed to pay 2pc extra tax
- Advance 2pc tax on the value of high-value hybrid and electric vehicles.
For FY23, the overall fiscal deficit is budgeted at Rs3,798bn, which is 4.9pc of gross domestic product (GDP). Last year, the deficit was budgeted at 6.3pc of the GDP.
Total allocations for the Public Sector Development Programme (PSDP) have been budgeted at Rs2,158bn for FY23, up just one per cent from Rs2,135bn last year.
The government has set a growth target of five per cent, with Ismail saying during his budget speech yesterday that the government had to move towards "sustainable growth".
Moreover, he added, that government had set a target for 11.5pc inflation next year.
Ismail had also announced that all people who had more than one immovable property in Pakistan with a value of over Rs25m would be deemed to have received a rent amounting to 5pc of that immovable property's fair market value. They would have to pay 1pc in tax on this deemed rental income. However, one house of every person would be excluded from this tax.
The government has also proposed the imposition of a 15pc tax on capital gains on immovable properties if the holding period was a year or less. The tax would be reduced by 2.5pc every subsequent year, eventually going down to zero once the holding period reached six years.
The advance tax rate on the purchase and sale of property for filers is proposed to be enhanced to 2pc from the current 1pc, while it would be 5pc for non-filers.
Under the budgetary proposal, the government said any citizen of the country who is not a tax resident of any other country would be treated as a tax resident of Pakistan. It said the criterion for a resident person in connection to taxation was being modified as the current regime was being "misused by wealthy individuals".
Appeasing IMF and the people all at once?
Analysts see the new budget as a balancing act by the government aimed at meeting the International Monetary Fund's conditions for a bailout package and preserving political capital.
A Dawn report says that though Ismail didn’t mention this in his budget speech measures had been taken to meet the IMF's conditions — no matter how inflationary — the budget documents show that he has agreed to recover petroleum development levy to the tune of Rs750 billion and 17pc sales tax on fuels from consumers.
“We have made some tough decisions and this will continue [next year],” the report quoted him as saying and described the statement as a hint at the upcoming increase in the fuel prices and imposition of the taxes.
However, the report added, Ismail had also sought to provide a little bit of relief to salaried persons, pensioners, savers and small businesses by cutting their existing income tax burden and raising the salaries of civil servants.
As it went on to outline measures proposed in the new finance bill, he concluded: " Still it is pretty much disappointing to see a finance minister criticising his predecessors all along for not fixing the structural imbalances in the economy and stopping short of creating new shock absorbers to shield the people.
Dawn's editorial today also highlighted that while Ismail had stayed mum in his budget speech about the increasing burden that the citizens were expected to bear after the new budget. "The budget document, on the other hand, reads as if the government simply ticked off items from a checklist handed to it by the IMF".
The editorial further said: "It is worth asking the government if this budget was designed solely to secure an IMF loan because it otherwise seems to be lacking in intent.
"There is nothing in it that suggests that the government is serious about fixing the structural imbalances inherent in the economy — the same imbalances that the finance minister had been complaining loudly about just a day earlier when he was unveiling the Pakistan Economic Survey."