WHAT’S the budget if not ‘strategic’? A mere accounting exercise; an attempt at balancing income and expenditure of the government? Well, the fact is that most budgets in the past have been devoid of any strategic direction.

Now, Finance Minister Muhammad Aurangzeb has promised to introduce “bold measures” in the upcoming budget to steer the economy in a “strategic direction”. What he means by bold measures or strategic direction remains unclear.

The only hint he has dropped so far about the “strategic direction” concerns plans to expand the restructured debt management office’s goal “beyond reducing interest payments, and instead create economic value” or ‘Alpha’, a term used in finance to describe an investment strategy’s ability to beat the market, to put the economy on a sustainable growth path.

“That is where we are going to bring very bold measures in the coming budget to give strategic direction where the economy is headed, and change the DNA of the economy and not to just give an account of expenditure and revenue,” he told a gathering on Monday. Besides, he has promised to simplify tax returns for salaried individuals and significantly increase the defence budget next year in view of the Indian threat.

There’s no reason to doubt the government plans to give a strategic direction to the economy in the next budget. That said, the next budget has to primarily focus on fiscal consolidation if the country intends to keep receiving multilateral dollars going forward, as well as avoid the temptation to pump imported growth to stave off another boom-bust episode.

There is already some anxiety in the market regarding the ‘inconclusive’ talks with the IMF on the government’s budget proposals, especially the ones related to the increase in defence spending, tax relief for salaried individuals and the real estate sector, and cuts in public sector expenditures. The fund appears to be concerned over the hole these steps would create in the budget, and wants the authorities to identify alternative sources to cover the gap.

Perhaps the single most important and bold strategic measure that the minister can introduce in the budget relates to reforms focused on increasing the tax base for boosting tax-to-GDP ratio to the globally acceptable range of 18-20pc of the size of the economy.

This will not just create fiscal room for raising the defence expenditure and somewhat reduce the tax burden on salaried households and the corporate sector, but also create room to deepen the recent recovery and push the economy towards sustainable growth.

But it again depends on how the authorities define strategic and whether real tax reforms fall in that category. Nothing can be bolder or more strategic than taxing incomes from the retail, agriculture, real estate and other sectors still operating outside the system.

Published in Dawn, May 28th, 2025