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But what if it wins?

June 11, 2012

EVERY government is a political government, even a military dictatorship, a fact which most analysts and commentators forget. Every act of public policy is also a political act, because it deals with resources, revenue, expenditure, favours, equity and distribution.

One of the most routine of political acts for a government, is to announce its annual budget, giving light to expenditures, taxes, an account of the current financial year and plans and announcements for the next fiscal year. The budget announced by the PPP government two weeks ago was just as political as any other announced in the last six decades. Not only that, every elected government has the right to use every instrument of public policy, especially the budget, to engage, and perhaps please, the public at large.

An elected government which is sure that its future is to be decided by the electorate, will make decisions to ensure its re-election, whenever that happens to come about. When it knows that this is its last budget before elections are to be held, it will make sure that it announces a budget which helps to win votes and get re-elected. It ought to know what its political constituency wants and how to please it.

Economics, in many cases, is a key vote-catcher or vote-loser. Voters are affected by how they feel in terms of their quality of life and how they assess the economic (and other) performance of the government whom they have the power to remove or reward. But of course, we also know that a booming economy is not the only criterion for a discerning voting public. The Bharatiya Janata Party did, after all, get a sound beating in the 2004 elections despite India’s shining. Nevertheless, evidence from around the world, added to a lot of common sense, would suggest that the electorate would give high priority to the state of the economy and how it affects them when they next go to vote. Knowing this, every government will announce a budget which brings in more votes. This is a legitimate feature of democracy and any allegations of ‘bribing the public’ or pandering to the peoples’ whims, are illegitimate accusations.

However, the most surprising feature of the 2012-13 budget is that it has not been an election-year budget as everyone expected. It has not been particularly ‘people-friendly’, nor has it given excess relief to consumers and the electorate, and nor has it allowed for an abundance of spending to elected representatives to buy votes, as has been the practice in the past. In fact, if anything, the budget might actually make life somewhat harder for many of the electorate and will, on the margin, probably have a vote-reducing, rather than a vote-enhancing, impact.

Every commentator was expecting an ‘election budget’, where it was expected that the government would go out of its way to spend excessively in order to buy votes. While this may happen as the election nears, this is not the case at the moment. In retrospect, it seems that while there are serious problems with the budget and what it ought to have done, relative to the expectations of the anti-government economists’ lobby, the budget is rather prudent.

There is, of course, the more general and more valid criticism of this budget, that it really does nothing, is unimaginative, uncreative and one which overlooks and actively ignores the interventions in the economy which are now essential. But that is exactly what constitutes the economic policy of this government.

In that regard, the budget has been true to form and consistent with the absence of imagination and commitment to economic reform shown by the economic team. The fact that there are no surprises in the budget this year is a reaction similar to that of the budgets of the earlier years of this government. For five years now, with the exception of the very first budget when the PML-N was still in partnership with the PPP government, all budgets have ignored necessary interventions.

While the real, underground and informal segments of Pakistan’s economy continue to manage, and perhaps even thrive, there is little doubt that the government’s finances — the monetary economy — have deteriorated over the last few years. There are some relevant and explicable reasons for this, but government policy inaction, is probably at the top of the list. This government will be remembered for many admirable achievements. Economic management will certainly not be one of them.

Given the past record of the economic team and its budgets, no one expected a budget which would have taken critical, yet unpopular, interventions to correct the slide in the government’s economic numbers. A more expansive, deep and extensive taxation effort targeting all sources of earned and unearned income is one such urgent policy measure, as is the need to meet the energy deficit which, if properly addressed, can raise the growth rate by two to three percentage points.

Better and careful development spending and a drastic reduction in defence and other unnecessary expenditure are also equally urgent. However, such policy interventions are not the ones governments’ seeking re-election in a few months undertake.

By not taking necessary measures, it is clear that the numbers which matter to the government will all deteriorate. While this is not the same as stating that Pakistan’s overall economy will also deteriorate, it is improbable that it will improve substantially, despite the real economy managing to keep people’s lives steady.

If the PPP government loses the election and some other coalition comes to power, it is likely — though no guarantee — that it will deal with the inaction of the PPP and will probably tackle some of the chronic issues affecting the economy. The more interesting question, however, is, how will the PPP deal with these problems, most of which it has itself helped exacerbate, if it wins the election?

The writer is a political economist.