Government employees have been offered a 15 per cent dearness allowance. Tax exemption limit has been raised from Rs100,000 to Rs150,000 even though new taxes will now be levied on gross salary. Income tax rates have been reduced from the current 3.5-30 to 0.25-20 per cent.
Minimum wage has been raised to Rs4000. In all Rs109 billion have been earmarked for relief and subsidies. This is an increase of 31.3 per cent from the current year’s revised estimates. The petroleum development levy will no longer be treated as revenue income. Instead, it will go towards subsidies.
Subsidies will be provided for the power sector, fertilizers’, food items’, and fuel to offset the impact of international oil prices. Recipients of subsidies will include Wapda, privatised KESC, profitable oil companies, refineries, and the TCP.
Some of the beneficiaries of relief will, therefore, also include the privatised concerns and the profitable powerful lobbies in the energy sector. It is, therefore, “relief” for many of the rich and not-so-rich for obvious political reasons closer to elections.
Political determinants of the relief measures notwithstanding, the issue is that the term “relief” itself implies presence of harsh economic conditions from which the people have to be relieved.
The issue is also of the extent to which the disadvantaged are brought into the “relief net.” The 15 per cent dearness is not granted by many other organisations in the public and private sectors whose low-level employees are hardly relieved from price pressures.
And the government employees are already so low-paid that the 15 per cent dearness allowance on basic salary hardly compensates for the price pressure that they have been under for the last six years during which period the food prices have jumped manifold not all of which can be compensated by a 15 per cent dearness in each one of the last 2/3 years.
Flour price itself has shot up by 50 per cent in the last six years. To this should be added the constantly increasing prices of pulses, vegetables, poultry, and meat to find out that 15 per cent dearness is a mere trickle.
These price pressures further include the rising prices of healthcare, education, housing, and transportation. All of these increases put together are back-breaking and push many household budgets into the red. To say that 15 per cent dearness on basic salary should more than compensate for eight per cent inflation is not even a valid statistical explanation due to measurement errors in the rate of inflation itself.
First, inflation is based on a survey of only 30 per cent of the population in urban areas.
Second, it also includes Utility stores prices instead of the market prices that the bulk of the population pays. Also, not everybody can access the utility stores or can make time to line up at these discount stores. The quality of some items at these stores is also sub-standard and flour bags are occasionally found infested with worms. Consumption of such items would only raise the medical expenditure thus offsetting the discount one availed for basic food items.
Third, housing is determined on the basis of input costs rather than market-based house rents. As food items become expensive, their weightage in the consumption basket changes thus rendering inflation rate determined with fixed weights less valid. And, with declining consumption of nutritious foods, the employees in the low-income groups are only growing poorer that a mere 15 per cent dearness cannot reverse.
To say that a dearness of 15 per cent is a sufficient enough allowance in view of eight per cent rate of inflation is not a statement that would convince those familiar with the ground realities becoming tougher with the passage of time. Another harsh ground reality is a tendency to play around with figures to make them look good on paper as discussed for inflation earlier.
Net impact of increase in tax exemption limit and reduction in tax rates is not known if all gross salaries are to be now taxed. Increase in minimum wage to Rs4000 speaks volumes about the extent of relief provided as it has strong implications for poverty levels. For, one needs to imagine that a family of 5/6 or even 3/4 or even two with an income of Rs4000 or around it. With flour alone consuming 10-15 per cent of the wage, can the minimum wage earner, or slightly more earnings, make ends meet?
The minimum wage earner is clearly poor, is below the poverty line, and is barely trying to survive. This means that even employment does not necessarily mean poverty eradication if employment yields an income below the poverty line or around it.
With the kind of “relief” measures announced, will we see another claim of another 10 per cent reduction in poverty next year? It will be as unbelievable as the current claim of 10 per cent poverty reduction is or as the claim of 8 per cent inflation rate is. The poverty reduction claim came in the wake of yet another claim regarding steep decline in population growth rate. This rate was claimed to have fallen from 3.1 to around two per cent in just about a couple of years.
No one challenged this claim even though family planning behaviour has not changed nor is there a change in the high demand for children amongst the low-income groups. How come then that the population growth rate fell as significantly as is claimed by official quarters? Since the analysts allowed that to pass unnoticed, next big fall is claimed in the poverty levels.
It is claimed that poverty has declined by 10.6 percentage points on the basis of population percentage below the poverty line. How this poverty line is determined on the basis of nominal or real income is not known. Only an intake of 2350 calories per day is considered which is grossly inadequate.
Even this caloric intake is disputed by some who insist that the poverty line caloric intake is reduced to 2150 calories per day and thus the reduction in poverty level, official refutation notwithstanding.
Poverty cannot go down by simply restricting the definition of poverty. Poverty is poverty, however conservatively the government may want to define it to look good. Poverty will be poverty for as long as people barely subsist and are not lifted above the levels of poverty to share the basic amenities of economic life in a way that would allow them to avail the opportunities currently restricted to a small affluent segment.
Yet another simplistic explanation revolves around the link between employment and poverty which has been discussed earlier. Also, what the labour survey defines as employment is yet another massage of crucial data.
For, gainful employment is for 40 hours a week with adequate remuneration and not a few hours a week as defined in the labour survey. It is these errors in measurement that make the official circles feel comfortable about a situation that the people find most disconcerting.
Even the consumer-led growth rate of 6.6 per cent in 2005-06 is largely contributed by services that, in turn, is largely contributed by banking and its large spreads. And, growth is about capacity enhancement and not mere better capacity utilization which distinction is not clarified while stating growth rates.
There should be unanimity of views on where the economy is headed in terms of equitable sharing with the people. The economy cannot be viewed as out of the woods for as long as the people are not relieved from price spirals and economic woes that they are caught up in, inter alia, due to a premature market-opening at the behest of world economic powers.
Their agencies will certify most economic outcomes as long as we are open enough for their goods, services, and investment whose profits they will be quick to repatriate to their homelands. Their appreciation of our economic decisions only shows how well their interests are being served.