It provides the professionals in different fields who keep the wheels of organizations and industries moving. They provide the trained manpower for operating different institutions. Moreover, neither being too rich to get the vices of the affluent nor being too poor to raise their head from obtaining the basic necessities of life, they have the wherewithal to work hard with skills and dedication and thus provide the back-bone for any society or nation.
In any developed country, the affluent class is less than 5 per cent of the population and those living the poverty line (which in the USA is earning less than $20,000 per family) are about 15 per cent and the solid rock of the middle class is 80 per cent in a democracy. They vote in or vote out the politicians and hence the policies are tailored to their needs, requirements and well being. In countries like Pakistan, the middle class has no political strength because many leaders are not voted in and even after they have been voted in, like Benazir and Nawaz Sharif, they betray the trust placed in them.
The middle class in Pakistan, say those owning a motorcycle or Suzuki 800-CC is less than 12 per cent. However, this class which is educated and skilled is very essential for efficient operation of national institutions and hence this class needs to be expanded rather than crushed by harsh fiscal policies and other measures. Another three per cent are those owning a car bigger than 800-CC car. The remaining 85 per cent are earning less than $ 2 per day and 38 per cent are below the poverty line earning less than $1 per day.
A recent report of the Social Policy and Development Centre (SPDC) at Karachi states that the population below the poverty line which had fallen from 31 per cent in 1979 to 17 per cent in 1988 rose again to 33 per cent in 1999 and to 38 per cent in 2002. It also stated that the unemployment rate has increased from an average of 3.5 per cent during 1981-90 to 5.7 per cent during 1991-2000 and is 6.7 per cent in 2000-01. This understates the real unemployment and underemployment, which is estimated at more than 10 per cent. It also states that the income of the rich has increased substantially whereas the income of the middle and poor classes has stagnated and may even have fallen.
Public and economic policy in Pakistan needs to be turned in favour of the middle and poor classes as the eventual progress of the country depends upon more and more people getting out of the poverty trap and the middle classes getting strengthened by better nutrition and education. However, it seems that the economic policy in Pakistan is aimed at crushing the middle class.
As official figures would indicate that the electricity charges have, on the average, increased by 54-61 per cent during last three years except for the smallest slab of upto 30 units which is notional only because even the lowest category of Government accommodation has an average bill of more than 30 units. The gas charges have increased by 71-100 per cent during the last three years except for the lowest category, which is again notional. The kerosene prices have risen by half whereas the petrol prices have only increased by 21 per cent. The ideal prices which are more significant for the public transport as well as agricultural tube-wells have increased by 79 per cent. In short, the energy prices have risen sharply during the last three years when the people below the poverty level in Pakistan have risen by 10 million.
GST on medicines, vegetables: The GST of 15 per cent on medicines, except life saving, is the most insensitive fiscal step taken by the government. It is a tax on sick and the consumption of medicine is not voluntary as the patient is compelled to take the tablets according to the advice of the doctor. Many of the diseases in Pakistan are water-borne as only 40 per cent of the population gets piped water supply. Others have often stomach problems for which they are forced to take curative medicines which have now been made more expensive and hence some of the sick people will be prevented from taking the medicines because of its higher cost. It has been researched and found that no other country in the world charges GST or VAT at the rate of 15 per cent. The IMF representative in Pakistan also conceded this fact at a meeting of the economic forum in Islamabad.
The government has also imposed 15 per cent sale tax on vegetable ghee. Vegetable ghee is an item of daily consumption and ranks amongst the 50 items in the sensitive price indicator. The price per kg has gone up by Rs5 on an average. Vegetable ghee is only source of fat in the consumption of low and middle income groups; the increase in its price will lead to reduced consumption and the government may not get higher taxes from lower quantity but diet of the people will be adversely affected.
Reduction in NSS rates: The government has drastically reduced the rate of return on all its national saving schemes (NSS). The rate in case of regular income certificates has been decreased from Rs936 to Rs880 per month on investment of Rs100,000. In case of defence saving certificates, purchased between July 1, and December 31, 2002, the rate of profit has been reduced from Rs275,000 to Rs200,000 on an investment of Rs100.000 in ten years. Special saving certificates would now earn a profit of Rs5,150 instead of Rs6100. For ‘mahana amdani accounts’, the maturity period has been extended from six to seven years which would effectively lower the rate of return on these accounts to 11.6 per cent. Post office saving accounts would yield annualized return of 11.3 per cent after the completion of three years and 10.3 per cent for each of the first five six-months periods. Earlier, the return was 13.20 per cent on the completion of three years and 12.20 per cent for each of the first five six months period.
Moreover, the slab for application of 10 per cent withholding tax has been lowered from Rs3 lakh to Rs1.5 lakh. The NSS investors are usually small savers, retired government servants, senior citizens, widows etc. The are those with little amount of money and lacking in expert investment expertise and also risk averters because of their limited capital stocks. In short, the net income from NSS has been reduced by about 20 per cent.
All the three measures listed above have really crushed the middle class. When the middle class is squeezed between higher energy prices, higher bill on medicines and vegetable ghee and lower return on NSS certificate, the only option left to them is to reduce their food intake and opt for inferior foods and low protein diet.
The net result of these measures is to increase the malnutrition in the middle class and reduce their mental and physical abilities or in other words push more people below the poverty line.
The middle class supplies the bulk of the professionals which sustains the nation. The entire officer corps of the armed services hails from the middle class. The President himself comes from the middle class. By following the middle class virtues of hard work, dedication and striving for excellence, he has reached the top of the Pakistan Army and thus become the President also. It is the middle class ethos, which has enabled him to reach this destination. It is indeed an irony that his economic policy makers are crushing the class which nurtures people like the President. The extremely high level of foreign exchange reserves is irrelevant for middle class family which can not make it both ends meet. It was heartening to note a khaki objection to the proposed 16 per cent increase in the KESC power rates. We all need to join together to save the middle class, otherwise a body with a crushed back bone will be left high and dry in this highly competitive global village.
(The author is the former Secretary, Planning division)