Daily Times Editorial June 3, 2012

Budget FY 2013 The fact that an elected government is presenting its fifth budget (implying it has survived almost a full term) is being remarked upon in diverse circles and celebrated in some. However, the celebrations cannot but be mooted when the state of the economy and by extrapolation the state of the citizen is so precarious and painful. The Budget FY 2013 presented by Federal Finance Minister Abdul Hafeez Shaikh, whatever its merits or demerits, received short shrift at the hands of a rowdy and violent set of MNAs from the opposition benches, led first and foremost by the PML-N. Heckling and walkouts may be permitted parliamentary forms of protest, but surely fisticuffs are beyond the pale. The scenes of mayhem from the floor of the house were enough to make any self-respecting Pakistani hang his/her head in shame. Mr Shaikh struggled through his budget speech nevertheless, but reasoned debate was replaced by the opposition with yahoo behaviour. It is worth noting that these opposition parliamentarians, by their example, are not just endorsing yahoo behaviour that is increasingly characteristic of our society, but positively encouraging it. If parliamentarians replace the weapon of language and reason with the ‘language’ of violence and aggression, how can we expect civilised norms from the rest of society? Such ‘role models’ we can very well do without. And what have they wrought in the account of the dignity and respect for parliament itself? Opposition to government policies, decisions and actions cannot transgress the laid down and universally respected norms of parliamentary behaviour. Nawaz Sharif should rein in his ‘hawks’ in the interests of continuity of the democratic process. The total outlay for this year’s budget is Rs 2.96 trillion (up 0.6 percent from Rs 2.94 trillion in FY 2012). The scepticism of the critics about overstated receipts and understated expenditures notwithstanding, gross federal revenues are estimated at Rs 3.234 trillion (up 18.3 percent on FY 2012), which, after enhanced transfers to provinces under the current NFC Award of Rs. 1.459 trillion (up 21.3 percent), leave net federal revenues of Rs 1.775 trillion (up 16.1 percent). That projects a net budget deficit (after deducting a provincial surplus of Rs 0.080 trillion) of Rs 1.105 trillion, representing 4.7 percent of GDP (5.5 percent in FY 2012 plus 1.9 percent consolidation of debt equals 7.4 percent). Sceptics doubt that the government’s past practice and avowed intent to meet the deficit through borrowing will confine it to this relatively acceptable level through the next fiscal year. The major areas of outlay interest, traditionally, are debt servicing (the lion’s share as usual for many years now of Rs 1.141 trillion or 35 percent), defence (Rs 545 billion or 17 percent, to which if Rs 98 billion on account of military pensions camouflaged as civilian expenditures are added, the real figure is Rs 643 billion), and development (Rs 873 billion, of which the PSDP comprises Rs 360 billion, up from last year’s Rs 300 billion). Being an election year, the government has striven hard not to impose any new taxes. It has within the straitened finances of the government attempted to give relief to vulnerable groups, rationalise taxation and duties to encourage businesses, and endorsed a continuation of targeted subsidies for the marginalised in society. Hence, for example, government servants’ pay and pensions have been increased by 20 percent, the government’s flagship Benazir Income Support Programme receives Rs 70 billion (Rs 50 billion last year), concessionary food and other necessities will be provided through the Utility Stores, which are being expanded, and internship and technical training regimes for 100,000 educated unemployed youth will be instituted. The textiles industry receives allocated support in the presence of a major drop in international cotton prices, the pharmaceuticals sector gets a 5 percent reduction of tariffs on 95 raw materials in recognition of its good performance, and subsidies will swallow up Rs 209 billion (of which Rs 135 billion will go to the power sector, representing about 50 percent of the circular debt). Hafeez Shaikh with a rhetorical flourish towards the end of his budget speech asserted that the government will provide as much money as required in order to overcome electricity load shedding, without shedding any light on where these ‘magic’ funds will come from. Sales Tax (ST) has been rationalised at a uniform rate of 16 percent across the board, and federal excise duty abolished on a number of goods, with the promise that this levy will be phased out. The income tax threshold has been increased from Rs 350,000 to 400,000, which will help the salaried class in particular, albeit marginally. Capital Gains Tax has been imposed on sale of real estate. The withholding tax threshold on cash withdrawals from banks has been raised from Rs 25,000 to 50,000 per day. Tax to GDP ratio stood at 9.6 percent in FY 2012, which the government hopes will rise through better enforcement and documentation of the economy measures to 10.3 percent this year. Despite (or perhaps because of) the fact that there are only three million taxpayers in the country, and only 100,000 registered entities under ST, the government has offered relief in the form of reducing the tax slabs to just five (promising thereby a relief of Rs 8 billion to taxpayers), reduction of minimum turnover tax from 1 percent to 0.5 percent, and a declared intent to reduce the presumptive tax regime if not phase it out altogether. As the above analysis shows, the budget has tried hard within the financial constraints to balance straitened finances against the political need to offer relief to whatever extent possible in an election year. As promised by the government, no new taxes have been imposed; tax amnesties and concessions are on offer. Sceptics wonder if this budget will be overtaken by political events during this fiscal year. On that, comment is reserved until further political developments.