Vagaries of Consciousness
An opportunity wasted
Shahid Khaqan Abbasi was one of the hard working, sensible and competent ministers in the Cabinet of Prime Minister Nawaz Sharif. He was assigned one of the most important ministries of petroleum and natural resources. He was quite effective in infusing a new spirit of action and initiative in the work of the ministry. He was successful in bringing LNG in the country after many failed attempts in the past. Even though there are many who would fault him on his excessive exuberance for LNG as a panacea for the country’s energy needs, the point remains that he inspired the confidence of investors to make investments in an area where past efforts faced great challenges including from the Supreme Court. He also made more domestic gas available for power generation in the country and introduced a number of improvements in pricing of petroleum products and simplified the regulatory regime for the sector. Last, but not the least, he was normally a quiet participant in high level meetings but when he would speak he would be forthright and would not mince words in expressing his mind.
In this backdrop, when he accidentally tumbled onto the prime ministerial office, one had hoped that he would carry his working ethics to the new job and limit himself only to doing such things considered best for the country. Some of his actions, unfortunately, we have found wanting. On the touchstone of economic logic and apolitical nature, we see these actions not passing the test.
First, it was not worthy of his office that he personally chose to announce the Amnesty Scheme in a press conference. In the first place, it should not have been announced. However, if it was considered inevitable, it should have been left to the Finance Minister and Revenue Advisor. His participation and supervision of the scheme suggested greater involvement than warranted for his office. As he leaves office, not a single penny has been declared under the scheme, which he and his advisors had touted as capable to bring billions of dollars. Yet the name of the country has been soiled for announcing the scheme with such grand fanfare.
Second, the Government announced a tax relief scheme that was highly objectionable from the point of view of revenue mobilization efforts. The limit on individual taxable income was raised three fold from Rs.400, 000 to Rs.1, 200, 000 and the maximum tax rate was dropped from 35% to 15%. The financial impact of this relief is estimated at a minimum of Rs.100 billion and half the taxpayers are out of the net. To keep the number of taxpayers intact, later, a token tax of Rs.1000 and Rs.2000 has been imposed for incomes up to Rs.800, 000 and Rs.1, 200, 000, respectively. There was absolutely no ownership of this proposal from the tax department. The department has a long tradition of not accepting any tax relief proposal unless an alternative and matching source of revenue is identified. The logic of doing so was understood only by the PM and he would not let anyone differ on that. The PM should know that under his watch, revenue collection performance has been weak: against a required growth of 19% compared to last year, the 11 month actual collections are recorded at 14%, posing a significant shortfall during the year. To make self-inflicted wounds on the body of tax collection efforts is not a rational thing.
As he leaves office, not a single penny has been declared under the scheme, which he and his advisors had touted as capable to bring billions of dollars
Third, the Government has also announced at the national level a curious tax compliance scheme that aims to unearth the true values of real estate properties. The subject of real estate belongs to the provinces, but in the name of collecting capital gains tax, the federal government is now vying to take-over the properties if it considers that significantly low values were declared in the transfer of property, by paying 100% more than the declared value. It is simplistic to believe that the federal government could have such authority that would nullify/cancel otherwise competently executed sale-purchase transactions and forcibly acquire property against the wishes of the taxpayers.
Fourth, the Government chose to give the sixth budget of the Government for a period that it would not be in office. A false pretext was used to justify that the Government cannot leave the nation without a budget. This lame excuse is due entirely to ignorance about the constitutional provision. Article-86 of the Constitution provides a 120 days period for an interim government to make expenditures from the Consolidated Fund if an approved budget is absent during the dissolution of the National Assembly. With this constitutional provision, the claim that it was done to avoid creating a void in public finances has no basis. The unpalatable truth is that the occasion was used to make political gains at the expense of the public exchequer.
Fifth, the economy has suffered major hemorrhaging during his premiership. The budget deficit this year is likely to be 7% of GDP while the current account deficit is approaching 6%, highest in more than a decade. He has authorized unprecedented amount of borrowing during the year and saw massive erosion in country’s reserves. His Finance Minister was oblivious to the needs of the economy. Despite two bouts of depreciation, the rising current account deficit has not stemmed. Sadly, a battered and bruised economy is bequeathed to the successors.
Sixth, the Government has put on-hold many projects of renewable energy while allowing LNG-based power plants. This choice has bewildered experts in the field. Critics attribute this policy to PM’s unrestrained enthusiasm for the efficacy of LNG as the fuel of choice, which would in fact set the standards for renewables also.
Seventh, there was a frenzy to grab things and use power to accomplish things at the last minute: transfers, postings, appointments, approvals, permits, amendments, payment orders (tax refunds, arears etc.) – anything that could have improved the political fortunes in the future. The Supreme Court has taken notice and would see for itself the motivation behind such frenzied decision-making.
After realizing that significant increase in prices of petroleum products is warranted, the last act of the Government was to conveniently pass on the burden of price adjustment to the interim Government
Eighth, the amount of three salaries announced for the federal government employees, as a farewell gift, was the most imprudent thing that one can do in disregard of public propriety. This would have cost Rs.150 billion to the exchequer or 0.4% of GDP. Although a formal word is not yet out, the news is that the Government has backtracked from the decision, after realizing how costly it was.
Finally, in the process of monthly adjustment in petroleum prices, the Government has decided to keep the prices constant for another seven days and leaving the decision on the Interim Government. This is a mean act, motivated by a cheap desire to avoid taking politically costly decisions. After realizing that significant increase in prices of petroleum products is warranted, the last act of the Government was to conveniently pass on the burden of price adjustment to the interim Government.
This is not a complimentary sketch of governance practiced by Abbasi Government. He was not from the ruling elite, and he could have made a difference. But it seems he decided to let go this opportunity.