- Asad Omar’s awaited balancing act
Finance Minister Asad Omar didn’t really need to remind everybody about how much the fiscal deficit has ballooned or how little import cover is left. PTI has been crying hoarse about these problems since well before it won the general election. Just getting straight to budget amendments for fiscal 2018-19 was enough, especially since the silence regarding the economy had kept investors on edge far too long and sent financial markets tumbling far too often. That, along with the welcome delivery of direction to the economy, finally, lifted investor morale as well as the equity market, which posted a 700 point plus rally to welcome the finance minister’s comments.
Asad Omar was also right that the economy’s broken down state will require positive input from both sides of the aisle. The budget amendments were a bitter pill that the government had to swallow; and it has done the right thing by taking it sooner rather than later. It shows that even though the government has had to give the development budget a sizeable haircut – to plug one too many leaks – its decision to tax in slabs is encouraging and forward looking. Revoking PML-N’s tax relief to high earners, for example, and increasing tax rate for the highest income slab form 15pc to 30pc are just the kind of strong steps that are needed to put some sort of life into tax revenue.
Increasing customs duty on more than 5,000 luxury import items was also essential to bring outflows in line with the magnitude of the deficit. This will now test the popular myth that the Pakistani upper class, rich as it is, is insensitive to taxes and luxury import demand is simply inelastic. And this will need checking not just the black economy and smuggling but also implementation of the program. It is encouraging that PTI’s priorities include protecting the poor and supporting exporters. But unless these encouraging steps are translated into policy the finance minister will have even less elbow room by the time of the next budget. Implementation, therefore, is the key.
