Best possible under the prevailing circumstances
Preparing a budget and selling it to the public is the most arduous undertaking even in the most affluent and developed countries, particularly the new tax proposals and measures aimed at keeping the corporate sector in good stead to spur economic growth and employment situation in the country. Taxes besides generating the much needed revenue for the government to spend on development of the country and well being of the masses also affect the people one way or the other, affecting their economic situation which makes them the most unpopular proposition, notwithstanding the fact that they are inevitable for resource generation.
So every segment of the society tries to look at the budget from its own perspective; resultantly there is always a mixed reaction on the budgets presented by the governments.
The exercise is even more excruciating in the third world countries like Pakistan, facing financial constraints and dismal economic situations. Therefore, not surprisingly the budget for 2013-14 presented by the PML-N government has spurred a debate with regard to whom it benefits and whom it hurts. The debate however lacks objectivity and relevance to the ground realities. Needless, to emphasize that the budget has been presented in the backdrop of economy perched at the edge of a precipice with fiscal deficit at 8.8 per cent of the GDP, a whopping internal debt of Rs14 trillion, a circular debt of Rs500 billion and acute energy crisis which has already pushed the GDP growth rate downwards by two per cent.
The situation therefore demanded some hard decisions keeping in view the long term economic health of the economy. The foremost concern was to reduce the fiscal deficit through internal resource generation by broadening the tax base and reduction in the non-developmental expenditure. The revival of the corporate sector through concession and incentives was also an utmost necessity, as was the need to attract foreign investment, particularly in the energy sector, that would not only help the country through export-led growth but also improve employment situation in the country. Honestly speaking, the budget proposals aim exactly at what is dictated by the economic ground realities.
Bringing nearly 500,000 more people into the tax net through multiple policy initiatives and resort to indirect taxation like GST, Sales tax and different levies was the only option available to immediately raise the level of government revenue that will generate additional Rs.209 billion and help in bringing down the fiscal deficit to the envisaged 6.3 per cent of GDP from the current 8.8 per cent. This is further to be reduced to four per cent by the year 2016. The government has also reduced its own expenditure by 30 per cent as well as abolishing all discretionary funds at the disposal of different ministries – a net saving of Rs40 billion. These initiatives will ensure that the target of revenue collections of Rs2,475 billion for the current budget is easily achieved. However a conscious effort has been made to shift the emphasis on direct taxation in the long term.
These measures were essentially required to be taken to dilute the hurt being caused by the hydra-headed budget deficit and also to enhance our ability to negotiate a new loan with the IMF to cover the budge deficit besides exploring other avenues from abroad.
Granted that some of the taxes on consumer items might affect certain sections in the short run but their impact is likely to be diluted by some other measures incorporated in the budget like, the continuation of the income support programme, Qarz-e-Hasna scheme, training programme for educated youth to enhance their employability with a stipend of Rs10,000 and the initiative to advance loans to youth on soft terms to start their own businesses which will surely benefit a large segment of the society through their multiplier effect. The enhancement of pensions by 10 per cent is also likely to provide relief to millions of families.
Reviving the confidence of the corporate sector through some concessions and incentives was also needed to enable it to play its role in ensuring export-led growth in the country besides producing substitute products for imported items and improving the employment situation in the country. The government therefore has rightly enhanced the period of tax holiday in the exports processing zones from five years to 10 years – the reason why some critics of the budget are calling it a corporate-friendly budget.
The government despite the financial crunch has not lost sight of the developmental needs of the country and has allocated Rs1155 billion for the PSDP out of which Rs540 billion will be spent on federally administered projects and Rs615 billion will be at the disposal of the provincial governments. This allocation represents 32 per cent increase over the previous year. The emphasis is on projects in energy and water sector. The budget also envisages 23 per cent increase in the share of the provinces from the federal divisible pool. The government has also committed to pay off the circular debt of Rs500 billion within sixty days and in this regard Rs25 billion will be paid during the current month, which indicates the priority that the present government is giving to the energy crisis.
The tiding over the energy crisis will surely reinvigorate the domestic industrial sector which has suffered badly during the last five years and millions who lost their jobs due to this debilitating development would be back at work besides creation of new employment avenues. Much will depend on the ability of the government not only to enhance power production in the short run by paying off the circular debt but also to find sufficient resources for investing in the energy sector through internal or foreign sources to cater for the future energy needs which are increasing by 8 per cent annually. According to an IAEA report, Pakistan will need nearly 49,078 MW of electricity by2025, which means that we will have to double our power generating capacity within the next 12 years.
Huge resources are therefore required to meet our energy needs as well as reviving the economy to ensure a sustained growth process in the country. We will have to move towards self-reliance gradually. It will inevitably entail some tough decision divorced from political considerations. The government has shown a great courage in taking the right decisions in conformity with the dictates of the ground realities. The budget proposals for the year 2013-14 present the best possible solutions to our economic woes under the prevailing circumstances.
