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Budget is a reflection of priorities of the government which plays a pivotal role in giving direction to the economy. In this context, this paper presents proposals that are aimed at stimulating economic growth, and reducing poverty and inequality.
Nevertheless, there appears to be some improvement, as growth rates hovered around four percent between 2014 and 2015. But this level of growth is not sufficient to reduce poverty and unemployment in our rapidly growing workforce. It is, thus, important to take measures that can make Budget 2016-17 pro-poor and pro-growth.
Since assuming power in 2013, the government strategy keeps focusing on roads and highways that do not generate sufficient employment and mainly benefit the urban residents. Thus, there is a need to prioritise high growth projects in sectors where the poor work (eg energy, water and agriculture sectors).
Government documents highlight that the country is heading towards a water crisis, as its water storage capacity is limited to only a 30-day supply, well short of the recommended 1,000 days. Unsafe drinking water supply results in high incidences of morbidity and mortality rates, threatens the survival and development of children leading to perpetuation of poverty and death among underprivileged families.
More than 40 percent of the population, in particular the poor and the vulnerable residing near the river belt are at the risk of natural disasters such as droughts, floods and cyclones. Economic losses due to floods since 2010 were around $20 billion which were higher than the foreign loans that the country has taken during this period.
While water is essential for life, food security and livelihood in agriculture and industry, the government has been neglecting the water sector and allocating huge budgetary resources to roads and highways, including projects like metro buses and orange line. There is a need to set the priorities right and increase allocation to water related projects and agriculture sector to increase storage capacity and generate power along with protecting the country from floods and droughts in future.
To resolve disputes on the China-Pakistan Economic Corridor (CPEC) routes, government should allocate enough funds to develop the western route to address the backwardness, underdevelopment and extremism in smaller provinces. A CPEC authority should be announced to establish with the participations and oversights of all provinces.
The plight of the poor and low income groups is reflected by the government poverty estimates that show that 60 million people are poor. The finance minister announced on April 7, 2016 the official poverty line at Rs3,030 per person per month. The average household size in Pakistan is 6.5 persons. Thus, a household on average needs at least Rs19,695 per month to meet minimum basic needs to remain non-poor.
The current minimum wage rate at Rs13,000 per month is not sufficient to meet the basic needs of a family even by government stipulated food and non-food needs. It is, therefore, recommended to increase the minimum wage rate by at least Rs4,000 to Rs17,000 this year and by Rs3,000 to Rs20,000 in the next year to bring the minimum wages closer to the poverty line. This measure will not only reduce poverty but also improve the productivity of the workforce.
Over the years, underestimated inflation rates have been eroding the purchasing power of the fix salaried income people. Salaries and pensions of government servants should be increased by 15 percent and 20 percent respectively. Pensions of those 75 years and above should be increased by double rate ie 40 percent as their salaries at the time of retirements in the 2000s were very low compared with retirees in recent years.
The country’s workforce has been suffering from the low status of education and health compared with other nations in the region. It is mainly due to the fact that the country’s spending on education as a percentage of the GDP has been the lowest in the world. Thus, allocation for education including both federal and provincial should be increased from the latest figure of 1.8 percent to 2.5 percent of the GDP.
Without higher education and high skilled training, our workforce will not be able to compete in the international market. It is, therefore, essential to increase the expenditure on higher education from a meagre 0.2 percent of the GDP to 0.5 percent of the GDP to realise the opportunities of globalisation. Similarly, country’s allocation for health remains abysmally low and should be increased from the current 0.7 percent to 1.2 percent of the GDP.
The lack of integrated management of energy has been the prime cause of the current energy crisis that has adversely affected the economic growth and the lives of the citizens. Integration of the sector should be announced in the budget speech by a unified ministry of energy through amalgamation of Ministries of Water and Power and Petroleum and Natural Resources, along with a unified regulator through the merger of National Electric Power Regulatory Authority (Nepra) and Oil and Gas Regulatory Authority (Ogra).
The root of all our economic problems is the low tax-to-GDP ratio. If we increase tax-to-GDP ratio to a respectable level we would not need to borrow from the International Monitory Fund (IMF) as low tax-to-GDP ratio leads to high fiscal and current account deficits and results in undertaking loans from the IMF.
The need it to broaden the coverage by bringing 3.2 million qualifying wealthy citizens into the tax net according to the National Database and Registration Authority (Nadra) databases. There is also a need to coordinate and support provinces to bring agriculture income into the tax net and taxing remittances at the receiving end.
The current tax policy is ad hoc and growth retarding. The stalled Reform Process at the Federal Board of Revenue (FBR) should be reinitiated. Reliance on high rates, imposition of regulatory and special duties should be reduced to relieve the burden on those who already pay taxes.
The too narrow tax base should be broadened by reducing reliance on 15 commodities sectors as 75 percent of the entire collection comes from these sectors. Regressive taxation affects the poor and low income groups. Regressive taxation should be reduced, which is currently very high at 85 percent of FBR collection. Corporate compliance rate needs to be reduced to 25 percent to attract foreign investors. Regulatory duties and additional taxation on so-called luxury items must be avoided.
On the expenditure side, there is a need to merge several ministries and attached departments to save taxpayers’ contributions. Facilities such as vehicles and housing allowed to senior civil servants, judiciary, and military officials should be monetised to avoid misuse of the facilities.
The writer is Advisor at Centre for Policy Studies, CITT, Islamabad
