After the budget

The reactions to the FY2025-26 budget released on Monday have not exactly been positive. Despite delivering a budget that, on paper, strikes a balance between modest relief and fiscal discipline, the government has left many underwhelmed due to a perceived lack of steps towards deeper structural reforms and others questioning budgetary targets that seem overly ambitious or optimistic. Experts have pointed to the fact that rather than meaningfully broadening the tax net, the government has mostly raised the burden on those already in it, walking what is a well-trodden path when it comes to economic governance in Pakistan. Efforts to address undertaxation or absence of taxation in sectors like wholesale, retail and agriculture have not been fleshed out, leaving the flawed tax framework looking basically the same as it always has. Other steps economists have long called for, such as enforcing the minimum wage, remain unaddressed. However, even without any bold reforms, some of the targets set by the government seem unrealistic. In light of the fact that the IMF growth projection for the country has been lowered to around 3.6 per cent and an increasingly uncertain global economic environment, the government’s target of a 4.2 per cent growth rate seems too optimistic.

According to the Pakistan Economic Survey, growth for FY2024-25 is expected to come in at around 2.7 per cent, though many analysts feel that even

n this low growth will be revised downwards. Given all these headwinds, it is unclear how exactly the government plans to push towards the 4.2 per cent growth envisaged in the budget. Historically, Pakistan has boosted growth through, often irresponsible, fiscal expansion. But this option is not really available if the country wishes to stay within IMF guardrails. It would also be unwise considering that this is the growth model that landed the economy in its current malaise in the first place. Given the doubts about the growth target, the revenue collection of the aim of Rs14.1 trillion, up almost 20 per cent from last year, seems precarious also. If the government’s growth expectations do not pan out, additional taxation or borrowing may well be needed.

Beyond uncertain targets and a lack of big steps forward, the budget is in some ways a step back also. Once again, indirect taxation is being relied on to achieve the high revenue collection target rather than an expansion of the tax base, piling more burden on Pakistan’s long-suffering salaried classes. Making things easier for this class is crucial to solving problems like brain drain. Then there is the fact that the budget also raises taxes on solar panel imports, e-commerce and digital trade. These are the newest, most innovative and competitive goods and services in the country’s economic landscape. And yet, people are being discouraged from engaging with them due to higher taxation. How does this help key goals like the green transition and the digitisation of the economy? Meanwhile, real estate appears to have been given some relief by reducing the federal excise duty (FED) and withholding taxes. These are not steps that seek to take the country forward. The government deserves praise for getting the economy back on its feet, but it cannot live off this achievement forever. It needs to get the economy moving forward and not leave it stuck in place.