LAHORE: Prime Minister’s finance adviser Dr Abdul Hafeez Shaikh has conceded that slippage in tax revenue target could be expected and he even went on to advise the provinces to prepare their budgets based on actual share they expect to get from the center.
This possibility was admitted by him at the post-budget press conference, where he confirmed the unanimous view of most economic experts that the tax revenue estimates are overambitious.
Our economic managers have perhaps completely ignored the fact that the entire spending of government depends on tax revenue and other revenue inflows it is able to generate in a fiscal. Of this tax and non-tax revenues are most important because the rest of the resources would have to be obtained through loans (both local and foreign).
The more loan you generate the higher goes the fiscal deficit. This years’ fiscal deficit has been estimated at 7 percent of the GDP (which itself is very high). Any slippage in revenues could increase the budget deficit by 1.5 to 2 percent.
We have seen in last few years that the government lacks fiscal discipline. It overshoots revenue estimates and underestimates the total expenses.
This time the government expenses have largely been contained including that of prime minister but there is an exponential increase of Rs40 billion) in the expenses of Cabinet Division that headed by the Prime Minister. There was a need to explain the reason for such a huge increase in the expenditure of on one government division.
The commerce ministry no doubt has done an excellent job in removing and reducing duties on the import of raw materials and intermediaries. But government is at loss to provide a guideline for the resumption of industrial activities. There is a question of the safety of the workers and that of the expected pickup in the demand of goods and services.
Now it has also been officially confirmed that currently over 100 million of the people in country are highly vulnerable and need government support to pull on. Shaikh in the press conference also pointed out that the government has arranged cash for 1.6 million vulnerable families; out of which cash has been distributed to the heads of one million families and rest would be distributed shortly. He himself said that this means that government would be serving over 100 million people based on the average family six of 6.5 person. This means that almost 50 percent of the population is already under severe economic stress while the COVID-19 spread is yet to peak out. As it peaks more people would slip under the poverty line.
Under these circumstances reviving economy on mere hopes and wishes is not possible. There is no concrete government plan. The construction package announced in haste has not yet taken off. The construction activities are still subdued.
It is understandable because the economic activities have slowed down appreciably, the urge to build a personal home is not the priority for many middle class and low-income families. Had there been a surge in housing demand we would have seen the rates of land going up. Instead the rates of plots even in the most developed societies have dropped. If the incentive was meant for land developers, it also did not work.
The land developers/construction companies were enthusiastic in the beginning, but they operate on the principle of selling their apartments on 10-20 percent down payment after which they start construction process. It takes 12-18 months to complete a project. During this period the buyers are expected to make monthly advance payments for the apartment. When the apartment is handed to the buyer, the builder arranges mortgage finance for the remaining payment of the apartment.
The response of the prospective buyers to builders was lukewarm and starting projects on such dismal response was not possible. The large builders are still operative as they cater to the much richer segment of society. The down payment in these cases ranges from Rs2 million to Rs3 million and the rest of the payment has to be made in 36 installments each amount Rs100,000 to Rs300,000 per month. This construction activity would continue at current pace.
The real housing activity would start when the economy picks up as a whole. With more than half the population looking for dole-outs you cannot expect the construction activity to pick up because they are the ones that need a house.