Money Matters

A pleasing budget

Money Matters
By Mansoor Ahmad
Mon, 06, 22

The federal government presented a soft budget, taking care not to hurt the poor, while loading the rich with only comfortable taxes despite the need for substantial revenue increase to face the current economic challenges.

A pleasing budget

The federal government presented a soft budget, taking care not to hurt the poor, while loading the rich with only comfortable taxes despite the need for substantial revenue increase to face the current economic challenges.

The budget presented by the coalition government shows the lack of courage in increasing taxes on the vested interests as well as in the announced measures that will not reverse the trend of unequal distribution of wealth. Structural inequalities have not been addressed to reduce the divide between the rich and the poor.

The budget instead envisages to collect over Rs700 billion from the petroleum levy during the year. This levy will have a direct impact on prices of all items and put even more pressure on the poor masses.

Whether the petroleum rates remained at the current level or declined by 10 percent, petroleum prices would increase by another Rs70 per liter to achieve the petroleum levy target that has been set in the 2022-23 budget presented on Friday.

All this will also depend on the stability of the rupee. If the value of rupee erodes further against the dollar, the increase in petroleum rates would be much higher during the course of in this as well as the next fiscal year.

Pakistan’s current situation demanded some extremely difficult decisions keeping in view our economic vulnerability. The country is struggling to contain its ballooning deficits. It is facing a balance of payments crisis with the central bank’s foreign exchange reserves falling to $9.2 billion (only enough to cover 1.35 months of import payments), as well as soaring inflation.

This called for extremely tough decisions. Instead, the coalition government chose to mostly maintain status quo as far as its taxation measures against the rich were concerned.

If it had taken the needed decisions, it might have annoyed its support base. But decisions already taken by this government have not gone well with the electorate either.

It was in the interest of the country to comply with the International Monetary Fund (IMF) conditions, with which this government has agreed now. We need IMF affirmation immediately to avoid further deterioration of our economy.

The government is seeking to unlock IMF funding as soon as possible to bolster the foreign currency reserves as the resumption of the $6 billion bailout package will also pave the way for funding from bilateral and multilateral creditors, as well as friendly countries such as China, Saudi Arabia, and the UAE.

The lack of foresight is witnessed in policymakers of Pakistan who seem hell-bent on conforming to traditional economic policy tools: raise interest rates, control inflation

Saving Pakistan should have been the aim of the budget, instead of winning the next election. The economic reforms needed should be introduced through legislation immediately. The coalition government would then have about a year to ensure that those reforms bring about the much needed positive results.

The trick was and still is to tax the vested and influential interests. Any wealth that has no money trail must be taxed even at normal rates to generate revenues for the government.

Increasing the number of registered taxpayers has not worked as despite increasing tax filers by 1 million, the tax to GDP ratio this fiscal was a pathetic 8.2 percent. We must tax visible wealth be it the lifestyle of the affluent, or moveable and immovable assets.

The government needed to increase revenue by over Rs1,100 billion to meet the requirements dictated by the IMF. The taxes other than petroleum levy amount to Rs450 million only, out of which hardly Rs200 billion would come from the super-rich.

The government should have made efforts to generate at least Rs700 billion additional taxes from the super-rich and reduced the petroleum levy to Rs200 billion. That would have paved the way for future governments as well in increasing taxes on the rich and affluent.

Instead, this government too chose the easier path. The budget has been hailed by industrialists, traders, and agriculturists because it removed most of the irritants in their sectors.

The common man is again stunned. Theoretically, they find nothing in the budget that impacts their pockets immediately. But as they say, the devil lies in details.

Public has just now started to experience the heavy impact of the increase in petroleum rates announced right before the budget. They accepted it reluctantly. They have yet to face the hefty increases in power and gas rates from July 1.

Despite all the cuts in subsidies and so-called austerity measures, the government has announced a 15 percent increase in the salaries of government employees. This includes those drawing Rs25,000 per month to those getting Rs300,000 per month.

Government employees account for a fraction of the total workforce of Pakistan. What about the remaining 69 out of 71 million workers/employees in the country? Are they immune from inflation? In fact, they deserve more because they do not enjoy the facility of making “speed money” that most government employees have.

Mere announcement of minimum wage is not enough, although even this was not announced in 2022-23 budget. Masses need respite from rising food and energy inflation. Government should have focused on not only taxing the rich, but also removing the privileges it accords to the affluent class.

The writer is a staff member