Alarm bells

Capital suggestion

Over the past nine months of the current financial year, the government’s revenues amounted to Rs3,145,000,000,000 (Rs3.1 trillion). But the government ended up spending Rs4,383,000,000,000 (Rs4.3 trillion). So, the government’s expenditures exceeded its revenues by a colossal Rs1.24 trillion – and that’s the government’s budget deficit.

Alarmingly, the financial year-end budget deficit will hit Rs1.7 trillion or five percent of the GDP (as opposed to the budgeted deficit of 3.8 percent of the GDP). That indeed is scary.

What is even scarier is that the circular debt of around Rs400 billion has not been included in the deficit. What is even scarier is that tax refunds of around Rs250 billion are being held back by the Federal Bureau of Revenue (FBR). What is even scarier is that loans worth Rs173 billion taken on by public sector enterprises (PSEs) have not been included in the deficit.

What is even scarier is that if the outstanding circular debt, the yet-to-be refunded taxes and the PSE debts are also taken into account, the budget deficit will approach an alarming 7.5 percent of the GDP. That indeed is scary.

For the record, Budget 2016-17 had allocated Rs860 billion for defence affairs and services. Intriguingly, over the past nine months of the current financial year, the government has spent only Rs535 billion or 62 percent of the allocation. This is the only major item where actual spending is lower than the allocated budget.

Budget 2016-17 had allocated Rs1.36 trillion for interest payments on debt. Over the past nine months of the current financial year, the government has already spent 80 percent of the allocation. By the financial year-end, the government is projected to spend a wholesome Rs1.5 trillion for interest on our national debt.

Budget 2016-17 had projected privatisation proceeds of Rs50 billion. Nothing has been done on that. And that’s because the minister of state for privatisation was busy defending the PM on the Panama leaks front. Budget 2016-17 had projected Rs75 billion from the auctioning of telecom licences. The government will be lucky if it gets even half of the amount projected.

As a consequence, Budget 2017-18 has to be about new taxes and additional debt. New taxes could result in a burden on the current generation and additional debt could lead to an additional burden on the future generation of Pakistanis. Both are inevitable.

There are only three ways to bridge the ballooning budgetary deficit: cut government spending, increase taxes or economic growth. The government has absolutely no intention of cutting government expenditures and economic growth shall remain constrained because of a host of factors, including energy shortage and the absence of any growth driver.

All we are left with are more and more taxes. For the record, the Federal Board of Revenue (FBR) lacks the capability to collect direct taxes and that will result in a host of new indirect taxes. Remember, indirect taxes are regressive in nature and take a much larger percentage of income from low-income families than from high-income earners.

To be certain, the budgetary deficit – essentially the root of all financial evil – is out of control. Yes, the financial gimmickry – of which we have become masters of – will hide the true budget deficit in layers and layers of shelves. Yes, the budget for 2017-18 guarantees more salt into the open wounds of Pakistanis.

The writer is a columnist based in Islamabad.

Email: farrukh15@hotmail.com Twitter: @saleemfarrukh