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January 24, 2019

No break for the broken as long as budgets remain inflationary


January 24, 2019

LAHORE: Budgets, presented every year by the governments, do not increase the income of the poor, but the burden of indirect taxes increases their expenses beyond their means.

Unfortunately, in last three decades the economics of the poor has not kept pace with rising prices.

Like any human being poor need a shelter to live in, they need food, healthcare, safety, respect, and education for their children. Each of these needs has a cost and they are classified as poor because they cannot afford to finance most these needs.

When prices increase because of new taxation they scramble to make adjustments and forgo some needs like healthcare and education because they cannot survive without shelter and food. As the economic stress increases they move to slums for shelter and low quality food to avoid starvation.

The nation was slapped with two budgets in this fiscal and third has to be announced today. In the first two budgets the emphasis was to generate more revenue from indirect taxes and the latest is also based on revenue generation from indirect taxes and some overdue concessions for manufacturing sector.

This will please the businessmen but would be a nightmare for low income groups. Most of the families are seeing decline in their real incomes. Many jobs have been shed due to decline in manufacturing activities and the slump in housing and construction sector has rendered many daily wage earners workless.

The inflation is also at its highest in five years. Decline in rupee value has made most of the products dearer. This indeed is a hard time for the poor of this country.

It is worth noting that from 2008 till 2017 there has been a constant increase of Rs1000/year in the minimum wage. No increase in minimum wage was announced in 2017-18 and 2018-19.

This means that even for those who retained their jobs the going would be tough as the consumer prices have continued to inflate in these two years as well.

Economists say 80 percent or more of the income of the poor is spent on food. The official inflation basket states that food accounts for only 40.3 percent of the total expenses of a family of 6.5 persons. According to government statistic an average Pakistani consumes 110 kilograms wheat per year or 9.166 kg wheat flour per month. A family of 6.5 would thus consume 59.58 kg wheat flour per month, which would cost Rs2979 at Rs50/kg.

The poor’s kitchen fuel is liquefied petroleum gas (LPG), kerosene oil or coal. Each of these fuels cost a family at least Rs1000/month (piped gas is available to only 20 percent of the population mostly from relatively affluent classes).

Vegetables like onion, garlic, ginger, tomato, and potato, and spices even at throwaway prices would add another Rs2500 to the food budget. Pulses -meat and mutton would not be affordable – currently cost at least Rs1000/month.

Edible oil would add another Rs700 to this cost (only 4 kilogram at 20 grams/person/day). Even a half a liter of milk per day for the children, elderly, and tea is estimated to cost Rs1500.

Sugar and tea add another Rs600 to the monthly budget. The total food cost of these barest minimum items would be Rs10,279. It would not be quality food but even this amount is 68 percent of the total minimum wage of Rs15,000. Mostly there is a single bread earner in a family. Things would be better if there are two.

Thus the inflation basket given in the Economic Survey of Pakistan is not applicable on people earning up to Rs15,000/month. In the survey inflation basket, food accounts for 40.3 percent of the total expenses of a family. House rent on average consumes 23.4 percent, transport 7.3 percent, education 3.5 percent, energy 8.7 percent, and all other expenses including apparel/textiles, entertainment, healthcare, and household expenses account for remaining 16.8 percent.

The poor after accounting for food expenses is hardly left with any finances to pay house rent and bear electricity expenses. Education and healthcare are not on their priority list.

Budgets rarely bring good news for the poor. They remain on the receiving end due to indirect taxes and they remain vulnerable to threats and personal security and insults.

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