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Budget day


June 11, 2019

It is budget day again. Some say today the PTI government will present its third federal budget since coming into power; this group also counts the two mini budgets presented by Asad Umar and hence considers Budget 2019-20 the PTI’s third budget. Others are saying that none of the three budgets reflect the PTI’s economic vision and its electoral promises. According to the second group, the two mini budgets were actually mid-course corrections in the Miftah-Abbasi budget, whereas today’s budget is prepared to meet the prior actions for an IMF agreement. They argue that the PTI government will not get a chance to present its own budget till the conclusion of, or premature exit from, the next IMF programme.

Call it the PTI’s budget or an IMF-directed budget, to me the federal budget being presented today will not be much different from the first five budgets of the PML-N government. I am saying the first five because the May 2018 budget presented by Miftah Ismail was a bit unrealistic. Like the earlier five budgets, the entry point for today’s budget will be fiscal deficit agreed by the Fund. Expected revenue and expenditures would be balanced so as to remain within the agreed fiscal deficit.

GST, withdrawal of non-targeted subsidies, increase in rate of taxes for non-filers, and increase in rate of taxes on items/services used by the upper middle/upper class would be the major revenue generation tools. Prices of electricity, gas and petroleum are no more part of the budget numbers. They are determined by quasi-independent regulators, Nepra and Ogra respectively, at frequent intervals so there will be no surprises on energy prices today. The subsidy on energy and energy circular debt make part of the government’s liabilities. However, the PML-N government stopped giving energy circular debt numbers in the budgeted expenditures. A deflated energy subsidy figure was provided among budgeted expenditures to remain within the fiscal deficit target. The same tradition will be followed this time too.

Budgets are just estimated numbers of income and expenditures so they cannot be pro- or anti-people. However, if the earlier five budgets were anti-poor or anti-business, then today’s budget will also be anti-poor or anti-business and vice-versa.

In order to assess how close today’s budget would be with the PTI’s economic vision, let us recall what PM Khan is aiming for. He wants to turn Pakistan into a welfare state, a replica of 'Riasat-e-Madina'. This needs to be reflected in the expenditure side of the budget. The revenue generation side needs to be assessed against the PTI’s election manifesto which talked of reviving the economy through curbing corruption, improving governance, bringing in economic reforms, changing the elite capture culture and introducing a transparent tax system where the tax burden would be equally distributed to all.

It implies that on the revenue side, the PTI – not only to fulfil its electoral promise, but also to complete the prior actions for an IMF deal – would attempt to break the status quo, which is always difficult and upsets many.

In order to stop elite capture and to distribute the burden of taxes equally, the PTI would be ending tax exemptions and reliefs given in the name of export promotion, food security, and job creation to a select few. The end of the zero-rated regime would upset owners and consumers of the beneficiary industries. Today’s budget could also upset non-filers as they will have to pay more at the time of property or vehicle registration, and or while buying business and first-class air-tickets. It would upset benami account holders as in order to comply with the FATF action points, government will be tough on benami account holders. The budget will likely also upset non-targeted subsidy recipients since, if they don’t fall below a certain income threshold, they will have to pay more for the goods and services they utilize. And it will upset salaried persons because the unsustainable relief given to them in the last budget through revised tax slabs and tax rates will be reverted.

On top of everything, the budget will upset the PTI’s own supporters and voters as they voted for a PTI that, in opposition, termed going to the IMF, increase in energy prices and depreciation of rupee as extortionary policy measures that are used by corrupt governments to compensate for their corruption.

PM Khan has rightly realized that his correlation between tough economic policy measures and corruption was based on a false binary. That is why, after initial reluctance, he approved of taking tough economic policy measures to improve fiscal and current account deficits. Currently he is trying to break the status quo, which would require both change management and perception management. One of the problems with Pakistan’s previous IMF programmes was that none of the governments politically owned it, as they felt they were compelled to reach out to the IMF because of the follies of their predecessors. On the revenue side, the programme is tough and its pace and sequencing is even tougher. However, it is quite close to the structural reforms the PTI wanted to bring which is why the party should politically own it.

On the expenditures side, the IMF talks of strengthening social safety nets and emphasizes on targeted subsidies. Lack of fiscal cushion will not allow PM Khan to turn Pakistan into a welfare state in the next couple of years. However, in the medium run, a more equal and transparent distribution of tax burden, a comprehensive plan for cost-recovery in the energy sectors and state-owned enterprises will help save and divert scarce government resources towards a substantial increase in social spending.

The PTI wrongly stigmatized economic structural reforms in its 'anti-corruption' campaign during its days in opposition and is now facing the music. The current opposition parties should also keep in mind that they should not over-stigmatize fiscal discipline under the forthcoming IMF programme. If fiscal discipline is not achieved and the chronic issues facing Pakistan’s economy are not addressed, then the opposition as 'government in waiting' should be ready to go to the IMF whenever it gets a chance to come to power.

The writer heads the Sustainable Development Policy Institute.

Twitter: @abidsuleri

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