The economic plan

I think Dr Hafeez Shaikh has a plan. I think Dr Reza Baqir has a plan. I believe the two have jointly identified our financial ailments as: the budgetary deficit and the trade deficit. It appears that there’s a division of labour between the two: Dr Hafeez Shaikh is to lead the government’s efforts on the budgetary front and Dr Reza Baqir will be leading the effort on the trade front.

On the budgetary front, Dr Hafeez Shaikh’s entire architecture depends on an overly-ambitious revenue collection target of Rs5.55 trillion-a 45 percent increase over the Rs3.8 trillion that the government collected this year. On the trade front, Dr Reza Baqir’s edifice is almost totally dependent on a ‘market determined rate of exchange’.

The good news is that there is a plan (we did not have one before the two arrived). The bad news is that a 45 percent jump in tax collection – especially in a shrinking economy – is going to be awfully difficult to say the least. The other bad news is that of the Rs5.55 trillion tax collection target nearly 65 percent is in the form regressive taxation (a regressive tax takes a larger percentage of income from low-income earners than from high-income earners). So, the new budget is not much different from the old ones and the slogan that more taxes will be extracted from ‘wealthy individuals’ is just a slogan.

For the record, in Budget 2008-09 the government’s current expenditures stood at Rs1.5 trillion which over the past decade have gone up to Rs7.2 trillion (Budget 2019-20). My contention is that ‘inadequate taxation’ is not the issue. The real issue is ‘excessive government spending’. For the record, tax revenues have actually gone up from Rs1.1 trillion in 2008-09 to Rs3.8 trillion; a 336 percent jump. It is, therefore, my contention that the real disease behind the exploding budgetary deficit is ‘excessive government expenditure’ and that Pakistanis are not ‘tax thieves’.

On the trade front, the good news is that Dr Reza Baqir has a two-pronged plan: a market determined rupee-dollar parity and a policy rate which is 150 basis points above the rate of inflation. I am convinced that the plan is not to necessarily devalue the rupee but to let the market decide the rupee-dollar parity. I also believe that this does not mean that the SBP will not intervene. In all probability, the SBP will intervene to fight-off speculators but the dollars taken out to keep volatility in check would have to be bought back from the market within a specified time-frame. At this point in time, that sounds quite fair.

To be sure, an overwhelming focus on aggressive tax collection is scaring away economic activity-and tax collection in essence is a by-product of economic activity. I suggest a more balanced approach towards tax collection and a more aggressive approach towards expenditure control.

Yes, there’s a plan. Yes, we have always had goals but “a goal without a plan is just a wish”.

The writer is a columnist based in Islamabad.

Email: farrukh15@hotmail.com Twitter: @saleemfarrukh