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February 15, 2020

National planning collapses on revenue target shortfall

Business

February 15, 2020

LAHORE: We are more interested in satisfying the International Monetary Fund (IMF) on achievement of revenue targets, while ignoring the fact that the entire budget for this fiscal is based on these revenue targets. Thus, failure to achieve targeted revenue would upset national planning.

When revenue target of Rs5.5 trillion was announced, most of the economist termed it unachievable. The government functionaries also knew that achieving the target would be an uphill task.

Despite this realisation, the budget makers allocated funds for different departments and development work based on the full budgeted amount. In fact, some additional resources were added on an assumption that the government would receive some foreign inflows.

Budget size was inflated in line with the assumed availability of funds. The provinces were also assured of their share based on that revenue target.

Any slippage in revenue was thus going to upset both provincial share and amounts allocated for different government functions including development spending. The expected slippage from the original target is staggeringly high. It may go up from Rs750 billion to Rs1 trillion.

One fails to understand as to why all the government expenditures were not kept at last years’ level (barring government salaries and debt servicing). In fact, the armed forces agreed to manage on same resources allocated to them last fiscal.

It should have taken the provinces into confidence, who should have been informed to prepare the provincial budget on lower amount than those declared in the budget document.

If the revenue targets were achieved, the provinces could always get their due share. But in case the revenues fell short of target, the provinces would not have to scramble back and start cutting expenditures.

Some expenditure cannot be cut like the salaries of government employees, debt servicing, and defence expenditure. But some expansions in government departments can wait. In fact there should have been no increase in the non-development expenditures except for the salary amount.

However, the demand for enhanced non-development expenditures would be met through loans. Development expenses would be curtailed to the extent of revenue shortfall. This has been the practice for so many years. This shows lack of planning on the government’s part.

The way the economy performed last year it was clear that a turnaround was far away. It was evident from the start of this fiscal that inflation would increase, interest rates would remain high, and there would not be much improvement in exports.

At least the non-government economists were unanimous in their opinion that the growth in this fiscal would further slowdown and achieving revenue targets would become more difficult.

Unfortunately, the present government thought otherwise and did make any contingency plan in case of emergency or revenue shortfall. When you allocate the entire revenue (actual and assumed) you have no room to fall back.

The IMF might grant waivers to the government, but that would not reduce the pressure on our economy. We have to plan and curtail all unnecessary expenses and they are plenty.

The public sector enterprises continue to add losses. In some cases we are giving them salaries from the exchequer despite that those companies have not been operating for a long time.

Pakistan Steel Mills is one such company. We are increasing the Railways expenditure by operating more passenger trains very few of which operate in profit.

We have increased most of the tax revenue by increasing tax rates. Revenue pilferage at import stage has been pointed out by some experts to the prime minister. Imports in rupee terms have increased by Rs7 trillion and we collect revenue in domestic currency so any revenue shortfall at import stage could be attributed to corruption in customs or incompetence of its officers.

We can achieve the revenue target only if we collect actual taxes from the tax evaders. We will have to abolish all privileges on taxes that we grant to our public office holders.

There should be no increase in government expenditure if the revenue targets are not achieved. It is indeed condemnable that on the one hand we are running record budget deficit while there is talk of doubling the salaries of government servants and increasing perks and facilities of the elected representatives.

Current situation demands that the lawmakers cut their salary and perks by 50 percent and the government servants from Grade 18-22 should cut their salaries by 25 percent.