Wednesday October 05, 2022

Credit bubble over fiscal responsibility

June 16, 2021

LAHORE: The state needs money to operate schools, hospitals, social sector services like maintain roads and handle sewerage prudently. It needs fair contribution in taxes from all segments of society. The root cause of all ills is the scarcity of resources at government disposal.

Historically, governments in Pakistan have lacked the courage to implement the much needed reforms to rescue the economy from ruin. The reluctance of the rulers to act responsibly and rescue the economy instead of saving their government has led to unmanageable fiscal, monetary, debt and energy crisis.

No government could operate without generating adequate resources.

Resources are scarce because traders that account for 16 percent of our GDP refuse to get documented. Transporters having a weight of another 16 percent in GDP are also among tax evaders.

Agriculture constituting 21 percent of our GDP is exempt from income tax. At the human resource end, we have kept women away from the economic mainstream. Women constitute 49 percent of our total population.

Tax evading culture is so strong that hardly one percent of the population files tax returns out of which over 40 percent file zero tax returns. The state on the other side continues with its public appeasing posture.

It has lost its grip on the existing dysfunctional schools, but instead of asserting its writ the government announces establishing more schools that would operate the same way as the existing ones.

Stress is on increasing the number of educational institutions and not on improving their standard. The same strategy is adopted in case of healthcare units.

Each government hospital or clinic is operating at 10 percent of its potential. Nevertheless, instead of improving the service delivery, the emphasis is on increasing the number of healthcare units.

All these public appeasing gestures without improvement in governance have further increased the resource gap. We are increasing expenses exponentially without improving the service delivery by the public sector. In fact this is just like throwing our resources in garbage.

All these public appeasing measures created a vicious circle of corruption, incompetence and selfishness in our society.

Now, self-interest is supreme over national interest.

A bribe of Rs1,000 would not bother the conscience of the bribe taker even if it results in a loss of Rs100,000 to the exchequer. Power theft is flourishing on this concept.

Smugglers also operate on this principle. They not only deprive the exchequer of all types of levies, but are also instrumental in marginalising domestic industries producing similar goods. They do not have the consciousness or insight to see the number of jobs that are destroyed in the domestic industries because smugglers pay no taxes while domestic producers do.

Traders or retailers mostly live a very comfortable life in Pakistan. There are some who are elected in the executive committees of the chambers of commerce and industries.

Some even head these institutions. They pay paltry taxes just to be eligible to become chamber members.

Most of their businesses are outside the tax net. They openly oppose documentation. The nuisance value deters politicians from forcing them into documentation. They have been successfully avoiding true documentation for the last 34 years.

Apart from different economic sectors, most of the professionals are also enjoying immunity from taxes. They contribute to tax revenue in accordance with their desire to declare income. Most of the doctors, engineers, lawyers, beauticians conceal their actual income.

One reason this system thrives is the rent-seeking culture in bureaucracy, another is that the politicians are more interesting in public pleasing for political strength.

Wrong policies, absence of merit and nepotism has eroded the confidence of the investors. This is not limited to one regime.

Generally all the governments have operated the same way. Even the present regime is running the government by borrowing money instead of generating resources.

They fool the general public by excluding International Monetary Fund (IMF) loans from sovereign debt. At the end of the day, it is the government of Pakistan that has to pay it back from the same resources from which it would be servicing other loans.

Time is running out for the government of Pakistan. The global donor would not come to Pakistan’s rescue if we continue to plunder our resources and perform below our actual potential.

The government would have to generate resources from within the country. We need elected representatives who are prepared to confront vested interests head on, even at the risk of getting booted out of the government in the next elections.