Budget and the common man

In the current situation, the survival of a nuclear family with a single bread earner is a huge challenge

Budget and the common man


he federal budget announced last week was front-loaded as expected. What was not expected was that the measures that can hurt the rich would be so diluted and the measures that hurt the poor would be fully incorporated.

The salaried people mainly belonging to the middle class, for instance, have been disappointed as their income tax liabilities will nearly double next year. The highest income tax slab that the IMF had proposed was dropped to protect the richest.

The minimum salary for an unskilled worker has been enhanced by Rs 5,000 per month to Rs 37,000. However, it is well known that hardly 10 percent of the workers actually get the legal minimum wage. The rest are employed as contract workers and denied job security and minimum wage protection. There is simply no protection for housemaids or those employed at shops.

The salaries of government servants have been enhanced by 15-25 percent. An employee, drawing Rs 250,000 per month, for instance, will get an increment of Rs 37,500 per month, which is more than the minimum wage for an unskilled worker. The impact of enhanced salaries for the government servants will be around Rs 1 trillion (this includes both federal and provincial government employees.)

Inflation was reported to have dropped to 11 percent in May. However, the 12-month average was still over 24 percent. This means that on average the cost of living has increased by 24 percent during the year. On top of that, inflation last year was over 35 percent.

The price of wheat has declined but that may have been on account of temporary oversupply due to unwarranted imports. The prices will start rising eventually and reach last year’s peak over the next six months. Meanwhile, we may see a reduction in wheat area this winter as many farmers felt cheated by the state’s failure to provide minimum support price protection. The cost of several farm inputs are set to rise after the withdrawal of exemptions.

The government has allowed the sugar mills to export a quantum on the assurance that the ex-mill rate will not rise beyond Rs 140 per kg and that there will be no shortage of the commodity. However, after withdrawal of sales tax exemption, the prices will rise. This will raise sugar rates by at least Rs 20 per kg.

The petroleum levy will be raised to Rs 80 per liter for diesel oil and petrol. The finance minister is hoping that the crude oil rates will continue to decline and that the government will pocket the benefit. When the rates go up, so will the domestic prices. This will drive the transport costs. For essential goods this cost will be transferred to the consumers.

Budget and the common man

The measures announced by the finance minister will compound the misery at all levels. We are not talking about the top 20 percent of the population in terms of income. For the rest, the quality of life will continue to decline. 

The government is committed to raising the power rates to reduce the so-called circular debt. The power bill of a lower middle class household already exceeds Rs 5,000 per month. This will cross Rs 7,000 per month once the power tariff is revised. For middle class families the power bill is, in some cases, higher than the expenditure on food.

There is a possibility that after the withdrawal of exemptions the drug prices will go up. So will the prices of juices etc. This will impact the common man. Some medicines are already out of reach for lower-middle class families.

The tax on property transfer has been enhanced to 15 percent for income tax filers and 45 percent for non-filers. While enhancing tax on non-filers is an understandable nudge there was no justification for increasing the rates for filers. The withdrawal on tax exemption for luxury electric cars may have come too late.

The general increase in the sales tax rate will increase the cost of every item. The higher prices will force the low end consumers to forgo some of their spending. Some of the families will reduce their food intake to spare resources for expenses like house rent, transport and education of the children.

It is estimated that 110 million people in Pakistan are living below the poverty line. After the new taxation measures they will be devastated. The poor already spend 70-80 percent of their income on low-quality food. The costs have gone so high that many families skip at least a meal a day.

In the current situation the survival of a nuclear family, having five to six members and a single bread earner, is a huge challenge. People from all socio-economic backgrounds are feeling the pinch.

The measures announced by the finance minister will compound the misery at all levels. We are not talking about the top 20 percent of the population in terms of income. For the rest, the quality of living will decline further.

More than 40 percent of children in Pakistan are already stunted; 56 percent of the women suffer from anemia; and the infant mortality rate is one of the highest in the world. This segment of the population will find the going tougher.

Pakistan’s population has been increasing at 2.5 percent a year. In 2021-22 the GDP growth rate was minus 0.9 percent. This means that the actual growth was minus 3.4 percent. This year the nominal growth was around 2.5 percent, resulting in 0.1 percent actual growth after accounting for the population increase.

For the next fiscal year, the GDP growth target is 3.6 percent. This means an actual growth of only 1.1 percent. With such pathetic real growth we cannot expect good things to happen to the poor.

The writer is a senior economic reporter

Budget and the common man