The business community says (i.e. if you discount the CVT misstep which led to stock brokers going on a rampage breaking things) the Federal Budget is a good investor-friendly initiative. Nothing innovative about it, mostly an adjustment of statistics giving to each audience what that particular audience wants to hear, viz (1) a populist commitment to the masses for alleviating their miseries and (2) for the benefit of the world at large and (particularly) international aid agencies, maintaining a high economic growth rate by not splurging on the social sector. Good in macro-economics there is no perceptible change for the better in the “misery index” (micro-economics) of the masses despite the Finance Minister’s (FM’s) insistence that the population below the poverty line has reduced by 4.2% overall, the common man’s buying power continues to be eroded by the rise in the price of essentials. The data from which the 4.2% poverty reduction figure was arrived at is a matter of doubt and controversy.
Controlling of inflation below double digits sounds wonderful on primetime TV, for the middle class and the poor it is mere rhetoric. Reducing the duty on edible oil by a grand 0.5%, the GST on it was raised by 15%. Ghee will cost more, one guess who uses ghee more? The average food bill has gone up about 16%, further diminishing the consumer buying power of the common citizen, though the commulative effect of lowering of consumer sales may not effect the economy given the incentives made available for the “upwardly mobile”. Pakistan’s Budget reflects somewhat the mood generated by “India Shining”, the rich and the upper middle class are better off (Pakistan Shining), the overwhelming mass of the middle class and the poverty-stricken are in far worse condition than they were ever before. Our financial planners are crunching hapless human beings who make up 70-75% of the population by crunching numbers without catering for the needs of humanity. Far from liberalizing the financial regime to reflect 21st century reality, the regulators who have been given much more authority than ever before to take arbitrary, punitive action against taxpayers. Sales Tax collectors can now arrest anyone, guess who is going to earn more money? The Budget document has bureaucracy written all over it, has Shaukat had really gone into details of what his aides and subordinates managed to slip into his excellent above par presentation in the National Assembly? One likes to think he is a populist at heart even though the govt has largely avoided populist measures!
There is a definite fiscal policy shift from the targeting of stability to focus on growth and investment, the measures proposed are meant to reduce the cost of doing business, encourage fixed investment, promote exports and build crumbling infrastructures. The levy of tax on share purchases has already unsettled the Stock Exchanges, the stockbrokers’ rampage made share prices fall almost 200 points, giving a paper loss of Rs 500 million to the market. This strong negative response may make the government lower the tax rate, on that premise the market regained some ground. Two years extension in capital gains is positive for the market. Expectations about the cement sector have remained unfulfilled, cement prices will go up putting pressure on the housing sector. Negative implications for some other areas is very likely to depress the market already weakened by increased flow of negative political news, rising inflation, increasing number of terrorism cases as well as enhanced interest rates. The economic targets are ambitious, medium term (Financial Year 2007) targets of 8% GDP growth, 20% investment to GDP ratio, holding inflation to 5%, 3% fiscal deficit 1.8% current deficit and Foreign Exchange Reserves at minimum 28 weeks of imports. The momentum of higher GDP growth is promised to be maintained through increased spending and tax incentives. Radical liberalization of import regime for investment, simplification of GST system, reduction in power tariff and increase in PSDP are major fiscal measures. Consumer, textiles, Fertilizer, Chemicals and Packaging are meant to be the major beneficiaries of the budget. Banking and Telecom sector stand to draw some benefits. Autos shall be very adversely hit due to the large cut in duties on CBUs in the face of no reduction offered on CKDs. The automobile owners will not reduce their prices, they will continue to get commission on imported cars and employees of automobile manufacturers and vendors will be laid off the Japanese will adjust the price upwards. Restructuring of National Savings into “Pakistan Savings” with possibly higher returns is very likely to slowdown the flow of funds into the stock market.
In an over-populated country with a need for wide range of labour-intensive services there is almost nothing for the Services Sector, widely acknowledged by modern economists to be the engine of growth. When will they ever learn from the available models of Hong Kong, Singapore and Dubai, etc? However, there are some very positive proposals, viz (1) profit that is paid on housing loan given by a statutory body or a public limited company is also eligible for tax credit (2) minimum threshold of last declared or assessed income of Rs 500,000 is being introduced for filing wealth-tax statement (3) minimum threshold for withholding tax from rent has been enhanced to Rs 300,000 (4) basic exemption limit for individuals and associates of person is increased from Rs 80000 to Rs 100,000 (5) profit on debt from Certificates of Investment issued by investment banks have been exempted (6) income of vocational institutes, technical institutes or a poly-technical institutes are exempted from tax for 5 years and (7) senior citizens are allowed reduction in tax if maximum income is below Rs 300,000 (8) Behbood Savings Certificate or accounts are tax exempted.
Two widely differing examples of why a good budget becomes a heartless one if conceived by bureaucrats (i.e. those who think they will never retire or fade away), viz (1) addressing the plight of old pensioners giving 16% increase in pensions of those who retired before 1994 and 8% for those post 1994. A general officer retiring before 1994 gets a pension of Rs 9000, the 16% increase gives him an additional Rs 1440 making his pension Rs 10440. A captain who retired recently gets a pension of Rs 11000, the 8% increase will get him Rs 880, making his pension Rs 11880, still Rs 1440 more than that of general who had retired earlier. So what are we saying, a captain of today is relatively worth more to the nation than a general officer of yesterday? There should be one pension for one rank, there should be no discrimination! This will happen today or tomorrow, either Gen Musharraf and/or Zafarullah Khan Jamali will correct this injustice or someone in the future will. Why not now? And on the subject of Pay & Pensions Commission, the Chairman should be from the superior judiciary, the other members should be equally divided between the private and public sector (3) some banks have recently issued circulars that unless the person is a Govt/Semi Govt employees Rs 50 will be deducted every month if his account has balance of less than Rs 10000 (Rs 5000 for females). Where will the poor salaried employees go for depositing their cheques? The message is clear, if you are earning (and living on) less than Rs 5000 pm, take a hike and don’t darken the doorstep of the bank. Discriminating against almost the entire majority of the salaried class living below the poverty line the banking system caters only to the rich and the upper middle class. Another negative point in the Federal Budget, viz Withholding Tax rates remain unchanged except on amount of raffle/lottery winning and cross-word puzzle or prize on winning a quiz offered by companies for promotion of sales. This will directly effect the common man who is greatly involved in such activities.
Simply re-hashing numbers and state-of-the-art presentations will not break the poverty logjam in the country. The President must not be carried away by gift of the gab, now that he is getting a direct feedback from Parliamentarians by sitting in the National Assembly on a day to day basis he must come to grips with a ground reality, that “trickle-down” economics is not trickling down to the masses. Only a whole-sole renovation of the philosophy of budgeting and a revised budgetary strategy thereof will change things for the poor and downtrodden, and those that are joining their ranks in increasing numbers on a daily basis.