The federal finance minister, Ishaq Dar, presented the fifth and final budget of the PML(N) government (fiscal year 2017-18) in the National Assembly with a total outlay of rupees 5103.8 billion, an increase of 4.3 percent over last fiscal year’s.
Resource availability has been estimated at rupees 4681.2 billion that includes net revenue receipts of rupees 2926 billion, net capital receipts of rupees 552.5 billion and external receipts of 837.8 billion. The overall expenditure has been estimated at rupees 5103.8 billion; out of which the current and development expenditure is estimated at rupees 3763.7 billion and 1340.1 billion, respectively. The share of the current and development expenditure in the total budgetary outlay would therefore be 73.7 percent and 26.3 percent, respectively, whereas the provincial share in federal taxes is estimated at rupees 2384.2 billion. This estimate of provincial share is based on the NFC award that has completed its term and in the absence of an agreement on the new award is to be followed. Article 160 of the constitution of Pakistan stipulates setting up of the National Finance Commission (NFC) with no interval exceeding 5 years. The mandate of the NFC is to decide on the distribution of resources between the federal and provincial governments; and also among provincial governments. Although, the 9th NFC was constituted in 2015, it is yet to agree upon the distribution of revenues and announce the award. To bridge the resource gap, bank borrowing has been estimated at rupees 390.1 billion, a figure that is significantly lower than revised estimates of last year’s and is bound to undergo a substantial revision this year too as per previous practice which is now a norm.
The targets set by the budget include an increase in FBR revenues by 14 percent, growth in non-tax receipts of 7 percent, containment of current expenditure below the inflation level, new initiatives and tax incentives for agriculture, IT, SMEs, financial, textile and export sectors. An addition of 10000MW of electricity to the national grid by summer 2018 and speedy development of Gwadar constitute declared priorities. A welcome proposal is implementation of off-grid solutions for electrification of far-flung areas, particularly in Balochistan, instead of extending the national grid to financially unviable localities on political rather than sound economic considerations. All measures that were announced in the policy package for the export-oriented textile, leather, carpets, sports and surgical goods last year would continue for the next fiscal and further measures for supporting these sectors have been announced. The measures already announced did not arrest the slide in our exports and it remains to be seen if the further measures proposed would be able to reverse the fall.
The acute shortage of housing units continues unabated. Land prices continue to rise and real estate remains the avenue of choice for parking tax evaded money. The situation is further aggravated by lack of mortgage financing for housing. In the 2016-17 budgetary proposals, the government did propose measures to arrest the sky rocketing real estate prices but sacrificed this effort at the altar of revenue generation. This year it has again proposed instituting ‘Risk Sharing Guarantee Scheme’ to address housing problems by encouraging banks to provide long-term housing loans and covering 40 percent of their risk in financing low income housing. However, this would probably be a non-starter unless the challenges of speculation and parking of tax-evaded funds in real estate that continues to drive up land prices are effectively encountered.
It was widely anticipated that the budget for FY2017-18 in view of general elections due in this fiscal year, would be long on reliefs and short on reforms, taxing hitherto exempted sectors, widening of the tax base or increase in tax rates. The expectation was not unfounded and is amply reflected in the budget proposals of the government. Agriculture which is the vocation of the majority in the country and is also the mainstay of peoples’ livelihood has been offered generous relief and attractive incentives through lines of credit at concessional rates of interest, subsidy on fertiliser and a reduction in tariffs on import of agri equipment and implements such as combined harvesters. The populist approach is further manifested in the record size of the federal public sector development programme (PSDP) of rupees 1001 billion, which has received a 40 percent boost. Besides agriculture, poultry, for some reason, appears to have attracted the attention of the finance minister and is a recipient of extensive relief at different levels from import of live birds to hatcheries. Salaries and pensions have been significantly increased by merging allowances and giving a raise to all federal government civil servants and armed forces personnel. The minimum wage has also been raised by Rs 1000 per month to Rs 15,000. This step is bound to set a chain reaction and provincial governments will have to follow suit and match the increase. Employees of autonomous bodies and local governments would therefore be justified in clamouring for equal treatment.
It is apparent from the finance minister’s speech that the cornerstone of the budget proposals would remain to be the disparity in rates of withholding taxes that were introduced in the budget for FY2016 for filers and non-filers of income tax returns. This disparity has been further widened by lowering the rates of withholding taxes for filers and maintaining the rates for non-filers. The PML(N) government in general and finance minister Ishaq Dar in particular continue to ignore the fact that the overwhelming majority of the so-called non-filers are those persons that are not liable to pay any income tax because they do not have income that exceeds the threshold of income requiring filing of tax returns. Yet under the scheme, they are subjected to this penalty of high rates of withholding tax.
The external sector position of the country continues to deteriorate rapidly and this should be of great concern, the finance minister has not proposed any measure in the budget that would reverse this trend. He could have at least increased the duties and taxes on non-essential imports to indicate that he is seriously concerned about this state of affairs. Fiscal deficit as a percentage of the GDP during FY18 is projected at almost the FY17 level which means more borrowing and a higher level of indebtedness. He should have strived to gradually reduce the level of budget deficit in order to reduce dependence on foreign sources of finance that has the portents to threaten country’s economic sovereignty.
The economic data churned out by the Pakistan Bureau of Statistics (PBS) and touted by the government in support of its success continues to be disputed with counter statistics and arguments by reputed independent economists and casts a long shadow on the credibility of the government. For achieving higher, sustainable and inclusive growth which is one of the declared objectives of the government and is aimed at reducing poverty, build up human capital, improve infrastructure, energy and food security and, balanced development; it is important that the government acknowledges the existence of credibility issue. It must therefore engage with these eminent economists for validation of its data. Finance minister Dar has repeatedly called for all political parties/stakeholders to agree on a ‘Charter of Economy’ and he repeated this call towards the end of his budget speech. We have always supported the need for such an agreement that can only come about if all the stakeholders take the ownership after reaching consensus on such a matter of greater national import. For such an agreement to come about it is essential that the data credibility issue be resolved and the first step in that direction will have to be the formation of a truly independent and financially autonomous bureau of statistics.