At least on paper, budget speeches seldom highlight the proverbial bad news. They are crafted to highlight the achievements, ambitious new targets and shiny vision of the government which often downplays economic challenges and sugar coats tough measures aimed at boosting revenues or cutting subsidies, which hit the common man. Therefore, like every budget speech, Finance Minister Ishaq Dar had only good news to share with the nation as he unveiled the proposed 2014-15 (July-June) budget before parliament on Tuesday. In his more than two-hour- long high-speed rendition, Dar issued a good health card for the economy, claiming that in just one-year of PML-N rule, it has been put on the path of recovery and growth. The key economic indicators indeed look encouraging. The GDP growth, which remained pegged at 3.0 percent on an average in the last five years of the PPP rule, crossed the 4.0 percent-mark in the current fiscal year, though missing the 4.4 percent target. For the next fiscal year, the government is eyeing it at 5.1 percent and 7.0 percent by FY 2016-17. Inflation, which averaged an unprecedented 13 percent under the PPP rule, was recorded at 8.5 percent in fiscal year 2013-14 and the government intends to keep it in single digit the next year.
The government also managed to bridle the fiscal deficit known as the mother of all troubles for an economy in its first year in the office at an estimated 5.8 percent compared with the highs of 8.8 percent the preceding year. For 2014-15, the government aims to contain fiscal deficit at 4.9 percent, which will be no less than a feat. The finance minister also boasted about the strengthening of the rupee against the dollar, a rise in foreign exchange reserves which the government wants to increase to $20 billion in the medium term measures taken to end the crippling energy crisis and cleaning up of more than Rs500 billion worth of circular debt during the past one year. At least these macro numbers paint a rosy picture about the performance of the PML-N government that presented its second budget with an outlay of Rs3.96 trillion for the next fiscal year compared with Rs3.591 trillion this year.
However, the devil lies in the detail. The government has set a grand revenue collection target of Rs3.129 trillion that includes the FBR component of Rs2.810 trillion. The other tax measures aim to raise Rs319 billion. But given the current years poor revenue collection performance, it seems a mammoth target. Although FBR tax collection registered a 16 percent rise this year, it fell way too short of its original target of Rs2.475 trillion. The government had revised the target downward to Rs2.275 trillion, but by the looks of things even this appears unattainable as in the first 10 months of the current fiscal, the FBR has collected only Rs1.744 trillion. For the next fiscal year, the government aims to boost revenue collection by a series of measures in which it seems to bank heavily on the withholding tax and the oppressive indirect taxation that will take their toll on the common man. However, measures such as slapping a fixed tax of 5.0 percent on small retailers through electricity bills and trying to bring the big ones, including those associated with big foreign chains, into the tax net by imposing 17 percent general sales tax remain a small step in the right direction. The removal of tax exemptions enjoyed by large trading houses and the imposition of 5.0 percent regulatory duty on luxury items aimed at curbing imports are some of the other measures Dar has proposed to increase revenues. Nevertheless, the bitter fact is that the rich have again escaped direct taxation with a mere slap on the wrist. Measures such as new taxes on first and club class air travellers, or transactions of plots and registration of cars is nothing but a small price to pay for concealing their actual incomes.
The entire philosophy of collecting an advance tax on electricity bills to real-estate transactions goes against the grain of the much propagated efforts of expanding the number of direct taxpayers. The much-talked about, but never implemented, agriculture tax has landed in the lap of the provincial governments after the 18th Amendment. Whether the federal government will push the provinces to move in this direction remains a big question. The budget speech also gave details of Prime Minister Nawaz Sharifs trademark big infrastructure development projects construction of new glitzy motorways, mass transit systems, overhaul of railways, building of new dams and the power generation projects. The government believes spending on development projects will surely ignite growth. However, critics and political rivals are likely to challenge the governments set of priorities, which overwhelmingly appear to be focused on certain select regions. The government has earmarked Rs525 billion under the Public Sector Development Programme and another Rs162 billion for other development projects. It plans to mobilise another Rs120 billion through foreign lending. The PML-N government needs to focus on equitable distribution of the development funds and aim to direct them also on projects in underdeveloped areas. As usual, debt servicing at Rs1.325 trillion will eat up a big chunk of resources in the next fiscal year, but given Pakistans penchant for the begging bowl, it has become one big necessary evil needed to keep our economy afloat at least in the near to mid- term. A major step the government plans to take in the next fiscal year is slashing down subsidies to Rs203 billion from Rs323 billion in the current fiscal. This means that people should get ready for a sharp increase in power tariffs. Overall, the proposed budget aims to trigger growth and investment. But to achieve this goal, apart from the numbers game, the government would need to focus on achieving political stability and getting rid of terrorism and extremism indeed a tall order. The one-liner for the budget would be: Let the poor stew in their juices.