A growth oriented budget
The PTI government announced its annual budget of Rs.8.5 trillion that is seen as compromise between the demands of economic growth and the restrictions imposed by the IMF.
Finance minister Shaukat Tarin presented his first and the PTI government’s fourth budget amidst a rumpus caused by the NA members and it was extremely difficult to hear what he was saying.
The budget, particularly the Finance Bill 2021 bears strong marks of the IMF made explicitly from showing of Rs.496 billion or $3.1 billion IMF loan as part of foreign loans in fiscal year 2021-22.
The size of the budget is Rs.8.487 trillion – higher by Rs.1.4 trillion or 19%, indicating that the government has adopted fiscal expansionary policy in the second half of its term.
However, the lion’s share – 36% of the budget or Rs.3.06trillion – will go to debt servicing, primarily due to the misplaced policies of the central bank and low revenue collection.
The budget has attempted to address the low economic growth and also aims at cutting jobless rate by offering loans to the youth although it will target only a limited size of the population.
The budget outlay and its salient feature appear to be favouring growth orientation as the country has suffered the lowest growth rates in recent times. Out of the total budget outlay of Rs.8.5 trillion nearly 47% of it will be financed by adding more debt to an already highly unsustainable debt.
The federal budget deficit is projected at Rs.3.990 trillion—up by Rs.553 billion or 16% over this year. In terms of the GDP, the federal budget deficit will be equal to 7.4% — slightly higher than the current year’s level.
However,the real challenge will be the implementation of the budget, as its success hinges upon the FBR’s ability to achieve Rs.5.829 trillion tax collection targets.
The failure in achieving the target would mean reversing the first step that the government has taken towards addressing the core issue of high indebtedness.
In the context of revenue collection the government has proposed a Rs.7.9 trillion gross revenue target for the next fiscal year— up by Rs.1.4 trillion or 20% over this year’s estimates.
The share of the provinces has been estimated at Rs.3.42 trillion—also higher by Rs.538 billion or 19%. The net federal receipts are estimated at Rs.4.4 trillion—up from Rs.3.7 trillion or 21.5%.
The current expenditures are estimated at Rs.7.6 trillion—up by Rs.922 billion or 14% over this year.
The PSDP has been projected at Rs.900 billion—up by Rs.250 billion or 38.4%. The government has projected a primary budget deficit of Rs.377 billion or equal to 0.7% of the GDP.
The overall deficit is projected at Rs.3.4 trillion or 6.3% of the GDP on the back of Rs.570 billion savings by the provinces.
The projections showed that the total public debt will be 81.8% of the GDP or Rs.44 trillion by the end of next fiscal year. For this fiscal year, the debt has been projected at 83.1% of the GDP or Rs.40 trillion. The public debt would increase because of the budget deficit and the current account deficit will widen due to an expansion in the economy.
The budget proposals have earmarked Rs.1.370 trillion for defence spending, which is equal to 16% of the budget.
The amount is exclusive of the armed forces development programme and military pensions. For subsidies, the government has allocated Rs.682 billion, over three times more than this year’s original allocations.
However, the tariff-related power subsidies are only Rs.330 billion,which is Rs.170 billion less than what the Power Division had demanded.
The government has allocated another Rs.266 billion for picking up the circular debt that is parked in a holding company and to pay the dues of the independent power producers (IPPs). For Naya Pakistan Housing Authority, Rs.30 billion subsidies have been given while an amount of Rs.3 billion is given for interest cost-related subsidy.
For pensions, the government has estimated the cost at Rs.480 billion for next fiscal year, including Rs.360 billion military pensions. The budget proposals also contain 10% ad-hoc relief allowance in the salaries and pensions of federal government employees, which would be effective from July 1.
Similarly, to minimise the inflationary pressures, especially on the labourers a workers, the government has increased the minimum wage to Rs.20,000 per month.
The budgetary speech mentioned as one of the top priorities of the incumbent government was to uplift the downtrodden segments and for this purpose 40% of the total population was given cash transfers, besides providing relief to 15 million households across the country.
To increase economic growth levels, the government has offered Rs.42 billion tax incentives to industrialists to provide an impetus to economic growth by lowering the cost of raw materials. It has also allocated funds for helping people with cheap loans to start their businesses and buy homes.
While announcing incentives the government has simultaneously imposed Rs.383 billion worth of new taxes – 70% of them regressive and high inflationary in nature.
In addition about Rs.119 billion worth of overall tax relief measures were also announced.
It is required to be pointed out that the Rs.383 billion additional revenue measures were the second-highest taxes imposed by the government after it slapped Rs.735 billion taxes through its second budget.
These massive taxation measures suggest that Pakistan has almost accepted all the demands of the International Monetary Fund (IMF), except increasing direct burden of the salaried class.
In the present economic conditions, the taxation burden on one class of the society cannot be put and the decision to impose taxes on the mobile phone and internet users will spread the impact on all the people and the single measure to impose tax on mobile and internet users will fetch revenue, which is more than what the IMF had asked to recover from the salaried class.
In addition the Petroleum Levy collection target is increased by 20% to Rs.610 billion which will push the prices of petroleum products very high, partially also due to the imposition of 17% GST on crude oil imports.
The mode of collecting taxes on sugar has been changed from factory-gate to retail shop, which will increase the commodity’s price by another Rs.7 per kilogram.
The government has also taken some measures, which will encourage informal economy. The federal excise duty on production in erstwhile FATA and PATA areas has been abolished, which will result into shifting of production to either in these areas or on papers the production will be shown in these exempted areas.
The government has also relaxed the turnover limit for small industry from Rs.3 million to Rs.10 million to exempt it from the requirement of availing the sales tax registration number.
However, it proposed legislative changes to raid on the retail shops to check smuggled goods. As a consolation measure the finance minister said that the government was committed to fast tracking implementation of CPEC as to date, 17 projects worth $13b had been completed and another 21 worth $21 billion were underway, while additional 26 strategic projects of $28 billion were in the pipeline.
He also said multiple relief measures had been taken for livestock and poultry sectors as well as the agricultural sector in this budget adding that the government had taken kinetic measures to boost the industrial growth to tear away the label of fragile, attached with the economy.