The budget sends a message
Uneasy lies the head that presents the annual Federal Budget of a Third World country but the sips of water downed by Dr Mahbubul Haq did not signify any stage fright but the genuine thirst of a long distance runner. Burdened by the financial yoke thrust upon him almost immediately on the fall of the last Federal Cabinet, the good doctor was long on rhetoric and revelation but short on the substance of financial revolution. Budgets have their epitaphs written in the streets of Pakistan usually but this one will survive, the genuine effort for change stunning the general populace just by the sheer audacity of someone getting past the bureaucracy for once. It is rumoured that the first sketch of the proposals were made by the Federal Finance Minister in the solitude of his home (free of the machinations of recalcitrant bureaucracy) and if that is true then the very fact that change has come about leads us to the conclusion that Ministers must operate out of their homes to come up with any worthwhile suggestions.
Some of the effort is laudable indeed and if proved true then doubly praiseworthy. A significant reduction in non-developmental expenditure is seen to have been made and the supplementary grants have become subject to cabinet approval. The logic of it all is accepted by all and sundry, what happens in practice will be known by us next year around budget time. We all know now what happened to the Rs:1000 crore collected due to Iqra surcharge. It went everywhere but in the cause of education. The populace is skeptical because after all Dr Haq was not far removed from the machinations of the banking mafia, he was part and parcel of the unlamented Mr. Junejo’s cabinet as Federal Minister for Planning and Commerce. However clever Mr. Wattoo might have been, an incisive mind like the good doctor functions as a vise for machinations of the third kind and misplacing a cool Rs:1000 crore is a bit thick.
The present Budget has gone further than any other ever in Pakistan and has the overtones of an “Awami” political budget meant for electioneering with. That is good news two times over, one for the lengths it has gone to and the other that it actually indicates that an election is in the offing. Whatever it may be, the burden on the middle class has been eased somewhat, a genuine concern is reflected for the poor. An incredulous tax-paying salaried class will see the “Honour System” at work but in that I fear the good doctor has misplaced his trust somewhat and he might as well go on to Phase Two, “the pay or else” stage. The “percentage of income” tax deduction (when upto the Rs: one hundred thousand level) is an excellent idea but it should have been used through the length and breadth of the taxation system. The main tax revenues “collected” by our income tax hounds for the lining of their pockets is not from individuals but mostly from corporate accounts. An anomaly exists in the system and our tax collectors are going to cash in on it relentlessly. Why leave such an excellent idea to future governments? Tax reforms should not stop at halfway houses but should go the whole log.
In a special session on Budget Night the Karachi Stock Exchange (KSE) re-affirmed their undying love and affection for the good doctor in the long run and the Federal Budget in the short time by making up the losses of several weeks in one clean upsurge. That is the best economic news received so far and is confirmation of the fact that Dr Haq’s gamble in inviting investment across the board just might pay off. The fact of the matter is that the KSE is usually the first indicator of investors’ perceptions and the upswing is a unanimous vote of confidence that should encourage Dr Haq to become a complete revolutionary and not stop at the half-baked revolt that he is leading against the bureaucratic gnomes in the Ministry of Finance. The last time around he was given a short political shrift and one could perceive the latent vengeance manifest in his voice on his comeback. He had his knife out, both for the surgery required to free the body economic and the time honoured reverse thrust on his own political ex-colleagues. His innovations have been appreciated, generally confirming his whiz-kid status.
The striking change has been in revenue receipts without perceptible additional direct taxation, an 11.3% increase, Rs:11.8 billion to Rs:116.85 billion while capital receipts has fallen 5.3% from the 1987-88 revised budget estimate of Rs:2.5 billion to Rs:2.4 billion. Autonomous bodies have taken a nose-dive from a revised estimate of Rs:5779 million to only Rs:40 million with the deletion of WAPDA, OGDC and T&T from the figures. With such statistics it has become necessary to ante up the help from external resources, already increased 2.4% in the revised estimates of the last budget to go up by another 8.9%. The level of domestic bank borrowing which increased a phenomenal 87.2% from a requirement of Rs:0.76 billion to Rs:1.43 billion goes up a further 20.3% to Rs:1.72 billion.
In current expenditures the allocation for General Administration which had become Rs:0.52 billion in the revised estimate, coming up 11.1% goes up another 13.7% and becomes 4.9% of the total current expenditure. Similarly, increases are recorded in “Law and Order” head which goes up from 1.9% to 2.2% share, in “social services” upto 4.8% from 4.2% and “unallocable” (whatever that may be), from 1.2% to 2.8%. The share of defence services has come down from 41.8% to 39.9%, though in real terms the defence budget had increased 7% in the revised estimates and the percentage change in 1988-89 is another 6.6%. Similarly, percentage share falls are recorded in “economic services”, “subsidies” and “grants to local authorities”. An analysis of the changes in current expenditure shows a better picture and an attempt at sleight of hand inasfar as the major increases of percentage share are in defence (23.9%) , debt servicing (41.3%) and the invidious unallocable (16.8%). The only dubious silver lining is in the fact that on repayment of Principal on foreign debt, the percentage share in debt servicing has decreased from 27.5% to 23.4% while domestic debt shows a clean rise from 51.4% to 57.6%. Foreign debt dues are down from 21.1% to 19%.
The message of the deteriorating “law and order” situation has been clearly understood and the whopping 24.8% increase from Rs:0.20 billion to Rs:0.25 billion speaks for itself. Hopefully this will translate itself into additional manpower, better equipment and increased training. Similarly a populist budget ensures across the board increases in the allocation for community services and social service, particularly in social securities (34.9%), education (18.5%), Works (18.7%), town planning and development (11.6%), broadcasting services (11.3%), public health services (12.0%), manpower management (14.9%), and scientific and general research (7.8%). Some of the revenues to be generated are to be done by encouraging more people between these Rs:40000-100000 income figures into the tax net by taking them out of the effective range and arc of fire of the ITO’s gun. A combination of simplifying the tax system and the loss of fear would/should net in a great number of assessee. The sales and excise taxes have been rationalised to a great extent though the good doctor has hit under the belt at the economic largesse of the excise staff by removing them from various factories. The greatest incentive has been given to industrialisation and the industrialists/investors would be stupid not to respond to this. Perhaps the only real restraint would be the thought that a left-leaning government in the future not only would undo the disinvestment proposed but nationalise new industries now conceived. The partial disinvestment of nationalised banks is an excellent idea, perhaps a fore-runner to total de-nationalisation in the future.
On balance this is a good budget, an attempt to get back to the real world and be rid of fairy tales. It reflects one very important issue, that the rulers are sensitive to the response of the public, however apathetic and cynical the public may be. It does test the gullibility of the masses by various sleight of hand but it shows a genuine concern for the poor. It speaks of merit as a means of recognition, that is to be seen to be believed and we are a patient crowd. It translates part of the President’s pre-budget tears into the real-politik of electioneering and clearly announces that barring an act of God, the election will be held this autumn.
We remain skeptical about the so-called “financial revolution.” The budget is declared to be revolutionary and yet it is only an insurrection. The public was geared upto to accept anything and the masses would have responded positively to radical changes viz (1) flat minimal tax across the board in everything (2) removal of invisible subsidies to protected industries eg. jute (3) import of gold on the free list (4) imposition of 1% tax on assessed value of residential/commercial property (real estate) (5) building of “pucca abadies” (6) de-centralisation of tax imposition (7) imposition of either agriculture tax or removal of subsidies on fertiliser, etc, etc. It is a start, however, a better, more innovative solution to than that previously obtaining, showing a genuine concern for alleviating the economic sufferings of the people of Pakistan. It is not a major surgery just a good bloodletting like in the good old times. Normally a surgeon wears a mask and finance ministers are known to commit highway robbery, though Dr. Mahbubul Haq, Born-Again economist remains “Mr. Clean” and as such an anachronism in Pakistan. To that end, one must commend the good doctor, an “A” for effort and innovation, but only a good “B” for real change attempted. The mark sheet is still to be tabulated over the months and since Dr Mahbubul Haq has spoken of merit and accountability, you may rest assured we will hold him to it.
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