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Budget time

Having created economic history over the past 180 days, one does not see the Nawaz Sharif Government taking its laurels from its own brow and casting it into the dust. To prepare for fresh or enhanced taxes in the Budget, the prices of all essentials and services have been quietly increased over the past few months. Others have followed the same route before Nawaz Sharif, it does not look good to tell the masses all bad news on prime-time TV and thus commit political hara-kiri, the doses of bitter medicine is usually parcelled out in small portions pre-Budget so that when the Day arrives, media-genic relief packages are announced instead of the expected additional tax burden. The masses are swept with physical relief at not being further burdened financially, they thank God for small favours and go on living their meagre existence.

The Presentation of the Budget on May 30, 1991 by Sartaj Aziz will be as important as the contents thereof. While the rendition of figures is unlikely to wow the masses, the credible way in which they are put forward will have a direct effect on its acceptability. Mian Yasin Wattoo, Junejo’s Finance Minister, had a monotonous, rambling delivery, underscoring the fact that he had nothing much to do about the Budget before, during or after its preparation. Ehsanul Haq Piracha, Ms Benazir’s FM of State, gave the impression of a cornered rabbit who was going at the task on sufferance, straining his intellectual capacities to impress an audience of only one, his PM. His occasional apprehensive side-long glances at Ms Benazir during his presentation told the whole story. During his Budget speech as Caretaker Finance Minister (delivered in the TV Studios), Permanent Finance Minister-in-waiting, Frustrated Senator Aspirant and Economic Chameleon Extraordinary, Dr.Mahbubul Haq, kept on smacking his lips for the unavailable glass of water (being month of Ramazan) while he put the fear of God into the business community, describing in graphic detail how he was going to emasculate them for non-payment of taxes in short order. His Budget speech was incentive-oriented for investment alright, all took off in the other direction for greener pastures.

The Opposition will probably use prime time TV for parliamentary shenanigans, if it doesn’t happen it will be a pleasant, welcome surprise and one apologises in advance. Sartaj Aziz is by far the finest Finance Minister that this country has ever had and he accomplishes that simply by being honest, forthright and pragmatic, incorporating all the SIX qualities which form Dr. William Menninger’s recipe for success. A former bureaucrat himself, he has stuck to his task in the creeping curb of bureaucratic powers by simply following the first Principle of War, “Selection and Maintenance of Aim”, insofar as the only solution of the economy rested in increased investment, particularly foreign investment. To accomplish this he set about putting great priority on the socio-economic infrastructure being in proper place for creating a conducive economic environment. Given the bureaucratic roadblocks we could not have even imagined that the structural changes that have taken place in the economy in the last 180 days was possible. By a series of actions, among them (1) easing of foreign exchange regulations (2) discontinuing requirement of import licences (3) NFC Award making Provinces financially autonomous (4) Water Accord permitting Provinces to make long-term planning for their agriculture sector (5) no permission required for any industry except in the Defence Field and (6) the actual initiation of Denationalisation, Deregulation and Privatisation programmes, etc have all gone a long way in setting the stage for economic emancipation.

The immediate priority has to be the rationalisation of taxes, particularly in the Corporate and Individual sectors. The tax slabs being unrealistically high, very few people, less than 1% of Pakistan’s population, are in the tax net (500,000 employed, 500,000 self-employed), who pay about Rs.3.5 billion in taxes in the Rs.16 billion gross in income tax (Rs.12.5 billion Corporate) out of the total government revenues of Rs.120 billion. Fully 98% of our Income tax Staff is committed to chasing 2% of the revenues. The results are laughable. In 1980 the net worth of one particular banker was Rs.0.30 million, a decade later it is shown as Rs.5 million. He is now the President of a Bank, shareholder in numerous other financial institutions and he has a net worth of not less than Rs.100 million (and that is on the low side). Making that much money is not a crime, hiding it is! There are three basic options open to Sartaj Aziz, the first is the dynamic choice of eliminating individual income tax completely at the Federal level, leaving the Provinces to usher in Community Taxes at the local level, thus bringing about a direct relationship between Taxation and Spending. The second option is to simplify the present income tax by a flat deduction of the total emoluments of any individual so that there is no discretion for shenanigans and the third course is to reduce the percentage of income tax being charged, rationalizing the various deductions. Sartaj Aziz probably will go in for a combination thereof, simplify the individual taxation system and reduce the percentages to be charged so as to make the tax charged more realistic. As regards Corporate taxes, the percentage should certainly be reduced. Whatever step Sartaj Aziz takes it must be essentially pragmatic, it is stupid to expect 1% of the population to keep on carrying the load of the rest, everyone must contribute according to his/her ability.

The PPP Government worked into a law a very innovative and realistic General Sales Tax (GST) but did not have the political courage to implement it in letter and spirit. V.A.Jafarey’s hard work in this respect went to waste. Given this Government’s penchant to face upto tough challenges and take the risk of instilling pragmatic changes wherever and whenever necessary, one can lay heavy odds on the GST being implemented in the new Budget to obtain more government revenues. GST is a very direct way of adding substantially to Federal revenues and while vested interest will try its level best to scuttle such ideas it should be strictly enforced. As we go further into inducting electronics into our day-to-day lives, GST calculations will become simpler all the way down the line. Room for GST avoidance with the connivance of tax inspectors always remain, cleansing of the human element is beyond Sartaj Aziz.

Given the present mood on our international borders we do not see reduction in our Defence spending, it would be stupid to do so. At most we may have the Provinces picking up more of the tab for law enforcement and internal security in their respective domain. We definitely need to tighten up on our Defence Spending, our plans are worked out of convenience rather than objective-oriented pragmatism, e.g. while the major law and order problem is in interior Sindh, instead of keeping the HQs of the nearly constituted Sindh Force in Nawabshah, they will probably enjoy the comforts of Karachi. Unless we sit down and do massive restructuring ensuring that every policy (and execution thereof) is objective-oriented, getting more bang for the buck, we are going to keep on being much less than cost effective. Unified Command should reduce many of our intermediate HQs besides streamlining them, seriously getting down to ruthlessly eliminating fat at every level, particularly in the non-combatant Services. Having more and more generals in the Medical Corps and the EME will mean that much less attention will be paid at the combat levels of their requirement. We pay a lot of lip-service to pragmatic modus operandi, in actual fact even our command and control structure has not changed since British Indian Armed Forces days. It is all very well to talk a lot of theory, the truth is far from reality and in actual operations it could be terminally fatal. That the Indian Armed Forces have proved themselves as Inspector Clouseau — clones in Sri Lanka is nothing to cheer about. Our motivation may be better, we have to have commensurate operational effectiveness. In this Sartaj Aziz can hardly do anything except maybe curb the powers of Financial Advisors (FAs) who do not have the foggiest iota of any knowledge about combat requirements and exist as a great hindrance to the three Services in implementation of their Plans. Once funds are obligated, the responsibility of disbursement must be that of the Armed Forces HQs themselves, not some desk-bound accountants who have no empathy with immediate combat needs.

Thank God that the Provinces are finally autonomous and some insignificant bureaucrat in some cubby-hole in Islamabad does not have the power of life or death over them. To give one horror story, the Police Department of a particular Province was not disbursed badly needed Rs.40 million for specialized equipment till they agreed to provide FOUR Honda Accords to the Ministry controlling the disbursement of funds, such is the power of financial control. The finest achievement of the Nawaz Sharif Government is the NFC award, the Provinces had been reduced for funds that were rightfully theirs in the first place. Cash surplus provinces can plan and execute development projects with renewed vigour while deficit Provinces will simply have to raise more funds by enacting (and exacting) more local taxes. The Federal Government must overcome the deficit financing which it has had to presently meet by high interest bank borrowings. Overly reliance on foreign aid must cease in letter and spirit. Inflation is running free and may run wild. The common man may bear the price-rise burden for some time, further price-rise pressures will be resisted in the streets, anarchy may result. Our Debt-Servicing burden will probably exceed Defence Spending, becoming the largest outlay in the Budget, a rapidly building yoke that future generations will keep groaning under.

Nawaz Sharif’s rhetoric about his profound commitment to social justice is increasingly believable, yet it is too early to render judgement. Most problems have their foundations in economic imbalances, in a Third World country privatisation has to be tempered with reminders of responsible social behaviour on the part of the private sector. Those who stand up for socialism rather than privatisation on principle may not be the actual opponents, those who put privatisation into disrepute by actions that give “Dollars and Cents” priority over social conscience and morality are the real enemies of progress. These God-less people look at everything through horn rimmed accountant’s eyes, life in any form is simply a statistic to them, making money is their only religion. Their excesses brought about the extreme vicissitudes of rampant nationalisation in 1972, history might repeat itself in a more bloody fashion if they manage to arouse the unstable emotions of the streets. The Federal Government cannot absolve itself of the responsibilities of strict monitoring and control over these people so that they do not sabotage the privatisation process by their unrelenting greed, the economy does not yet have in-built safeguards as in developed countries. Failure to do so will have tragic consequences for the whole privatisation programme of the Nawaz Sharif regime. Government has given a lot of importance to Islam’s concept of social justice in the functioning of the State, Nawaz Sharif must not forget that the lower the individual is in the socio-economic spectrum the greater is the responsibility of the State to protect that individual from callous, heartless profit-only oriented bespectacled so-called whiz-kids with no morals or conscience about social responsibilities. Privatisation is necessary, without adequate protection for the masses against the excesses of the few, it is not!

Sartaj Aziz is expected to make some very innovative Budget proposals. In his scheme of things, he has set his financial house in order, preparing the groundwork to attract foreign investment, all the little pieces are in places. The dacoits in Sindh might still send his plans into oblivion by orchestrating the departure of all expatriates, yet this Federal Budget will likely be different from the normal mould. Even if it succeeds part of the way, we are well on our way to Nawaz Sharif’s much publicised “new Pakistan”.

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