The Federal Budget – Mixed Nuts
At the best of times, balancing the Federal Budget is a Houdini-like thankless exercise in any country of the world, the populace yearning for more services and facilities while the national exchequer has less and less (on a pro-rata basis) to pay for them. The Federal Finance Minister (or of State) is thus usually faced with a Catch-22 problem and it is rarely that innovative changes providing genuine relief to the common man have been proposed or enacted. Makhdoom Shahabuddin’s plight reminds one of the various examinations of the Army where it was required that the officer certify that he did not know the contents of the Question Paper BEFORE he took the Examination. Capt (Retd) Asghar A. Jilani, pushed into doing his “Lower Urdu” Examination, certified that “he did not know the contents of the Question Paper BEFORE, DURING or AFTER the Examination”. So let it be with the Makhdoom, who did a reasonable task of presenting the Budget but remained blissfully oblivious of the real facts, as did most of us, contained in his eloquent Presentation.
In the economic circumstances prevailing, successive Finance Ministers over the years, barring the salutary and honourable exception of Senator Sartaj Aziz, have been fairly predictable in providing the bureaucratic recourse of draconian answers to the mounting column of red ink as regards the Federal Debt. For political governments to take tough steps that would alienate the masses is a difficult proposition and as such an exercise in camouflage routinely becomes more important than the substance of the Budget propositions. In sum, while the economic circumstances were bad enough to warrant stringent measures, the political circumstances are worse. Given such overtones it is hard to condemn such tactics, all being fair in love and war! In a neat PR ploy, the rhetoric of the PM had prepared the masses to be ready for the worst, by not going the orthodox route with her implied threats she temporarily diverted the attention of the masses and thus stole the thunder from the Opposition. This has only delayed the inevitable, both with respect to mounting deficits and street reaction. What we have is much less in perceived taxation than we had expected but certainly much more than what is presently prevalent. For the moment the battle is one between perception and reality, for the moment perception has won out but reality will catch up sooner than later. If Ms Benazir cannot hold the line in the face of mounting Federal Debt we may eventually end up far worse than we would have been than if she had taken the avowed tough road. However even the greatest cynic has to acknowledge that she seems to have drawn first blood by not giving the Opposition immediate tangible evidence, in the first-reading the taxation is so well camouflaged that even experts have had trouble unravelling them even many days later. The PM gambled with the fact that by the time the people finally get to read between the lines as well as the fine print and begin to feel the sharp edge of the hidden steel it may be too late for the Opposition to take the masses to the streets. It shall be interesting to see whether Ms Benazir gets away with it. However A’s are in order to the PM both for packaging and sheer audacity. Whether she can sustain her proposed indirect taxation measures through the NA and “Special Interest Groups” is another matter. If she fails in getting her indirect measures approved, she (and the country) will have a splitting red headache. The Catch-22 is that if she manages to get it through the NA, the economy will suffer.
All Finance Ministers have a two-fold dilemma, whether in obtaining the revenues anticipated from the measures already in force and whether by additional taxation meeting the shortfall in the budgetary requirements. By resorting to indirect taxation additional burden is put directly on the common man, thereby the attempt is usually to manage an effective combination of both. To change the direction of the economy at the same time is an unenviable task and beyond the capacities of mere mortals like Makhdoom Shahabuddin. Mian Nawaz Sharif’s Finance Minister Senator Sartaj Aziz managed this virtuoso feat but even he was left short because of paucity of time and space in the given political circumstances. While the PPP Finance Minister (of State) has tried to persevere with the “liberalizing of the economy” direction, the dominant personality of Javed Talat at CBR, quite apparent in the formulation of the Budget, has ensured a very distinct bias of bureaucratic stamp on the taxation measures. Javed Talat has gone the tested route tried by his peers in earlier years in less democratic days, whether such draconian measures can be implemented by a coalition Government is another matter altogether. In the meantime an open licence has been granted for recruitment of cronies as further tax staff is needed to collect the revenues, most of which will end up in their pockets. The easy option would have been to go the expected route of wide speculation about the increase of the prices of fuel and electricity but one supposes that everyone and his uncle had sharpened their knives at this possibility. While the government managed to take wind out of the sails of would-be critics and inspire widespread relief among the masses in not going this route, it is an impossible exercise to sugar coat the bitter pill proposed and make it palatable. Make no mistake, this was a tough Budget, both on the government and the people and it remains to be seen how the proposed revenues are eventually collected without seriously undermining the economy. The government has repeatedly assured that there would not be a mini-Budget, some sort of legal cover should be given to this pledge making it obligatory for the government to honour it and not search for some force majeure down the road in the next 3-4 months.
Javed Talat is a man with integrity and imagination. However in opting for the normal bureaucratic route he has gone spectacularly wrong in advising the government to attempt wholesale GST on a wide range of products. Despite a delayed start, the markets are sizzling with reaction and increasing prices are expected on a wide range of items, inflationary pressures have been temporarily delayed, they cannot be stemmed off. What is of great concern is that the policy of gradual inclusion has been abandoned for a sweeping induction, in the circumstances an almost impossible feat to implement, Javed Talat and his dynamism notwithstanding. While the intention is laudatory, pragmatism is singularly missing in the light of past experience. Of greater concern is the fact that the Services Sector instead of being encouraged has been brought to the point of extinction through measures which do not seem to have been well-thought through. Pakistan’s economic emancipation does not lie in rapid industrialization alone but requires a commensurate development of the Services Sector to an almost equal role. By this Federal Budget, GoP has imposed a broad brush of 50% excise duties on various services that is not only counter-productive but retrograde. Instead of regulating the nascent and developing services sector while nurturing it along this will serve to act as disincentive, thereby increasing unemployment down the road. This thoughtless proposal tends to destroy rather than develop. Since the Services Sector has no place on the pedestal of bureaucratic imagination, this is something that the political government will have to have a second look at. Similarly imposition of 10% excise duties on Modaraba advances in the absence of abolishing income taxes completely is nonsense. Its imposition will bring a halt to a whole spectrum of commercial and industrial activity. The imposition of excise duty on bank transfers will increase the amount of liquid cash on the streets in actual cash transfer, a boom for dacoits who should thus find easy pickings.
In short one agrees with the FPCCI that this is “a complicated Budget and not understood fully by FPCCI members and even by the experts”. In a well organised PR ploy, first the Minister of State for Finance did not give a live speech on PTV or Radio as is the custom, next he highlighted only the salient positive points and avoided mentioning the areas where “blood will be sucked”, to quote the FPCCI Chief. A groundswell of shock and anger seems to be building up on the GST and sweeping excise duties that may become more apparent after the week of Moharram. These proposals are so far out of sync of liberating of the economy that it seems they have been set forth as negotiation pawns than actual serious ideas for implementation. In fact, the paramount word one comes across is “designed confusion” deliberately inspired by GoP in order to get breathing room, it would not be far out to define it as a “tricky budget”. As the implication gradually permeates down among the masses about increased prices and the realisation dawns that there is steel beneath the gloved fist of the Budget, the seething anger in the streets may well spill over. Ms Benazir may be gambling that she can contain that anger in the long run rather than face an immediate outburst if she had gone in for more visible measures.
There is no doubt that the truly deserving salaried government servants of all categories need to bridge the present disparity in their income to get the fruits of their labours in line with the non-government sector and as such the 35% increase in salaries is very correct. Good people need to join the civil administration as well as the Armed Forces and stay there, not be forced to leave government employment and search for better prospects because of their poor economic condition. On the other hand, while bracing itself for a possible fight to the finish with the Opposition-led masses as the Budget proposals show their teeth, it was prudent and wise for Ms Benazir to take out such insurance in keeping the powers-that-be satisfied. This is a time-tested ploy that needs no further elucidation. If the Budget proposals are made law in their present form (or near abouts), commercial and industrial activity of the nation may well come to a halt and anarchy could be an end-result. In sum total, the government cannot sustain the Federal Budget in its form and as such will have to conduct “battlefield surgery” on its own brainchild to survive.
Did you enjoy this post? Why not leave a comment below and continue the conversation, or subscribe to my feed and get articles like this delivered automatically to your feed reader.
Comments
No comments yet.
Leave a comment