Federal Finance Minister Abdul Hafeez Sheikh, while presenting the 2012-13 Budget, tried to provide as much help as possible for the government in facing the electorate, something it must do successfully if it hopes to have its party present the next budget. However, this did prevent Dr Sheikh from slipping in some of the planned reforms. Te budget also did not seem to extend any extra elasticity towards the taxpayer’s spending power that an election year is supposed to demand. However, a number of measures, such as the decision to raise pensions and pays for government employees, which the provinces will have to emulate, indicate a preparation for polls. At the same time, Dr Sheikh also proposed new taxation measures giving Rs 63 billion more in revenue, giving tax relief of Rs 31.22 billion. The tax relief includes raising the income tax threshold to Rs 400,000, and thus preventing the increase in government servants’ salaries from catapulting them into a higher tax bracket. However, the income tax slabs have not been revised, and it seems that the proposal to revise them has been either abandoned or postponed.

However, the budget has been a cause of concern because, despite the taxation measures, and the failure to give any wide relief, it includes a very heavy deficit, of Rs 1.185 trillion, in a total outlay of Rs 2.96 trillion. The deficit is not just 4.7 percent of the GDP, it is also 40 percent of the budget. This can only be met by heavy borrowing, and printing notes. This will have a counterproductive effect, as it will merely fuel inflation, and make the government look further villainous in front of an already unsympathetic electorate. It should be noted that the budget is being presented under difficult circumstances, with there not only being inflation caused by the persisting oil crisis (the government tried to pass some of the benefits of internationally declining oil prices by a cut in fuel prices domestically), but also drops in production (and thus exports and employment) because of energy loadshedding. It was thus perhaps too much to expect of a technocratic minister like Dr Sheikh to present a really welfare-oriented budget. However, the flipside is that this budget is probably going to be used when Dr Sheikh and his team go cap in hand to the IMF asking for a fresh loan, as is expected.

One of the noticeable things about the budget has been the increase in interest payments, and that alone should have told those preparing the budget that they should avoid taking on the burden of further loans. The Rs 926 billion in interest payments, the highest amount in the budget, is almost as much as the budget deficit, which indicates that the interest payments exceeding the deficit is the next marker that needs to be watched for. As it is, the difference between the payments and the deficit is only Rs 259 billion, which gives us the real amount raised by this method. In addition, this budget too showed that the federal government is more interested in protecting its majority in the National Assembly than in raising proper taxes by the failure to impose an agricultural income tax, or in taking any measures that would make the provinces tax these incomes properly, or at least offering them incentives to do so. Defence expenditure, is second in place behind interest payments for a couple of years now. It is of no relief to know that a lot of the defence budget is going to fund our forces fighting the war on terror, without hope of recommendation, as seen so far in any demand for the coalition support fund. This is particularly galling when that war is blamed for the stuttering of Pakistan’s economy, and even less understadable given that despite all our sacrifices, relations between the two countries are at a historic low. One temptation that decision makers must avoid when money dries up is to cut the development budget, which at Rs 360 billion is not enough already. Past experience shows that such cuts also have a negative impact on GDP growth, which is well below the historical highs of the past, at 3.7 percent in the fiscal year about to finish. The budget itself set a target of 4.2 percent, which is not just conservative but only little more than what prevails, though it does have the merit of realism. That same streak of realism also informs the target for inflation, which was pitched at 9.5 percent, after being recorded at 10.8 percent in the current fiscal year. That means that the government itself expects higher prices in 2012-13, and an inflation rate which hurts the consumer badly. The government has combined this with high taxation, and a further increase in the tax burden.

The inflation and growth figures also help explain why, the day before the budget, Dr Sheikh, like all Finance Ministers before him, presented the year’s Economic Survey. Actually, when our team negotiates with the IMF or any other international financial institution, more attention is paid to the survey than the budget itself, because the survey is supposed to reflect actual happenings, rather than future hopes, which the budget is supposed to contain. As a result, what Dr Sheikh said about the unwillingness of some to pay taxes has got varying reactions, including opposition demands for the government to leave, where its Finance Minister found himself unable to get such a basic matter right. Dr Sheikh had little choice but to take an optimistic view, but the picture emerging from the Survey was not very positive for a government presenting its last budget before an election. Blaming the security situation, heavy floods and soaring oil prices might be a relief to Dr Sheikh in explaining why the government more or less missed all its economic targets, but they are unlikely to prove convincing arguments to an electorate which finds that the daily struggle for existence has grown tougher under the present government. Not only were the sector-wise growth targets missed, and thus the overall growth target, but foreign investment and foreign exchange reserves actually declined, while the rupee also fell. Dr Sheikh’s claim that the economy had performed well will not wash with the public. This might be the reason why the government’s allies, more attuned to the ordinary voter, have moved to dissociate themselves from the budget, which has been praised only by PPP members. Both the PML(Q) and the MQM have pointed out that the budget does not provide any solution to the energy crisis. The MQM even pointed specifically to the circular debt issue as something the budget left unresolved.

The PML-Q members had been prominent in the defence of the Prime Minister and Dr Sheikh when PML-N members went humiliatingly far, far beyond speech in protesting against the presence of the Prime Minister, and against the economic policies of the government. The PML-N members should have realized that speeches are made to be heard, and people are elected to Houses to listen, and there is no other means of expressing their feelings. The budget speech may well be the most solemn occasion of the National Assembly’s year (what with the President’s address made to a joint sitting), and thus the Finance Minister deserves a patient hearing. If members disagree with what he says, they can speak later. However, while what happened on Friday was very distasteful, it should not cause the Opposition to give up any of its right to take part in the Budget debate. More important, if the opposition shows that spirit of accommodation, the Treasury must also reciprocate, and make sure of the preservation of the sanctity of the budget process, which will not only include the Debate, which will end with the Treasury trying to remove opposition objections, and perhaps adopting some measures suggested. Hopefully, the budget debate will see Treasury members to try and fill the gaps in Dr Sheikh’s Speech, most notably on the power crisis.