Irrespective of how the economy plummeted to the current level and who was responsible for it, the immediate concern and focus has to be on fixing the economic maladies and re-directing the country to the path of self-sustained development. It is however easier said than done, particularly in the case of developing economies like Pakistan which are not only faced with resource constraints but are also increasingly vulnerable to changes in the global economic environment and other non-economic issues that in one way or the other also have economic repercussions for them.

The PTI government has taken a first step towards dealing with the economic woes and made some changes in the budget for 2018-19 presented by the outgoing PML (N) government, being dubbed as mini-budget. In view of the inevitability of raising the level of revenues and cutting public spending, the government has made fiscal adjustments to the tune of more than Rs.800 billion which works out to nearly 2.1 per cent of GDP. This has been done by proposing cuts in the development expenditure, raising tax rates for high income groups and making the imports more expensive.

The strategy ostensibly is meant to off-set the possibility of the budgetary deficit climbing to the projected level of 7.2 percent of GDP from the existing 5.1%. Budgetary deficit is considered to be the mother of all economic ills. The government envisages generating Rs.183 billion additional revenue by taxing 1800 items including smart phones, large vehicles and cigarettes. The bigger chunk of the newly proposed taxes comes in the domain of direct taxes which stay where they are levied without any trickle-down effect. Any budget relying on direct taxes is considered to be a good budget in the context of saving the poorer sections from the impact of the new taxes and keeping the inflation within limits.

Imposition of new taxes is invariably an unwelcome initiative even in the most affluence societies, notwithstanding the fact that the welfare and development activities undertaken by the governments and expected by the masses are carried out by the taxes paid by the people. In Pakistan out of a population of nearly 207,774,520 as per the 2017 census only 1% pay income tax and the tax to GDP ratio in Pakistan is 12.4 percent. It presents a very dismal picture in regards to revenues required by the government to meet development and non-development expenditure. The optimal tax to GDP ratio from the global standards ranges from 17 to 23 percent. The non-availability of sufficient revenues forces governments to borrow from domestic banks as well as from the international agencies which sometimes becomes very cumbersome if the borrowed funds are not spent prudently on productive ventures to be able to not only generate extra resources for the country but also to repay the debts amicably. The failure to do so adds to the debt burden and consequent payment of huge interests on those loans. Pakistan presently is stuck in a similar situation.

The government will surely have to take some tough decisions to fix the economic maladies. More and more people will have to be brought into the tax net without taking into consideration political consequences. However utmost care needs to be taken that the poorer sections are saved from the burden of taxes and the more affluent classes are made to shoulder bulk of the responsibility in that regard.

In the mini-budget presented by the government an effort seems to have been made to rely more on direct taxes as well as saving the poorer section from the burden of additional taxes. Income tax relief given to the salaried class by the previous government has been retained and only 70,000 top earners have been asked to pay more in line with the slabs announced by the government. Development levy on petroleum has also been withdrawn to provide relief to the people.

In its effort to raise more revenues and curtailing expenditure, the government has not forgotten to nudge economic activity. It has provided a relief of Rs.5 billion to the export sector. Boosting exports is extremely important in the development of any country and the rise in exports would not only help in earning the much required foreign exchange but would also help in bringing the budgetary deficit down.

Another very shrewd measure announced in the budget is lifting of restriction on non-filers to buy cars and properties. The decision is likely to rev up auto sales, give boost to the auto industry besides improving prospects of jobs in it. It is estimated that car sales in the country had declined by 6% in the first two months after the announcement of the budget by the PML (N) government. Lifting of ban on purchase of property by the non-filers would free the investments of billions of rupees held up due to the ban by the previous government and also attract new investments in the real estate by the overseas Pakistanis as well as locals. This will have corresponding positive impact on the cement industry in the country. These steps would surely generate lot of economic activity in the country. Expansion in the economic activity means more jobs and increase in the number of potential tax payers.

While evaluating budgets one thing needs to be kept in mind that they are never welcomed by all segments of the society, even in the developed countries. Every section of the society looks at them from the perspective of benefits they accrue to them. The sections that are made to pay more taxes invariably resent it. Similarly business community and industrial sector always expects the government to give them more incentives and creation of a congenial atmosphere. They judge the budgets from their own view point.

Managing an economy of a developing country like Pakistan facing resource constraints is an arduous task more so the putting together of a budget that satisfies all the people. Therefore one has to look at the budget from its overall impact on the economy rather than focusing on smaller chunks of population. If we apply this standard yardstick, the budget presented by the PTI government is a commendable effort under the prevailing circumstances. If we are really interested in economic prosperity in the future, we should be prepared for some tough decision right now.

 

n          The writer is a freelance columnist.