Why do we need budgets? According to various management gurus, budget is a tool that facilitates us to plan our expenditures as per our income. It is a futuristic simulation that identifies the gaps between revenue and expenses and brings certainty as well as predictability so that activities may be carried out at a sustained pace.
Gone are the days when this used to be true for Pakistan’s annual budget. In not-so-distant past, everyone used to look forward to annual budget as decisions taken in it — for instance, on changes in fuel prices or power tariff etc — used to have long lasting impact, at least for the whole coming year. Then management practices changed and our rulers started presenting mini-budgets after the main budget. Annual budget would avoid the most ticklish issues, which were then dealt with through mini-budgets.
With the passage of some more time, management practices changed again. Based on imported wisdom and partially as a continuation of Washington consensus, our rulers decided to make annual budgets as ’people friendly’ as they possibly could. They no longer wanted to rely on mini-budgets. They, therefore, invented ingenuous tools called regulatory authorities — like Oil and Gas Regulatory Authority and National Electric Power Regulatory Authority — so that oil prices or power tariff can be changed as often as it suits our economic managers without the need to include them in annual budget documents. Fortnightly revision in oil prices and other frequent upwards revisions in the price of utilities provided by the public sector are perhaps intended to test and increase the resilience of ordinary people. Exposure to shocks and living under perpetual uncertainty will make Pakistanis tougher and stronger, is how the official wisdom goes.
Seen in this context, annual budget 2006-07 did not bring any surprises. Most commentators declare it an excellent piece of jugglery with figures devoid of any real meanings. To me the excellent part was 20 per cent raise in pension for senior citizens who are more than 90 years old and still alive despite all the various odds, including those put up by successive governments. I am not sure if the learned state minister for finance bothered to check the demographic data for Pakistan before announcing this ’relief measure’. According to last population census (1998), only 1.15 per cent of Pakistan’s population was aged 75 and above. Going by this figure, it will not be difficult to see that only less than 0.8 per cent people should be more than 90 years old. Looking for those eligible for pension among this 0.8 per cent, means looking for those who some three decades ago have worked for some government department. By deconstructing the data for people employed by the government, we come to know that only 0.2 per cent or so of the total population of the country will benefit from this marvelous 20 per cent increase in pension.
’Pro-poor’ budgetary interventions do not just end with the rise in pension. Pensioners less than 89 years old will get 15 per cent increase in their pensions whereas those still working would receive a 15 per cent pay raise. This is an across-the-board raise, meaning it affects every government employee irrespective of the grade they work in.
Great work, indeed! Certainly these measures are ’pro-poor’ in absolute term because they result in at least some benefit, no matter how meagre, for the pensioners and government employees. The real test for a ’pro-poor’ initiative is its impact in relative terms, meaning how and how much does it impact the poorer sections of the society more favourably than those better off than them.
The government has also been considerate enough to announce subsidies on various items of daily usage, including sugar and pulses. About 300 utility stores across Pakistan will provide these commodities on subsidised prices to more than 160 million Pakistanis. Those who have stocked sugar in their mills will receive subsidy for releasing it. They say everything is fair in love and politics. It becomes even fairer when politicians are in love with money.
I wonder, though. Where will the money come from to provide these subsidies? Taxes, used as a tool for income re-distribution in rest of the world to reduce the gap between the rich and the poor, are not levied in Pakistan for this purpose. Here salaried class is taxed to meet million rupees a day expenses of the Prime Minister’s Secretariat and to sponsor bullet proof luxury vehicles for the ruling elite. The potential of the salaried people to yield taxes is so little that it cannot be stretched to infinity to finance every out of the world idea that the government hits upon.
Revenue generated through privatisation may be another source for financing these subsidies. But what have we managed to sell so far? The sale of Pakistan Steel Mills, Pakistan Telecommunication Company Limited and Karachi Electricity Supply Corporation — all privatised during the last one year or so — was supposed to yield around Rs 32 billion. It did not and now all these sale deeds are being invariably questioned, with allegations that the government is selling family silver for a farthing. So hopes of big money coming in as a result of future privatisation are meagre, to say the least.
One last source for money to subsidise essential commodities is loans from International lenders. Despite the fact that officially we are no more dependant on loans, the World Bank has recently announced a $ 6.5 billion loan as an incentive to keep the unplanned liberalisation (both of policies as products and policy formulation process) going. So herein lies our chance, though at the end of the day we will be much worse off by financing our present expenditure which we will have to pay in the future with interest added.
Even if we take into account all the tax revenue, privatisation proceeds and international loans, we will still not be able to meet all the fiscal deficit of 4.2 per cent as shown by the budget documents. The remaining gap in our earning and expenditure will be funded by the printing of money, a fail-safe mechanism to further boost inflation. I wonder if increased inflation can do anything except making the lives of the miserable all the more miserable.
I have pointed out time and again that the share of agriculture in the national economic output is decreasing by the day. Against the target of 4.2 per cent and last year’s figure of 6.7 per cent, agriculture grew by just 2.5 per cent in 2005-06. The situation could have been much worse if livestock had not come to the rescue of the sector. Still it’s unfortunate to note that agriculture as a sector is ignored in the current budget. Except for some piecemeal measures — that are unlikely to work for the better in this vital but extremely vulnerable sector — agriculture is not allotted enough money to withstand internal and external shocks.
Still the minister claims that the budget is agriculture friendly mainly because it allows duty free import of tractors. Before we pat ourselves on our backs for this accomplishment, we also need to assess the possible impacts of the move on agricultural labour, already half employed and facing the grim prospect of not getting absorbed in other sectors.
I am not against farm mechanisation but promoting mechanisation without providing any alternative means of livelihoods to peasants and farm labourers who would be displaced as a result of this mechanisation will have disastrous effects.
The budget also proposes to increase allocations for both Public Sector Development Programme (PSDP) and defense expenditure. The vital difference between the two sectors, however, is the difference between the utilisation of the funds allocated to them last year. All money allocated for defence last year was utilised but for PSDP only about half of the allocation could be utilised.
Last year’s budget was called ’Prado Budget’ because it had reduced duties on luxury cars. This time round it is a ’Boeing Budget’ because general sales tax on on aircrafts has been removed. Those who said that poverty is decreasing in Pakistan because people are moving in luxury Porches cars will be able to further substantiate their claims by saying that the country has become so rich that some people living here need private jets to move about. Hence the need for the removal of sales tax on aeroplanes.
One can write unceasingly on the merits or the demerits of the budget but one thing that needs to happen immediately is a revision of the budget formulation mechanism. Every year a letter is written to all ministries and allied departments, asking them about their budgetary requirements. The ’baboos’ skim though the allocations in the previous budget and increase it by a hypothetical figure to take care of additional expenses. Neither a well informed pre-budget, nor a well thought out post-budget discussion takes place in the Parliament on the budget. Treasury benches defend the document at any cost, whereas the opposition will criticise it without acknowledging its positive aspects, if any. Both sides participate in the discussion as part of routine during which they quite regularly invoke national interest and public welfare to give credence to their utterances.
Pity, no one bothers to seek the opinion of those who should matter the most. I am referring to common people, who are forced to play the role of guinea pigs for the government’s financial and economic experimentation. I wonder why should we need budgets when they mean nothing and when ad hocism rules the rest of the national polity. People have become used to living under regulatory authorities. They are paying 70 per cent of their taxes without knowing that they have been taxed. They will not resist if annual budget is not presented to them at all.
This way we will at least save taxpayers’ money on expensive budget sessions and the publication of budget documents. If our Parliament can function well without the annual address by the head of state, then the country too can do without having to go through the annual ritual of making and presenting a budget.