Budget 2015-16 is Partly Friendly

The article is published in the Nation on 6/6/2015

Budget is nothing more than an estimate of income and expenditures. However, in Pakistan we celebrate it as a major national event. We also have a tendency of estimating our expenditure first and then, according to the budget deficit (which is either dictated by IMF or some imaginary golden number in our minds) we set the tax target. 

This year, the economists, especially, were hoping that since stabilization has been achieved (inflation came down to 4 percent level) so there is a dire need to adopt a set of policies that result in a boost in growth. However a common person’s expectations are something else. Those expectations can generally be never met in any kind of budget, barring a few exceptions. Every year, there are boilerplate statements after a budget is announced. One significant comment is whether the budget was people-friendly or pro-rich. My initial assessment of the budget presented by Finance minister Ishaq Dar yesterday is that 2015-16 budget is a partly people-friendly budget. 

This assessment can be explained in six parts: (i) interest payments issue (ii) PSDP (iii) relief to common person (iv) Employment Generation through public and private sector investment (v) Human Capital and (vi) Taxes.

The estimated budget deficit is Rs. 1328 billion out of which Rs. 1280 billion are interest expenses and Rs. 1512 billion is allocated for PSDP, out of which Rs.700 billion will be spent by Federal government. Therefore, as suggested by few latest research papers at the Pakistan Institute of Development Economics, the interest payments need to be curtailed down because it eats up significant amount of resources.

This year development expenditures need special attention because of two reasons (i) the allocation (ii) the way it will be spend on each project. Lots of money is needed to eradicate the problem of energy shortages and government has allocated Rs.142 billion, to spend on development projects.  It includes projects of Neelum-Jhelum and Diamir and Dasu dams. Moroever, as Dar sb announced they are determined to get rid of electricity shortages by December 2017. Therefore it is necessary to invest in the projects. 

Relief for common person has few dimensions. Budget of BISP is raised to Rs.102 billion and number of beneficiaries will be increased from 41 million to 50 million. However one question remain that what is the total anticipated number of people who should get benefit from BISP program. If it is close to 80 million then we are still short of 30 million. Moreover, Baitul-Maal budget is increased from Rs.2 billion to Rs.4 billion, which implies that it will increase the beneficiaries by significant amount as well as they can start new ventures. Salaried class will get more salaries, which is more than increase in inflation. Minimum wage is increased to Rs.13000 for the informal sector. 

Other than monetary increase in wages and salaries several projects will be started by the government, such as renovation of Islamabad-Lahore Motorway, Lahore-Karachi Motorway, highways which are part of Pak China Projects, canals and dams in Baluchistan and Sindh etc. These projects will definitely generate employment opportunities.

To boost domestic production, industrial tax holiday in KPK, decline in exports financing, reducing the exporter’s risk, and setting up exports development fund and land port authority will increase industrial production as well as exports. Rs.600 billion is allocated for the betterment of agriculture sectors, as well as duty free solar tube wells, will reduce the cost of agriculture production. 

Health and education is a provincial subject, nevertheless, Rs.71.5 billion is allocated for higher education out of which Rs.20.5 billion is allocated for HEC. The government is determined to increase the budget of education to 4 percent of GDP which is close to 2 percent currently. Nonetheless, important thing is not to spend more but how to spend and where to spend is vital for better results. Moreover government has started internship programs for all those graduates who do not get jobs after getting degrees from their institute.

Every year it is debated that poor should be taxed less and rich should be taxed more. Moreover, neglecting the excess burden the debate of regressivity and progressivity is the topic of the town. Considering the hot topic, the announced tax policy is not pro rich apart from decline in corporate tax from 33 percent to 22 percent. 10 percent tax is imposed on all the electricity bills exceeding Rs.75000. This implies that revenue will increase if theft does not increase. Moreover, capital gains tax is increased to 15 percent if the shareholder sells his share within one year, 12.5 percent if he sells between one and two years and 7.5 percent if he sells his shares after two years. Currently, the share of capital gains tax in total tax is 0.3 percent. Therefore, it is a very good initiative to collect taxes from share market. Moreover, tax-non-filers need to pay extra tax, which will increase the compliance rate. Apart from above few taxes, minimum tax rate slab is declined to 2 percent. Vehicle transfer duty is reduced, regulatory duty on mobile phones is decreased but sales tax is doubled, taxes on cigarettes are increased, and more importantly SROs cannot be issued by FBR.