The art of the possible

“These are extraordinary times. Over the last two years the world has gone through the worst recession since the Second World War,” said Finance Minister Dr Hafeez Shaikh while presenting the annual budget 2010-11 on Saturday. Critics of the budget should keep this in mind before lashing out at the government for imposing more taxes and giving less relief to the masses. Prime Minister Gilani promised a ‘pro-poor budget’ but that has not come about given the circumstances. Despite that, the finance minister was able to present a balanced budget, which has given as much relief as possible. Development spending has been increased by seven percent, medical allowance for public sector employees has been raised and a 50 percent pay raise given to government servants. Due to the security threat, the government has raised the allocation for the maintenance of law and order by 48 percent.

The allocation of Rs 131 billion for hydel, thermal and nuclear energy projects “to augment generation and improve transmission” is a good step but seems to be a bit on the low side keeping in mind the grave energy crisis. Measures to conserve energy have helped to a certain extent but more money should be diverted from the federal budget for short-term and long-term projects to decrease the gap between supply and demand. The one percent increase in the General Sales Tax (GST), from 16 to 17 percent, has come in for criticism. Being socially regressive, indirect taxation affects everyone across the board, and the worst hit are the poor. From an equity point of view, the government should have focused more on direct taxes (applicable on earned income). One possible reason for the increase in GST could be the conditionalities of the IMF, pending the switchover to VAT. The incumbent government had to borrow from the IMF “to secure balance of payments support and prevent a default”. Notorious for anti-poor prescriptions, entering into a programme with the IMF forces governments to make unpopular decisions. In the face of the serious economic crisis, the government had no choice but to give in to the IMF’s demands. When the fiscal space shrinks, we are forced to go back to the IMF and swallow all the bitter pills that come with its loans.

The business community seems disappointed by the lack of concrete plans to revive the economy in the annual budget. Granted that the conditions are not viable for business at the moment and the government does not have sufficient finances to give a boost to the economic sector, it is hoped that the business community would support the government in this hour of need. The situation would not remain grim forever. The government’s decision to allocate Rs 126 billion for subsidies is unavoidable. The international lenders have been demanding that subsidies be eliminated but this cannot be done immediately or in one go. Subsidies have been reduced from the previous year, however, in which the budgeted allocation of Rs 119.915 billion became Rs 228.992 billion in the revised estimates.

The increase in defence budget warrants some questions. What is the need for this increase when the operations in FATA, Swat and elsewhere are to be reimbursed by the Coalition Support Fund (CSF)? It seems as if there is a revised threat perception on the eastern border, which does not seem to be realistic. Despite the tensions since the Mumbai attacks in 2008, the Indo-Pak dialogue process has started again, albeit with many problems. A sound justification for the defence budget increase is called for and the allocation should be discussed in parliament.

For the first time the provinces will receive Rs 1.033 trillion under the new NFC Award. The provinces should give maximum relief to the masses in the upcoming provincial budgets because from now onwards it is their sole responsibility to provide education, health and other basic facilities. All in all, pain notwithstanding, the budget is not as bad as it might have been.

(my editorial in Daily Times)

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