Budget 2018-2019

The next annual budget apparently appears a relief oriented document but in fact it is a sugarcoated bitter pill which has been very shrewdly pushed down the throats of the people from different segments of the society. The 5.247 trillion budget is an inflationary recipe as its proposed taxation measures outweighs the relief offered to industrialists, agriculturists and salaried persons ahead of upcoming elections. The government backtracked from its earlier announcement of increasing income tax exemption thresh hold from Rs. 400000 to 1.2 million. It levied a tax of Rs.1000 to Rs. 2000 per anum on people earning from Rs. 400000 to Rs. 1.2 million.
Additional levy on petroleum products will have a multiplier effect across the board on all goods and services and wipe out whatever comparative advantage Pakistan’s primary commodities and industrial goods still have in the international market. Petroleum levy has been increased three fold to Rs. 30 per liter on all petroleum products including kerosene oil and liquefied petroleum gas. The estimated revenue from this single measure is Rs. 300 billion for the next fiscal year. The lowering of sales tax from 5 percent to 3 percent on fertilizers is a drop in the ocean created by shy high prices of agriculture inputs and this peanut concession will not have a significant impact on promoting growth in agriculture. The sector urgently needs built-in-stabilizer in the form of support price to farmers on the different crops and ensuring its payment by the wholesale buyers. The payment of Rs. 130 per 50 Kg of sugarcane by millers against the government’s fixed price of Rs. 180 is one example of the exploitation of farmers. The fiscal incentive of support price is given even in the highly industrialized countries like the United States, Germany, France and Australia, where the share of agriculture in gross domestic product (GDP) is far less than that of manufacturing sector.
The economy of Pakistan is still agrarian as 20 percent share of GDP still comes from agriculture. The biggest problem being faced by farmers is their inability to maintain the profitability of their produce as they fail to sell sugarcane, wheat, paddy, cotton, gram, beans and lintels and vegetables at their due price. These losses have wrecked havoc on the financial sustainability of the farming community. Other issues include measures to reduce input cost which has not been taken care of in the next year budget. The abnormally high cost of electricity, diesel, pesticides and better quality seeds has become unbearable for farmers. Moreover, the lingering water shortages further compounds their woes.
The incentive given in the form of corporate tax cut from 30 percent to 29 percent is eyewash. The reasonable amount of cut in the corporate tax in the Budget of 2013-14 did not improve the economic environment for boosting domestic investment and industrialization. The budget does not envisage any measure for improvement in the current industrial policy to make the industry competitive. The issue of modernizing and expanding the industrial base with the introduction of latest technologies has not been addressed. If the industrial base of the country remains stagnant at second generation technology then the dream of Special Economic Zones (SEZs) under the CPEC framework will not come true. The apprehensions of the entrepreneurial class of Pakistan are that the PML-N government policies are converting the country into a trading nation by destroying its local industry.
Another worrying aspect of election specific budget is the enormous increase in the debt servicing against which World Bank, Asian Development Bank, International Monetary Fund (IMF) and the State Bank of Pakistan rang the alarm bells and advised the economic mangers of the country to initiate corrective measures. The federal government has projected that it will spend Rs. 2.2 trillion on debt servicing in the upcoming fiscal year of 2018-2019 including foreign loans repayment and payment of interest on huge debt pile. It had estimated spending of Rs. 1.64 trillion on retiring and servicing of public debt in the outgoing financial year but actual expenditure jumped up to Rs. 1.95 trillion. The ballooning public debt mainly for financing non-productive expenditure will make the estimated economic growth rate unsustainable. The estimate of Rs. 800 Public Sector Development Program with three fifth to be spent on infrastructure projects including CPEC will leave little space for spending on health and education as 100 billion of this amount has been marked as blocked allocations. The next year budget can hardly be ranked as common man and businessmen and industrialists friendly.