Conspicuous by their absence were also the expected amounts that would be raised through each of the increased or new taxation measures as also the expected loss of revenue or the cost incurred on account of various relief measures that were announced.
There is no doubt that it was an extremely difficult task, considering the adversities that the national economy is beset with at present on account of a phenomenal rise in international oil and food prices. The inequitable distribution of economic gains of the past eight years and the energy shortage resulting in prolonged and frequent power outages, high food inflation and terrorism have injected insecurity and despair amongst the economically infirm sections of our society.
It is well known to all and sundry that the mountain of difficulties that we are faced with today would not have been there had the previous government not allowed slippage and decided not to take the requisite measures and make the necessary adjustments because of the adverse political climate that developed as a consequence of the removal of the Chief Justice of Pakistan in March 2007 and the presidential and parliamentary elections that were due to be held later in the year.
The Shaukat Aziz government that claimed to its credit the enactment of the Fiscal Responsibility Act and cited it as a protection against the profligacy of governments did not hesitate to violate this law itself. The law requires that the current expenditure can not exceed the total revenue collected by the Federal Board of Revenue. In other words, the current expenditure will not be financed by borrowings. The budget documents reveal that during fiscal 2008 the current expenditure was Rs 1.56 trillion whereas the revenue receipts were Rs 1.40 trillion.
Since most of the budgetary measures had been discussed already with the stakeholders and were therefore generally expected, the budget did not spring any surprises. This aspect needs to be lauded and would definitely soften the impact of the taxation measures announced.
The Policy Objectives of the Budget have been stated to be: 1) Industrial incentives for growth and expansion, 2) Discouraging imports of non-essential and luxury items, 3) Minimising the cost of doing business, 4) Cascading principle in tariff rates maintained as a guide (primary raw materials @ 0%-5% and finished goods @ 20%-35%). This principle of cascading rates of tax has also been applied to income and withholding taxes; and finally amendments in Customs Act, Rules and Procedures for simplification.
The federal budget is not only an accounting exercise but is also the most important policy statement of a government to determine the direction of the national economy. It provides incentives for accelerating investment and economic activity in the desired areas and also, if needed, discourages undesired economic activity in some spheres. Like most previous governments this so-called 'pro poor' budget too, reflects a tilt towards national economy groups with a high nuisance capacity or traditionally enjoying importance.
For instance, there is a high degree of importance attached to spurring growth in agriculture and rightly so because of the worldwide food shortages and high cost of food items, but the livestock sector appears to have been totally ignored. The dairy industry is in its very nascent stage in Pakistan, we have barely scratched the surface as far as its vast potential is concerned.
Some plants for milk processing have been established but other products of the milk chain such as butter and cheese have still to materialise as an industry. Meat processing and packaging is virtually non-existent and a huge quantity of fruits still rots before reaching the market place. These areas also possess a big potential for exports, something that Pakistan desperately needs to reduce the huge imbalance in our balance of trade.
The total outlay of the budget is estimated at Rs 2010 billion. This is 29.7 percent higher than the size of budget estimates for 2007-2008. The resource availability during FY09 has been estimated at Rs 1836 billion as against Rs 1394 billion for FY08. The overall expenditure during FY09 is estimated to be Rs 2010 billion of which the current expenditure will be Rs 1493 billion and PSDP Rs 550 billion.
The former shows a marginal decrease of 1.5 percent while the latter will increase by 20 percent over FY08 estimates. Based on these estimates, the share of current expenditure in the total budgetary outlay for FY09 is 74.3 percent as against 77.8 percent for FY08. The budget seeks to increase GDP growth by 5.5 percent and contain inflation at 12 percent. Naveed also announced the government's resolve to maintain the gross investment to GDP ratio at 25 percent, contain the fiscal deficit to 4.7 percent, reduce the current account deficit to 6 percent of the GDP and increase the forex reserves to USD 12 billion.
These are all extremely ambitious targets and will require consistency of effort and withstanding of pressures of political expediency. A 20 percent increase in basic pay has been announced for all federal government employees and Defence services personnel. A similar increase in net pensions has also been proposed. The minimum pension of Rs 300 has been increased Rs 2000, a 100 percent increase in conveyance allowance for government employees up to BPS 19 reflects the increase in commuting cost because of the manifold increase in the price of oil.
The minimum wage as announced earlier has been increased from Rs 4600 to Rs 6000 per month. Profit rates on the NSS have been increased by 2 percent and will be revised quarterly instead of biannually to minimise the gap between NSS and market rates. This would provide some relief to senior citizens in particular but will also increase the debt servicing cost.
Prime Minister Gilani had recently announced that the defence expenditure will no longer be a single line item in the budget but full details of this will form part of the money bill that would be presented to the parliament for approval. This had been a longstanding demand of the civil society that the defence budget, like the national budget, should be published and be subject an open debate.
This was also considered desirable from the point of view of accountability and parliamentary oversight on the defence services. The budget presented, though, was devoid of any details. The finance minister, however, did promise in his speech that these shall be provided to the parliament before the passage of the money bill. It is hoped that this omission is the result of shortage of time and not a rethink on the issue or a ploy to provide the details at the eleventh hour to thwart any meaningful debate on the subject.
There has been a phasing out of the subsidies that were casting an unbearable burden. Much of these were also benefiting those who are not needy or should not be subsidised. These were estimated at Rs 114 billion in the original fy08 estimates and swelled to Rs 400 billion. It is proposed to cut down subsidies to Rs 295 billion. There can be no argument that there is a compelling need to narrowing the yawning trade deficit.
This cannot be achieved by increasing exports alone. The budget seeks to discourage imports of non-essential and luxury items. Custom duties have been proposed to be enhanced on 300 items considered to be in the luxury category such as automobiles of 1800 cc engine capacity and above and to facilitate cross subsidisation of petroleum products chain an amendment is sought to be incorporated in the law to enable the government to levy the Petroleum Development Levy on transport fuels such as CNG and LPG.
The exemption from CGT on shares up to 2010 as announced earlier has been incorporated in the budget proposals. CGT has also not been levied on real state transactions, instead a flat levy of Rs 100 per sq. yard on land and Rs 50 per sq. yard on construction is sought to be imposed.
A detailed study of the budget documents and the accompanying notifications would enable a more meaningful analysis but based on the measures announced by the Finance Minister on the floor of the National Assembly, we have no doubt that this budget will further exacerbate the menace of inflation.
With a whopping 20 percent increase in wages across the board coupled with the oil price increase that is still to come, the people will be witness to a profound erosion in the purchasing power of their rupee. Let us hope that the targeted subsidy of Benazir cards for citizens living below the poverty line would mitigate the impact of high inflation on the poorest of the poor amongst us.