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A budget is essentially an accounting exercise reflecting the expenditure and revenue generating priorities of a government. Hence data needs to not only be realistic but must consistent in documents as well as in the budget speech. The question arises whether the budget 2012-13 data was realistic and/or consistent?

The 2012-13 budget is the third one presented by Federal Finance Minister Dr Hafeez Sheikh and a review of the previous two years' budgetary claims and adherence to those claims by the end of the year reveals wide divergence. In the budget 2010-11, a budget passed by parliament, Dr Sheikh committed to a fiscal deficit of 4 percent of Gross Domestic Product (GDP). By the end of the year the deficit recorded was 6.6 percent of GDP. In the current year's budget he committed to a deficit of 4 percent of GDP, which parliament passed, and by the end of the year the deficit was 7.4 percent. And in the forthcoming fiscal year he has committed to a deficit of 4.7 percent and few are convinced that the country would be third time lucky.

This is not to challenge the government's right to make adjustments given that unexpected external and internal events can and do impact on budgets and Pakistan did experience massive floods in 2010-11 and 2011-12. However current expenditure exceeded budgeted targets not due to higher allocation for flood victims or for repair of the destroyed infrastructure or indeed on the war on terror but on excess subsidies under the head inter-disco tariff differential - in excess of 250 billion rupees in 2010-11 and 297 billion rupees in 2011-12 from what was budgeted.

The statistics cited above, compiled by Noman Ishtiaq, are released by the government however there are serious concerns with respect to the reliability of the data itself - presented in the Economic Survey, unveiled a day before the budget, as well as in the budget. The Economic Survey's provisional budget deficit of 4.3 percent for the current year, revised upward to 7.4 percent in the budget documents reflects a major inconsistency in the two documents.

Analysts however challenge even the 7.4 percent figure in the budget document for three reasons: (i) the unlikelihood of achieving a tax revenue target of 1952 billion rupees this year unless, of course, the Federal Board of Revenue indulges in its usual practice of compelling large tax payers to pay the July-September tax before 30 June - a practice that is currently under investigation by the Federal Tax Ombudsman. This exercise may well account for the 2011-12 budgeted income tax revenue of 718.6 billion rupees that the budget document claims netted the government 730 billion rupees in the current year; (ii) 800 million dollars from auction of 3 G licenses, and (iii) 800 million dollars from Etisalat.

The last two items would, without doubt, not be included in tax revenue but under non-tax revenue. The budget documents claim that non tax revenue for the current fiscal year had a shortfall of 145.8 billion rupees from what was budgeted - 512 billion rupees was achieved while 657.9 was budgeted for the year. The Miscellaneous receipts that were not part and parcel of the non-tax revenue receipts but generated substantial amounts are as follows: (i) windfall levy against crude oil generated 5.1 billion rupees in the current year and is targeted to achieve 5.3 billion rupees in the forthcoming fiscal year, (ii) gas infrastructure development cess generated 8 billion rupees in the current year and is forecast to generate 30 billion rupees in the forthcoming fiscal year portending a massive increase in gas rates in 2012-13, and gas development surcharge would also net the government an additional 5.5 billion rupees in the forthcoming fiscal year compared to the ongoing year; and (iii) petroleum levy on LPG generated 400 million rupees in the current year and would be more than doubled to generate one billion rupees in the forthcoming fiscal year. These constitute min-budgets or revenue sources not identified in the 2011-12 budget, however, their inclusion in this year's budget led to a nation-wide strike call by CNG stations.

And significantly profits from Pakistan Telecommunication Authority (PTA) was budgeted to generate 75 billion rupees in the current year through auction of 3 G which did not take place as noted in the budget 2012-13 documents. However the budget forecasts revenue of 79 billion rupees in 2012-13 from PTA, assuming that the auction would take place next year. Defence services were targeted to generate 118.7 billion rupees in the budget 2011-12 but managed to generate only 45 billion rupees. The reported US agreement to release 1.2 billion rupees under the Coalition Support Fund may be credited by next year which may account for a total of 150 billion rupees from this source in 2012-13.

And finally the government has budgeted 178.7 billion rupees as non tax revenue from property and enterprise and given the fact that it generated only 93 billion rupees out of a total budgeted 197.5 billion rupees for the current year this figure too appears to be over stated. Thus the ability of the government to generate non-tax revenue of 730 billion rupees next year, greater than the revised estimates by 188 billion rupees for the current year, is far from guaranteed.

Tax revenue too appears to be overstated in the budget. Income tax is budgeted to rise by 184 billion rupees in the forthcoming fiscal year (compared to the revised figures; this is considered highly unlikely given the fact that exemptions were not removed and neither were the rich farmers brought under the income tax net though documents suggest that the Finance Minister has informed the cabinet that he would remove a number of exemptions next year. Petroleum levy is expected to generate 125 billion rupees next year while it did not generate more than 69 billion rupees this year though 120 billion rupees was budgeted. The reason: strong resistance by the public against the price rise. Given that it is an election year it is doubtful if the government can collect the levy as budgeted.

The budget 2012-13 noted 386 billion rupees (4.1 billion dollars) inflows from foreign resources. Again this appears unrealistic given that the amount includes 74.4 billion from privatisation proceeds (a policy not likely to pay dividends given the current state of the economy) and 46.5 billion rupees from Eurobonds that did not materialise this year too for reasons to do not only with our own domestic macroeconomic issues but also the ongoing global recession.

With respect to expenditure priorities the Finance Minister emphasised that current expenditure would be kept at the same level as in the current year and that federal development outlay would be 360 billion rupees out of which 80 billion rupees would be allocated to corporations (Wapda and National Highway Authority). Past performance in this regard may well lead to the conclusion that this commitment is not likely to be kept especially given the 120 billion rupees earmarked for inter-disco tariff differential in 2012-13 - an amount that most likely will be doubled at least.

The Finance Minister insisted that the federal public sector development programme (PSDP) for this year, 300 billion rupees, was fully implemented though by May 18 this year the Planning Commission gave the total releases under PSDP as 166 billion rupees and few are convinced that the government has the resources to release the remaining 134 billion rupees by the end of the year.

In short any adherence to the priorities identified in the budget documents is not likely and it is little wonder that the budget is now being seen as a document divorced from reality.

Copyright Business Recorder, 2012

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