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battle of the budgets pti vs pml-n

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Battle of the budgets BY S A K I B S H E R A N I | 6/12/2015 12:00:00 AM A WEEK ago, Finance Minister Ishaq Dar presented the federal budget. A day earlier, the Pakistan TehreekiInsaf had unveiled its `shadow budget`, the first for the party, while the Muttahida Qaumi Movement also announced an alternate budget in the runup to the finance minister`s speech. The presentation of shadow budgets by both PTI and MQM was in keeping with the parliamentary tradition of wellestablished democracies, a practice which has been a relatively recent innovation in Pakistan. So how does the PMLN government`s budget stack up against the others? I will focus on PTPs shadow budget for two reasons. First, I helped PTI prepare their shadow budget and hence know more about it. Second, perhaps for selfserving and obvious reasons, I find it more credible than other formulations on the table, which, however, do have many positive elements and suggestions that can and should be considered. One of the main purposes of having shadow budgets presented by political parties on the sidelines of the government document is to present an alternate set of proposals showcasing the different approach and thinking on how best to manage the economy. The exercise is not just about politics it is also about presenting recommendations and suggestions to the government to incorporate in the final finance bill. In that spirit, the finance minister`s statements about the two shadow budgets is generally positive. The federal budget, official or `shadow`, should be evaluated against the following parameters: does it meaningfully address the main socioeconomic challenges facing the country? Does it distribute the burden of taxation measures, or the benefits of spending, fairly and equitably? Are its assumptions realistic? What will it have achieved attheendoftheñscalyear? Judged in this light, the PMLN government`s third budget of its present tenure is overly conservative, and does not go far enough in addressing the main challenges facing Pakistan`s economy. Not without reason it has been dubbed as a `traditional`budget, or one based on a `calculator approach`. (Without being facetious or cynical, the combination of an accounting approach on one side, and two bureaucracies on the other one local and the other at the International Monetary Fund in formulating the budget, is hardly expected to produce a paradigm shift in budgetary thinking or conjure even the vaguest contours of a broader vision.) Despite its positives, including an attempt to provide incentives to certain sectors of the economy and to KP, the budget suffers from quite a few major omissions. First and foremost, like the past two budgets of PMLN, it fails to recognise, let alone address, the taxation crisis the country has been pushed into under the IMF programme, whereby the formal documented sector is being made to bear the burden of taxation as well as the burden of failure to broaden the tax net. This is leading to an increasingly dysfunctional and unsustainable tax system that is failing to throw up the revenues the state needs. Another glaring omission in the government`s approach to fiscal management is the lack of a serious attempt to plug the leakages at FBR and on the expenditure side. While these objectives can be termed as `administrative`, a meaningful effort by the government can, and should, be reflected as part of the budgetary targets. The PTPs shadow budget, on the other hand, is a complete departure from the PMLN`s status quo thinking.

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Battle of the Budgets PTI vs PML-N

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  • 6/12/2015 epaper.dawn.com/printtextview.php?StoryImage=12_06_2015_008_002

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    Battleofthebudgets

    BYSAKIBSHERANI|6/12/201512:00:00AMAWEEKago,FinanceMinisterIshaqDarpresentedthefederalbudget.Adayearlier,thePakistanTehreekiInsafhadunveiledits`shadowbudget`,thefirstfortheparty,whiletheMuttahidaQaumiMovementalsoannouncedanalternatebudgetintherunuptothefinanceminister`sspeech.ThepresentationofshadowbudgetsbybothPTIandMQMwasinkeepingwiththeparliamentarytraditionofwellestablisheddemocracies,apracticewhichhasbeenarelativelyrecentinnovationinPakistan.

    SohowdoesthePMLNgovernment`sbudgetstackupagainsttheothers?IwillfocusonPTPsshadowbudgetfortworeasons.First,IhelpedPTIpreparetheirshadowbudgetandhenceknowmoreaboutit.

    Second,perhapsforselfservingandobviousreasons,Ifinditmorecrediblethanotherformulationsonthetable,which,however,dohavemanypositiveelementsandsuggestionsthatcanandshouldbeconsidered.

    Oneofthemainpurposesofhavingshadowbudgetspresentedbypoliticalpartiesonthesidelinesofthegovernmentdocumentistopresentanalternatesetofproposalsshowcasingthedifferentapproachandthinkingonhowbesttomanagetheeconomy.Theexerciseisnotjustaboutpoliticsitisalsoaboutpresentingrecommendationsandsuggestionstothegovernmenttoincorporateinthefinalfinancebill.Inthatspirit,thefinanceminister`sstatementsaboutthetwoshadowbudgetsisgenerallypositive.

    Thefederalbudget,officialor`shadow`,shouldbeevaluatedagainstthefollowingparameters:doesitmeaningfullyaddressthemainsocioeconomicchallengesfacingthecountry?Doesitdistributetheburdenoftaxationmeasures,orthebenefitsofspending,fairlyandequitably?Areitsassumptionsrealistic?Whatwillithaveachievedattheendofthescalyear?Judgedinthislight,thePMLNgovernment`sthirdbudgetofitspresenttenureisoverlyconservative,anddoesnotgofarenoughinaddressingthemainchallengesfacingPakistan`seconomy.Notwithoutreasonithasbeendubbedasa`traditional`budget,oronebasedona`calculatorapproach`.

    (Withoutbeingfacetiousorcynical,thecombinationofanaccountingapproachononeside,andtwobureaucraciesontheotheronelocalandtheotherattheInternationalMonetaryFundinformulatingthebudget,ishardlyexpectedtoproduceaparadigmshiftinbudgetarythinkingorconjureeventhevaguestcontoursofabroadervision.)Despiteitspositives,includinganattempttoprovideincentivestocertainsectorsoftheeconomyandtoKP,thebudgetsuffersfromquiteafewmajoromissions.

    Firstandforemost,likethepasttwobudgetsofPMLN,itfailstorecognise,letaloneaddress,thetaxationcrisisthecountryhasbeenpushedintoundertheIMFprogramme,wherebytheformaldocumentedsectorisbeingmadetobeartheburdenoftaxationaswellastheburdenoffailuretobroadenthetaxnet.Thisisleadingtoanincreasinglydysfunctionalandunsustainabletaxsystemthatisfailingtothrowuptherevenuesthestateneeds.

    Anotherglaringomissioninthegovernment`sapproachtofiscalmanagementisthelackofaseriousattempttoplugtheleakagesatFBRandontheexpenditureside.Whiletheseobjectivescanbetermedas`administrative`,ameaningfuleffortbythegovernmentcan,andshould,bereflectedaspartofthebudgetarytargets.

    ThePTPsshadowbudget,ontheotherhand,isacompletedeparturefromthePMLN`sstatusquothinking.

  • 6/12/2015 epaper.dawn.com/printtextview.php?StoryImage=12_06_2015_008_002

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    Recognisingthatprivateinvestmenthasdeclinedprecipitouslyinthepastfewyears,thattheeconomyhassettledinalowgrowthtrap,thatformaldocumentedbusinesseshavebeenputundertremendousstressbygovernmentpoliciesandactions,andthattheentirecountry`staxcollectionfallseitheronahandfulofdirectincometaxpayersorontheshouldersofthelessaffluentthroughindirecttaxes,thePTIbudgetproposes:Areductioninthestandardsalestaxrateto12.5pcAreductionof5pceachyearintheheadlinecorporatetaxratetillitreaches20pc(thelowestintheregion)TheremovaloftheGasInfrastructureDevelopmentCessThishugetaxrelief,amountingtoRs242billioninthefirstyear,ismeanttostimulateeconomicactivitybyincreasingdisposableincomes,reducingthetaxburdenofdocumentedbusinesses,andencouragingnewinvestment.Equallyimportant,thelesspenaltaxrateswillbehelpfulinencouraginggreatertaxcompliance.

    Topayforthis,thePTIshadowbudgetproposesafargreateremphasisonvisiblemeasurestopromoteequityandfairnessinthetaxsystem.Theseincludeintroductionofanadjustableminimumassetstax,impositionofcapitalgainstaxonproperties,treatingallsourcesofincomeinanondiscriminatorymannerfortaxpurposes,introductionofawindfallprofitstaxforcertainsectors,andusingNadraandalliedofficialdatabasestowidenthepooloftaxpayers.

    Inaddition,theparty`sshadowbudgetplacesemphasisonpluggingtheleakagesatFBR,andincontrollingcorruptionandwasteinpublicsectorexpenditures.Anegregiousexampleofthelatteristheratioof4to1inthecostofaprojectundertakeninthepublicversusprivatesector.

    Thefinanceministerhasshownreluctancetogodownthispath,andinfacthasgoneasfarassayingthattheNadralistof3.2millionaffluentPakistanisnotonthetaxregisterisnotpractical.(Thispositionisabigimprovementovertheofficialstancetillafewmonthsagowhichwasthatthelistwasa`figment`ofmyimagination!)However,MrDarwaskeentousethislistwheninopposition,andisalsoimplicitlyacknowledgingitsexistenceandutilitybyconvertingallCNICsintoNTNs.

    Pakistan`seconomicpredicamentcannotbetackledbystatusquoformulations.Withoutbolderthinking,andadegreeofrisk,theeconomywillremainmiredintherut.Thewriterisaformereconomicadvisertogovernment,andcurrentlyheadsamacroeconomicconsultancybasedinIslamabad.[TOP]


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