Tuesday, January 31, 2023

ANALYSIS: Budget dominated by ambitious targets, wishlists — debt servicing & 11.4% increase in defence spending


There are some good measures, especially the tax incentives announced for industries in Khyber Pakhtunkhwa province, but it seems to be dominated by a flood of targets that, going by the experience of outgoing fiscal year, seem difficult to achieve.

Defence spending up by 11.4%

Defence expenditures for the coming financial year have been allocated Rs 780 billion, a jump of over 11.4% from the Rs 700 billion for 2014-15. In fact, even the latter amount was increased midyear because of a further request by the ministry of defence and it is possible that we may see the same this year.

Given that the Economic Survey for 2014-15 put inflation at 4.8% (the lowest since 2003, according to the finance minister), the hike in defence spending represents an increase in real terms of 6.6%. This amount does not include military pensions which is usually a separate budget allocation.

Public Sector Development Programme allocations

The 2015-16 allocation for the Public Sector Development Programme (PSDP) has been proposed at Rs 700 billion. The finance minister said that the provinces would contribute a total of Rs 814 billion, leading to overall spending of Rs 1.514 trillion on this very important category, since it directly impacts the quality of life of citizens and their material well-being.

While the federal allocation for the coming financial year is significantly higher — by a third — than that for the outgoing year (Rs 525 billion), the fact remains that even the latter was cut as the financial year progressed. Given the lack of any clearcut effort to widen the tax net — other than to give certain concessions to those who file tax returns — it remains unclear how the government will meet its increased PSDP allocation. Hence, at best, this remains a wishlist.

Public expectations of an ‘awami’ budget

The general public often tends to expect the federal budget to be ‘awam’ oriented, that is, laced with populist measures. However, the fact is that most governments in Pakistan simply don’t have the fiscal space — surplus of revenue over expenditure — to be able to carry out such measures. And when such measures are in fact carried out, they are usually done thanks to foreign funding — but that also comes with strings attached and is hence not always the best solution for a country like Pakistan.

In all of this, we hardly ever see public discourse touching on the need for people in general to be paying their fair share of taxes. Till that happens, governments (who are generally complicit in this failing, because they don’t take effective measures to widen the tax net) will be hamstrung, and the public’s expectations will never be realized.


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