Two wrongs won’t make one right.
PKONWEB Analysis — From a leg up to a thumbs down, the Budget announced by PTI-government– its first during 10-months in office isn’t finding a front seat in the print media or on the ether– so finding a high five is difficult on the streets or in the parliament. With traction let loose after three big leaders ended up in the dock for different reasons though but same process ordained by law, the budget needs a ‘what is it’ approach to discern and call a spade a spade.
Backdrop: 1). We have a 60 percent to 70 percent informal economy albeit under the radar national income (xGDP) that doesn’t add up to be part of our formal revenue ($322 billion give and take GDP) at all.
2. So, essentially the budget is a wish list of how the government will spend monies from formal albeit official income (taxes, local revenues, etc.) plus grants from donors, loans from debtors, etc.
3. Since local income remains woefully low due to (most importantly) very small tax paying community, sick state enterprises becoming financial guzzlers, pilferage and overspending in government institutions, the governments have been borrowing from local banks and outside sources while keeping the ‘business at usual’ strategy at work.
4. Heavy subsidies on several economic sectors and sub-sectors are another reason. For example, the World Bank said Pakistan needs almost 1.7 percent of its GDP to fill negative cash flow on national level. At the same time, it pointed out total subsidies being enjoyed by several sectors equals 2 percent of the GDP. Do the math.
5. In the absence of very low direct taxes base (1 percent of the population), the government has no choice but to do several things concurrently: Austerity Drive; B) Savings Culture on State and Government level; C) Additional revenue generation on Federal level (constrained after 18th Amendment); Meanwhile interests and principle amount on huge loans taken previously is the elephant in the room that must be fed until shooed away– probably several years it would take.
“If taxes were paid on fair market value of all fixed and immovable assets held by us, they would have exceeded multiple times the total annual tax revenue shortfalls governments faced for at least three decades”
Essentially, money managers in Islamabad have to worry about playing cricket with hard ball (official economy) in a narrow lane with fielders international donors, lenders, etc.).
The perception that we are in a stadium (part of global economic regime) should not be used to scale the budget or indices given the in-built constraints and their cumulative effect over the years.
Other things being equal, the budget carries positive and negative attributes, such as increment in indirect taxes as well as revenues, addition of new revenue streams, reductions in some areas. There’s not a whole lot given all the reasons above.
One has to be a magician to pull a rabbit from the hat. But those days may be over as we see, regardless of who pads up well to face the hard ball or duck and play taped-ball, with the economy in an narrow lane.
Here’s the bitter pill one ought to consider: the salaried-class, and those with lesser or equal disposal income. Those who were discouraged or inhibited from education for gainful employment despite being homeowners (meaning higher net worth individuals than salaried but non-home owners) consist of higher number than the former.
Sans net worth, both class have their disposal income effected every time taxes are increased because of other sources of taxes being corked.
That these individuals will end up paying higher direct as well indirect taxes without recourse, constraints the nation as a whole to play in hard ball in the stadium.
Meanwhile, rest of us have built garages of our own, for having a safety net others failed to provide for whatever reasons.
For the traders, businessmen, etc., a dollar added to original cost would be passed on to the man on the street– they are a huge and growing community– a part with others who are salaried but paid in cash without documentation or tax withholding.
Bottom line: We (the people) can’t be doing the same things (hiding real value of sale and purchase of property, not paying taxes, under-invoicing or over-invoicing, dealing in cash, etc, etc.) over and over again and be expecting different results (to suit them) from the State and the governments, regardless of which party comes to Islamabad.
To make the budget friendly for all of us, we ought to be friendly first with our moral and financial responsibilities to the State.
Two wrongs won’t make one right.
More to follow on the budget…