Government puts voters before investors in election-year budget

LAHORE: Economist believe the 2017-18 budget is best suited for election, and gives incentives to the targeted vote bank and government allied sectors, with no major fiscal measures to control/reduce fiscal deficit, increase exports and discourage imports.

They believe it will result in further deterioration in the balance of payment, and put fiscal pressure on the economy.

Economist Dr Pervaiz Tahir said taxation was introduced to only those sectors like construction which are registering high growth rate and have capacity to bear it. However, expenditures remain focused on road infrastructure, followed by energy, education and health, and employment.

“The growth of the economy is not the result of industrial growth, as Large Scale Manufacturing (LSM) has registered only 0.52 percent growth. This means employment generation opportunities are not available, while workforce is growing around seven to eight percent annually,” he said.

About increase in pay and pension, Dr Pervaiz Tahir said the increase would only substitute inflation, and the incentives given to farmers would definitely influence election results.

However, he gave credit to the Pakistan Muslim League-Nawaz (PML-N) government for economic revival and bringing the growth rate to 5.5 percent from two to three percent.

Dr Pervaiz Tahir said the expenditure on China-Pakistan Economic Corridor (CPEC) would increase and attract investment, and would further push the growth rate to 5.5 to six percent, which would be a good omen for the country.

Dr Naved Hamid, director of Centre for Research in Economics and Business (CREB), said that in the given expenditure plans, it would be difficult for the government to control inflation and reduce fiscal deficit.

It would great success for the government, if it maintained the fiscal deficit at the existing rate, he said. “No major measures are taken to increase the exports which will put further pressure on exchange rate and balance of payment,” he added.

Dr Naved Hamid said reduction in taxes on mobile usage was a good step, as it was regressive, “and all such taxes must be discouraged”. He said that, no major fiscal measures were taken, which would affect in the long run, while the burden of loan was also on the rise under CPEC projects.

“This would be a major challenge for the government to finance the CPEC project and composition of local and loan components in it can create fiscal disturbance,” he said, however, he appreciated overall budgetary measures.

Economist Dr Qais Aslam said, “Indirect taxes will increase, besides a surge in loans; while no plan of debt repayment has been told by finance minister Ishaq Dar in the budget speech.”

He said incentives and relaxations would be for rich people, like it was in the past, as no reduction of taxes on commodities like petroleum and its products was announced which mainly and directly benefit the common people.  “The government has announced some tax relief, while it will get double from other indirect taxation measures,” he said.

Dr Qais Aslam said incentives were given for agriculture, but nothing was announced for industry. “How will employment be generated?” he questioned. Furthermore, inflation will increase besides fiscal deficit, he added.

Think tank, Institute of Policy Reforms (IPR) in a statement called the finance minister’s budget speech a mix of claims of economic success and promises of further growth. “However, it was presented in the shadow of protests by farmers,” IPR said in a statement, adding that the government continued with ad hoc measures.

“A day earlier, the Finance Ministry released the Economic Survey 2017-18, which showed several weaknesses in the economy. Considering these, government’s claims of economic success sounded particularly jarring,” it added.

The think tank said  the government has not touched the structure of the economy or its political economy. “By favouring indirect taxes over direct taxes, we continue with regressive taxation,” it said.

Continued increase in public debt means that the whole nation pays for the profligacy of the few. The federal PSDP prefers to invest in highways over all other expenditure, it said.

“Stabilisation is no longer the goal. GDP growth rate is targeted to be six percent and inflation will be same as this year’s six percent. However, some measures will stall growth such as withdrawal of exemptions on construction.”

The statement said the budget 2017-18 lists many initiatives for growth, especially for agriculture and textiles sectors, as well as for poverty reduction, but past record of such initiatives shows that they have minimal effect. 

“It is good to see a 25 percent increase in the development budget to Rs1 trillion from the original Rs800 billion,” the IPR said.