Minister Ishaq Dar is manipulating numbers as usual
Analysis: Get your numbers straight, minister
By Farooq Tirmizi
Published: June 4, 2014
The minister paid lip service to the notion that the government needs to increase the share of direct taxes in its overall revenue in order to make the tax code more progressive. DESIGN-FAIZAN DAWOOD/FILE
NEW YORK: Finance Minister Ishaq Dar appears to have been put on earth to make his predecessor Hafeez Shaikh look good by comparison. For all his flaws and inability to run a responsible fiscal policy, Shaikh at least tried to introduce more transparency in the budget process and did not try to artificially make the numbers look good. Dar, by contrast, relied on a combination of obfuscation and inaccuracies to make his record look better than it actually is.
Let us start with some of the headline numbers: the
budget deficit is projected to be 5.8% of the total size of the economy during the outgoing fiscal year 2014, compared to the 8.2% of GDP it was the year before. That sounds impressive, unless you consider the fact that Dar artificially inflated the 2013 deficit by transferring a massive chunk of circular debt payments to that year. Without those, the 2013 deficit would have been closer to 6.5% of GDP. This year’s deficit is lower, yes, but not by as much as the minister made it look.
And then there are the specific components of the government’s strategy to reduce the deficit. One of the biggest ways the federal government reduces the overall deficit is by forcing provincial governments to run a surplus, in effect trampling the fiscal sovereignty guaranteed to them under the constitution and the National Finance Commission Award. But the legal niceties are not even what is most wrong with this policy.
The provincial governments are where we spend money on health and education. By forcing those governments to run surpluses (which Islamabad achieves by not releasing the money on time), we are effectively eviscerating the country’s ability to invest in the health and education of our citizens. In other words, Dar is willing to let schools and hospitals crumble in order to make his numbers work.
Indeed, Dar appears to be so obsessed with making the numbers work that he seems to have forgotten that budget numbers have meaning, that they represent choices of where the government wants to lead the nation and the economy, and that ignoring their effects can have devastating consequences. Unfortunately, it seems that the minister appears to have relied far too much on tired old advice from unimaginative bureaucrats who see their job not as managing the economy, but balancing the government’s books.
It certainly did not have to be this way. Unlike almost any of his predecessors, Dar got a full year in office before he had to present what could justifiably be called his first budget, giving him unparalleled opportunity to shape the document according to his own vision for the economy. Unfortunately for the country, it appears that either he does not have a vision for the economy or, in the few places that he does, it is to benefit the already privileged economic elite of the country.
The minister paid lip service to the notion that the government needs to increase the share of direct taxes in its overall revenue in order to make the tax code more progressive. However, in the entire budget speech, I counted precisely zero ideas that would make the tax code more progressive. Oh, to be sure, there were plenty of proposals to increase what the government calls “direct taxes”, but they are levied as withholding taxes, in a manner identical to that of indirect taxes, effectively rendering them as regressive as regular indirect taxes.
The only time Dar even mentioned an increase of taxes for the economic elite was in very general terms when he announced that all Statutory Regulatory Orders (SROs) would be eliminated over a period of three years. SROs are issued by the Federal Board of Revenue, often flouting existing tax law, and reduce the effective tax rate for some of the largest and most profitable businesses in the country. A firm commitment to end all of them is good, but without specifics, it is a hollow promise.
On the crucial matter of ending unaffordable energy subsidies, the minister said little beyond generic statements. In short, this budget does nothing to eliminate the structural weaknesses of the Pakistani economy. Indeed, in some ways, it may end up exacerbating them.
It is a terrifying thought to be pining for the good old days of Hafeez Shaikh.
Published in The Express Tribune, June 4th, 2014.
Actually in revised estimate only Rs 195 million spent on Suparco last year.
