A little sneak peek into the budget 2020-21

Unrealistic growth and revenue collection targets set 

PTI government has present its second full  budget in the National Assembly today June 12. PTI government also presented a revised budget after coming into power in August 2018.  Federal Minister for industries presented the budget.
We did a little sneak peek into the budget to find out facts. So here are some facts.

The PTI-led government on Friday presented  Rs7.13 trillion(7130 billion) budget for the new fiscal year with no additional taxes.

Budget at a glance

The PTI-led government on Friday presented  Rs7.13 trillion(7130 billion) budget for the new fiscal year with no additional taxes. Among the major figures revealed by Industries Minister Hammad Azhar on the floor of the National Assembly, the Federal Board of Revenue (FBR) revenue target was kept at Rs4.95 trillion (Rs 4,950 billion) for next year while defence allocations amounted to around Rs1.3 trillion (1,300 billion). The federal development programme was budgeted at Rs 650 billion to support growth prospects.Rs 2,946 have been allocated for interest payments on debt. Once again the biggest allocation is  for debt retirement.  

Allocations for education have been budgeted at Rs 83.3 billion, up 7.9pc from last year's Rs77.2 billion. Health allocations for the next year have more than doubled (130pc rise) to Rs25.5 billion from last year's Rs11 billion. During his speech, Azhar explained that the funds would be used to improve health services and digitise the framework.The fiscal deficit, he said, would be 7pc of the GDP and has been budgeted at Rs3,195 billion for Financial Year 2021. 

Little sneak peek

Minor tinkering with the federal government’s Public Sector Development Programme (PSDP) resulted in an allocation of Rs 70 billion under the ‘Covid-19 Responsive and Other Natural Calamities Programme’ with a similar amount going to ‘Development Expenditure Outside the PSDP’, compensating for those heads that faced the axe inside the PSDP.

Making the Covid-response fund part of the PSDP raises eyebrows, begging the question as to how coping with the virus is part of a development programme.

in order to alleviate the impact of inflation on citizens, especially the poor segments of society, the Federal Government spends a fairly large sum on providing power and food subsidies”.

The paragraph then ends with “subsidies have been decreased by 23pc over the original allocation”. Does this not sound contradictory?

When it comes to the revenue side of things, the government’s scrambled response becomes even more obvious.

Estimates of direct taxes, mostly derived from income, have been put forth as Rs2.043 trillion, a meagre 2pc decline over the previous year’s projection. However, last year’s revised collection has amounted to Rs1.6 trillion, a staggering 20pc deviation from the original projection. A three-month slowdown in activity, as well as a contracting economy, and one could say that people’s income suffered. Hence, the low collection.

So how is it that the coming year will be better, especially when rates of taxation are, according to the government’s announcement, the same? Sounds overly ambitious and optimistic.

Similarly, when it comes to sales tax collection, estimates have been hit by almost a third. This too makes perfect sense since almost a third of the year was spent during a pandemic and the remaining in a state of conservatism, inflation, and controlled expenditure. So kindly explain how the coming year’s sales tax collection is tipped to be almost 34pc higher. Are people going to be consuming more, thereby contributing more in sales tax?

It seems as if the FBR has completely discounted Pakistan enduring another lockdown, and continuing business as usual. This is what the budget was: business as usual.

To finance the budget deficit and meet rising expenditures, the government will add Rs1.18 trillion to public debt during 2020-21 in the shape of Pakistan Investment Bonds (PIBs) and Ijara Sukuk Bonds. This amount is a whopping 118pc higher than the previous year.

It is appalling to note that despite the government more than doubling its domestic debt with an increase of over Rs 600 billion, it's allocation for the most pressing issue at hand, Covid-related relief, was just Rs 70 billion and that too was adjusted in the PSDP after axing other heads.

Negative growth in all most all sectors even before COVID 19,  (Economic Survey normally has 9-10 months data) Pakistan started closing down in March. Large scale manufacturing, Services and all other sectors are in negative growth. It must be remembered that the contraction started in the year 2018-2019 and it continues. The growth figures presented last year were later contested by Statistics division. The government claimed the GDP growth rate of 3.3% last year which was revised to 1.9% later.  Even this -0.4% projection in the end will be calculated further down. World Bank has already said that the actual GDP is -1.8 %.   

According to Economic survey 2019-20, 19 million jobs are at stake, budget fails to generate any hope that economy would rebound and bounceback from crisis. The budget pin hopes in the private sector to spur growth and to create jobs. But no major incentive announced for private sector.  

World Bank estimates that next year will also see negative growth while the government is estimating 2.6% growth.

The budget deficit of 7 percent is too high already and lack of direction in this budget will further increase this deficit as the revenue collection record of the government is dismal.

They have failed to increase revenue generation and is hoping to collect just 3900 this year (after many revisions from 5500 downward) and then targeting 24% growth in revenue collection next year. They will falter again.  

There is no visible direction to support agriculture sector that is the only sector that performed slightly better in the last year.

The development budget of 650 billion will fail to even finance current projects and no new projects are likely.

Mohammad Sohail renowned economist expressed his views about budget and said. "For the common man, the greatest issue is that of jobs and employment [...] in my personal opinion, the issue of jobs is uncertain after listening to the speech [in the National Assembly].

"As for the issue of taxation, well I'll just say that this budget doesn't seem practical at all. Because they've increased Rs1, 000 billion in taxes and then said no new taxes. How does that work? The math seems a bit off.

"In my opinion, I didn't hear any notable changes that would make doing business easier. The government said that they would be supporting the construction sector with a package. Maybe that will help, but overall I'd say this budget is neutral for businesses, neither bad nor good."

"One thing that I think is good is that they haven't increased the salaries and pensions of government employees. But they should have imposed taxes on super rich people, luxury bungalows and the import of expensive cars."

                                                           Khalid Bhatti