Battle of the budget

"Qu'ils mangent de la brioche" (Let them eat cake), a phrase generally attributed to the French Queen Marie Antoinette which she is supposed to have uttered upon hearing that the peasants had no bread. Whether her majesty actually uttered the phrase or not is probably not as important for historians as the events that lead to the French revolution and the eventual execution of the queen by guillotine.
Remarkably, in modern times, the only people who learn history are students who have to pass an exam and it remains a mystery as to who are the people, if any at all, who actually learn from history. Amongst the many causes of the French revolution, the most cited is the callousness of the upper class towards the misery of the poor masses. There are those who believe that Pakistan is facing a revolution. The prudent approach should be to mitigate any such risk, however remote it may be, and this budget is probably a critical opportunity to accomplish that very objective.
Definitely the current recession is hurting the populace at all level. However, while the rich are pinched by a reduction in disposable earnings and the middle class see an erosion of even the simplest of luxuries, the poor face the worst crisis as they struggle in futility to put one square meal on the table for their families. In such circumstances the respective anomalies in quality of life become exaggeratedly apparent. Even if only for optics, is it than not an appropriate time to consider a luxury tax? Should not the Bourgeoisie demonstrate to the proletariat that they stand with them in these times of difficulty?
Considering the dearth of resources and options, we probably need to consider at least a nominal luxury tax on everything except the bare necessities of life. In fact revenues so generated should be utilised to subsidise the poorest of the poor, even if through rationing. Luxury tax has been around for some time in various countries and can be imposed on a variety of goods and services; a registration tax of a few lacs on vehicles above 1000cc staggered in direct proportion with the size of the engine, taxing of designer wear, enhancing duties on tobacco, doubling CED on hoteling, additional taxes on wasteful services etc.
Donald Trump vying for the US presidency this time is arguing a case to impose 25% duty on imports from China. While this just might be rhetoric, should we not review our tariff environment to enhance duties on unnecessary and luxury imports? It is not what we produce which is critical for our survival, it is what we consume will cost us dearly.
But this suggestion might just be too late. Apparently the FBR has already indicated that there will be no new taxes albeit with a proviso that the emergency tax measures adopted in March this year will, under all likelihood, be made a continuing part of legislation. Good news for the populace! How the voting masses digest this "no new tax" assertion will only be evident in the future, but the economic managers cannot be so naive to forget that inflation is a form of taxation as well and arguably has more serious repercussions. The same amounts of earnings are now not sufficient to buy the food, which could be bought three months ago, wages, if at all, increase annually! Is that not taxing the populace?
Elections looming ahead, the government really can't be blamed for trying to sugar-coat the budget. Even the Republicans sitting in the opposition in America, near to the election, avoided proposing any additional taxes to curb the US's huge budget deficit, and they (Americans) have probably bigger problems than we do since S&P recently gave them their first ever warning in relation to Bond ratings.
However some concrete steps are inevitable. "The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing" Jean Baptiste Colbert, minister of finance under King Louis XIV of France.
With the FBR tax collections at less than 10% of GDP at current prices of Rs 17 trillion, a lot of us are definitely not paying taxes; the goose is not being plucked artfully. Is it the Feudal only? Irrespective of the accuracy of our statistics, can a global reconciliation not identify the shortfall in each sector? As an example, reconciling total agriculture produce with raw export and domestic manufacturing can identify who paid the taxes and who did not, for each commodity. Was this ever attempted?
Britain sidelined its landed aristocracy by repealing the Corn Laws in the 19th century when it was necessary to bring down food prices and consequently wage costs to facilitate their industrial revolution. Is it time to look at our wheat and cane support prices and let the market decide? Should we tax agriculture? In the absence of complete data and analysis, any action can have disastrous consequences. But should someone, somewhere not be tasked with such an analysis?
Crucially, budgeting is all about managing scarce resources. If there was excess of everything why should there be a budget? The obsession with revenue generation needs to be also directed towards expenditure and scarce resources. If we just can't increase tax revenues lets budget expenditure intelligently. The budget document should not be a formal exercise where each expenditure and subsidy exists because it was there last year and is prudently increased at 10%. After all when did we ever meet our budget anyway?
Apparently for the follies of our past we must service our debt obligations and for our security we have limited options to modify the defence budget. While some of us may continue to wonder what we did with funds received against USD 50 billion external debt, it still has to be paid. If we can't tax agriculture income and cannot impose RSGT (if these are considered the solution), what options are we left with? At the outset for those who do not believe in the resilience of our country, the only option can be external artificial sustenance until declaration of bankruptcy.
Energy resources definitely need to be managed on a war-footing basis. For a country with continuing and excessive power shortage it is a remarkable achievement to be the leaders in the group with the most vehicles plying on CNG. Notwithstanding the lobbyists, given a choice the masses will probably prefer electricity at home with the sacrifice being travel on public transport.
Subsidising Railways and PIA is another mystery. How is the country benefiting by flying empty planes and plying empty rail cars? In so many years why can't Wapda efficiently distribute electricity? The never ending argument that government owned corporations are in losses due to provision of unwanted employment needs to be laid to rest. The budget should separately identify the cost of such over-employment in each entity and thereafter review their respective performance and consider subsidies, if any at all.
On my part, I do not subscribe to Voltaire's view that governance generally consists of taking money from one class of citizen to give to the other. Arguably, the better option for the poor is when the rich are left on their own to lead economic growth. Nonetheless, desperate times warrant desperate actions. Targeted subsidies should be given serious consideration. On an overall basis petroleum products should not be subsidised, the cost should in fact be cross-subsidised. Pricing should be based on demand and supply. It was encouraging to read that there is a proposal for non-stop power supply for high tariffs. Similarly necessary commodities like wheat and sugar need to be subsidised for the poor. All this may require out-of-the-box thinking and hard work, but it is not impossible.
Development projects should be revisited and pursued on a priority determined on ROI basis only. Roads which go nowhere should not be pursued when there is such a paucity of funds; development budget unfortunately is the first casualty of an increasing deficit. Nonetheless we need to focus any available funds on higher education and latest technological innovations.
With all this one can only pray for a miracle for achieving any economic growth. But I am reminded of an article I read in the "Time" in April this year. The gist of it was that due to an internal wage rise China is investing in other regional countries in the manufacturing sector to remain competitive in the world markets. The article's author apparently believes that there are investors who sense a mini-China in the making in Bangladesh! In addition, China is envisaged to focus on its western provinces for which the best trade route is through Pakistan. Where are we in all these developments? Is someone even watching the ever-changing horizon?
The battle of the budget can only be won if we adopt the motto "Waste not, want not". Easier said than done would be the comment I expect to receive from a senior colleague who has always maintained that it is not that our politicians, and those who matter, are not aware of what needs to be done, the thing lacking is the political will!