The Budget 1996-97 For Whom the Bell Tolls?

‘The time has come’ the Warlus said ‘to talk of many things: of shoes -- and ships -- and sealing wax -- of cabbages -- and kings --’

      (Lewis Carroll)

There are two ways of reducing the gap between revenue and expenditure. Our kings -- and queen(s) -- usually think of only one: increasing the revenue, which, is generally done through borrowing or taxation or both. Yet, another alternative has always been there: reducing the expenditure -- the wrong kind of expenditure.

Expenditure which either eats up the stock of capital goods more than it adds to it or adds such ‘items’ as make the rich few richer at the cost of the rest certainly needs to be curtailed, if not eradicated completely.

The problem is that the ‘unhallowed hands’1 of the king’s vizier -- called modern economist -- have deliberately disturbed ‘the wisdom of our ancestors’ that all debt is evil (and therefore ‘the country’s done for’). The modern economist has told the king that borrowing may not be bad after all, for it can help to mobilise resources and stimulate activity. But he has forgotten that a king is a king -- the king is always more interested in his rule than in the economic wisdom necessary for following the vizier’s advice with discretion.

So the kings and queen(s) continue to borrow and tax for the wrong kind of expenditure -- palaces and courts and coaches and apparel and adornments and merry making. The kings and the queen(s) and the nobility live happily ever after. The subjects suffer. This is morally despicable -- and very bad economics, for there is no factor of production more important -- economically and socially -- than man. Who knows, the son of a pauper might turn out to be another Einstein or an Edison or a Lee Iacocca or, if nothing else, the average, very innovative entrepreneur who is so essential for the pervasive development of an economy. When a tiny fraction of the whole population, ‘the nobility’, uses the magic wand it has -- demand (which is not needs and requirements of the economy -- it is money votes to produce whatever is voted for) -- for palaces and adornments, while the majority, containing millions and millions of potential innovators, entrepreneurs, thinkers and skilled workers, cannot even get the share of resources to get out of the vicious trap of poverty which confines their potential to the most menial of chores for the rest of their lives -- generation after generation, a lot of rethinking needs to be done. The problem then is not the budget. It is the structure of the economy -- and the kings and the queens and the nobility. The big question is: will we ever find an ‘Umar bin ‘Abd al-‘Aziz to get rid of the cruel traditions of monarchy? (Hello! Hello! Imran Khan. Hello! What are you up to? Everyone is waiting. Can you be the ‘Umar bin ‘Abd al-‘Aziz the country needs? Or are you also going to be another king?).

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In the following pages, statistical analyses of the budget have been presented, which, it is hoped, will be intelligible to the layman. Figures in the bold print are particularly noteworthy.

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After the statistical analyses, excerpts from different articles on the budget have been given. Although the editors may not share all the views expressed in the excerpts, they feel that the readers might find some interesting information and opinions in these passages.

STATISTICAL ANALYSIS

I.    REVENUE BUDGET

A.  Current Revenue

				Billion Rs.	%
	1.  Tax Revenue
	a)   Direct taxes b)  Indirect taxes			86 210	29 712
		Rs.	%		______
	Sales Tax	57	27		100
	Customs	98	47		=====
	Federal Excise	55	26
		------- 210 ====	------- 100 ====
	Total tax revenue			296	72
	2. Non-tax revenue Income from property and enterprises)			91	22
	3. Surcharges (Natural gas and petroleum)			26	06
				-------	-------
	Total gross revenue receipts			413	100
					====
	Less: share of provinces			133
				-------
	Net revenue			280
				====

A.  Current Expenditure

		Billion Rs.	%
	1.  Debt servicing	186	47
	2. Defence	131	33
	3. Other administrative services	48	12
	4. Grants to provinces, AJK, Railways, etc.	22	06
	5. Subsidies	08	02
		--------	--------
	Total revenue expenditure	395	100
			====
	Less: Deficit in revenue budget	115
		--------
		280
		=====

II.  ANNUAL DEVELOPMENT PLAN (ADP)

Baluchistan 3 12

III  GAP

				Billion Rs.	%
	A.  Development Expenditure
	1.   Federal government			80	76
		Rs.	%
	Federal Ministries/ Divisions	44	55
	Corporations	28	35
	Special Programme	8	10
		-------- 80 =====	-------- 100 =====
	2.   Provincial Programmes			25	24
		Rs.	%
	Punjab	9	36
	Sindh	8	32
	NWFP	5	20
		-------- 25 =====	-------- 100 =====
	Total development expenditure			------- 105 ====	------- 100 ====
	B.   Financing Pattern
				Billion Rs.	%
	1.   External resources			103	65
		Rs.	%
	a)   Project aid	61	60
	b)  Non-project aid	42	40
		------ 103 ====	------- 100 ====
	2.  Net capital receipts			26	16
			%
	a)   Receipts		78
	b)  Disbursements		(52)
			------- 26 ====
	3.   PSDP Financing			28	18
		Rs.	%
	a)  From Privatisation      Fund	14	50
	b)  Self-financing by provinces	14	50
		-------- 28 =====	-------- 100 =====
	4.   Financing of National Drainage Prog. by Punjab & Sindh (around Rs. 1 billion each)			2	1
				--------- 159 ======	--------- 100 =====
	C.   Balance
				Billion Rs.
	1.   Total Resources 2.   Total development expenditure			159 105
				--------- 54 ======

				Billion Rs.
	1.  Expenditure			500
		Rs.	%
	Revenue Expenditure	395	79
	Development expenditure	105	21
		-------- 500 =====	-------- 100 =====
	1.   Total Resources			439
		Rs.	%
	Revenue receipts	280	64
	Capital receipts	26	06
	Privatisation proceeds and provincial self financing of PSDP	30	7
	Foreign Aid	103	23
		-------- 439 =====	-------- 100 =====
	GAP			-------- 61 =====
	IV  TACKLING GAP
				Billion Rs.
	Gap Less: Bank borrowing			61 20
	Unexplained			-------- 41 =====

V    NEW TAXATION MEASURES

				Billion Rs.	%
	1.   Direct taxes			4.3	10
		Rs.	%
	Income tax	2.50	58
	Foreign travel	1.00	23
	Capital value tax	0.60	14
	Wealth tax	0.20	5
		-------- 4.30 =====	-------- 100 =====
	1.   Indirect taxes			36.55	90
		Rs.	%
	General sales tax	25.30	71
	Custom duties	7.60	21
	Central excise	2.15	06
	Admn. improvement	1.00	2
		-------- 36.55 =====	-------- 100 =====
	Total new taxes			40.85	100

VI  DEBT SERVICING

	A.  Break-up of debt servicing expenditure
				Billion Rs.	%
	1.   Domestic debt servicing			113	61
	2.   Foreign debt servicing			73	39
		Rs.	%
	Foreign debt servicing	28	38
	Foreign debt retirement	45	62
		-------- 73 =====	-------- 100 =====
	Total debt servicing			-------- 186 =====	-------- 41 =====
	B.   Debt servicing as a percentage of revenue and expenditure
	1.   Debt servicing (Rs. 186 billion) as a %age of current revenue (Rs. 413) (that is of revenue receipts)			186 -------x 100 413	= 45%
	2.   Debt servicing (Rs. 186 billion) as a % age of current expenditure (Rs. 395 billion)			186 -------x 100 395	= 47%
	3.   Percentage increase over last year
				Billion Rs.	%
	Debt servicing this year (1996-97)			186	--
	Debt servicing last year			157	--
	Increase in debt servicing			-------- 29 =====	-------- 18 =====

(Total government borrowing from the domestic market last year Rs. 39.5 billion)

(Asif Iftikhar)

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BUDGET NUGGET -- EXCERPTS FROM ARTICLES ON THE BUDGET

Some breath-taking extravagance that characterises government spending has been brought out by Qudsia Akhlaque in The Nation. She points out that the Prime Minister’s new secretariat will cost an extra 153.8 million rupees this year, to bring the total up to 793.3 million rupees. 445 million rupees have been spent so far on accommodation for parliamentarians in the form of parliamentary lodges, for which another 25 million rupees has been allocated (what becomes of these lodges if parliamentarians are given the plots they want on Quaid-i-Azam University land is a question that no one has yet asked). A further 56 million rupees have been aside for the Prime Minister’s House, and over 7 million rupees for the President’s swimming pool. The furniture for the Prime Minister’s Secretariat will cost more than what the federal government plans to spend in the whole of 1996-97 on the women’s action programme run by the women’s development division.

There is a remedy. The citizens need to teach the state a lesson. No matter what the donors do, the future cannot be held hostage to the stupidity and greed of the state managers. If the people don’t want the state to be run in this way, if they can’t pay the price of running the state in this way, they should simply say that they won’t pay. Not individually but collectively, in large numbers. With calmness, discipline and organisation, they should simply refuse to pay the bills that the state sends them.

Zia Mian, Guns or Butter? (Newsline, June 1996)

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In deference to the 1996-97 Finance Bill, all VIPs will now get an 80 to 500 percent inflated salary package along with dozens of allowances and honorariums. Besides exemptions on taxes and duties, the VIPs will get free first and business class air-tickets, massive medical allowances, and the Pakistan government will foot their gas, telephone and electricity bills. These are but a few of the small favours that these well-deserving folks will be granted through that most open and flexible of all accounts, the national exchequer....

....These perks, which have already been granted through a Presidential Ordinance, will no doubt sail through the National Assembly. And the man on the street in the Islamic Republic of Pakistan will be expected to tighten his belt and brace himself up for yet another year of economic discontent....

....The President of Pakistan’s monthly salary of 23,000 rupees has been made tax-free. Because he is not an executive of a corporate firm, their is no question of taxing the millions of rupees of allowances he draws every year. And by and by, every allowance the president gets has increased in ratio by, at least, a 100 to 500 percent. The President is also allowed to import one car of whatever make and engine power that suits his fancy, absolutely duty-free.

Unfortunately, the perks don’t stop here. When Mr President retires from his job, our sorry country will have to continue footing the bills for his pension, allowances, his phone and the salaries of his domestic help as long as he is alive -- bills running into millions of rupees each year....

....The Prime Minister of the Islamic Republic of Pakistan is not one, as we all know, to be left behind. Like the President, the Prime Minister was also given a raise of at least 100 to 500 percent in the present salary and allowances. The Prime Minister is also allowed to import a duty-free car of any make and power.

Federal ministers also a got a similar raise in both salary and allowances -- 100 to 500 percent. In addition, they will be entitled to an sumptuary allowance of 6,000 rupees per month, and 100,000 rupees to furnish their official residence....

....The standing committees, in addition to the salary allowance and facilities admissible to them as members of the committees, are entitled to an honorarium of 7,700 rupees per month and an additional telephone with a utility limit of 5,000 rupees, a 1300 cc car and 360 litres of petrol for local use, installation of telephones at their residence in Islamabad at government expenses and exemption of rental and payments of charges of calls up to an upper limit of 2,500 rupees per month.

Members of parliament will get an 80 percent raise in their allowances and are now entitled to travel business class instead of economy class on domestic flights and first class on international flights -- all at government expense, of course.

Amir Zia, Let Them Eat Cake! (Newsline, June 1996)

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With every new budget, the common man’s first concern is to determine how his own family’s budget will be affected. That, however, is only one side of the balance sheet that constitutes a budget: the real test is not just to see who pays how much, but to see who get how much.

Governments first decide upon their expenditures and then set about taxing people to pay for these outlays. In our case, the government in the 1996-97 budget has beaten all records of imposing hefty new taxes on the hapless people of this country; it hopes to realise from us, whether we like it or not, as much as 41 billion rupees in additional taxes while all the old taxes go on skinning us. This will still leave a gap of 20 billion rupees in the budget to be filled in by printing currency notes -- which is in itself a very bad form of taxation for the poorer sections of the population.

Doubtless, it is a matter of great concern as to how much one will have to pay the government, but this had better be juxtaposed with ascertaining who will become fat or fatter still as a result of government expenditures....

....Many a senior bureaucrat can be heard complaining that a secretary to the government, who is required to control hundreds or thousands of millions in expenditures, is paid less than a callow junior executive in a big commercial company. But this executive ignores his own perks, both legitimate and undue. It turns out that the complaint of officials in the high rungs of the bureaucracy are less than convincing, while the lower level employees do deserve sympathy because they are given no perks....

....The contrast between the poverty... with the opulence of some of the money bags is there for all to see. The point is that the substantial gainers that corner most of the sum paid out as debt servicing are usually large income holders who are being made richer still. And the poorer sections are being made poorer by the amount of new levies and indirect taxes. The latter group’s standards of living are being depressed by the government as it causes the persistently high rates of inflation and fails to provide gainful employment to most able bodies persons amounting to a fifth of the total adult population....

....The government does not take loans from Pakistanis alone. Nearly half its accumulated debts come from foreign sources, mostly governments. So far the rates of interest on them have been low, mainly in comparison with what the government is forced to pay domestic creditors. Whatever is paid out to foreigners is a reduction in the national wealth at any given point of time and if some or most of these loans are not utilised to the best advantage, the repayments and interest payments represent an element of extortion by the government’s executing agencies, again enriching the higher rungs of bureaucracy at the expense of the common Pakistani.

The government has regular policies under which it determines which taxes should be imposed and which sectors of the population are to be burdened with them. There used to be the principle of equity in taxes. In meant that more was taken from those who were rich enough to pay and less was taken from those whose ability to pay is small. But no such equity is practised today. Nearly 80 percent of the government revenues come from the poorer sections of the population. And the tiny topmost richest group does not even pay 10 percent of the total expenditure of the government, which now stands at 500 billion rupees. All new taxes that have been imposed this year are indirect taxes that fall on all: on the poorest men and women in less developed areas and villages as well as the Saigols and Munnoos of this land. The greater the imposts, the greater the pain for the poorer buyer of the goods carrying GST and other indirect imposts. On the Saigols and Munnoos, the impact of these measures will remain wholly unnoticeable....

The third largest item of government expenditure is so-called development through the Annual Development Plan (ADP). if the financial stringency during the course of the coming year does not impose further cuts. The ADP has fluctuated and has always been, in recent years, smaller than defence outlays. Since most of the ADP is financed by foreign loans or note printing, the impact on the poorer sections is initially adverse, the pain of which could be, in theory, later alleviated if the expenditures had been prudent and the resulting development was of the kind that could promote prosperity for all and more employment for the needy.

As it happens, most of the ADP is a hoax in the sense that the expenditures mostly comprise just enough to keep a project ticking over....

....The much smaller economy of Bangladesh is able to earmark Taka 125 billion for the period for which Pakistan has set aside 105 billion rupees only....

....Only a few prestigious projects are speedily completed. The rest are starved of funds and the money actually provided is spent only on the salaries and perks of project directors, their jeeps, drivers....

....The fourth largest item of expenditure is on internal security services, in other words the police force of all shapes and hues. The economic consequence of increasing the number of those who live below the poverty line and the impact of ever rising prices on the lower income groups can be linked to the rising crime rate and spreading lawlessness. Most of the expenditures on the security services do the same job as in other government outlays: they enrich all the top echelons of the police bureaucracy and pay measly salaries to constables and even ASIs or SIs. That is why they resort to extortion. What the police does to finance itself through unauthorised taxation of citizens needs no elaboration. The effect on the distribution of national incomes is exactly the same as in other categories of taxation.

Finally, there is the small amount of money, within eight percent of total outlays, which is spent on the social sectors: social and population welfare, health, education, research, science and technology and what are called community, economic and social services. These tiny sectors, in terms of money allocated, are the poor relations of the main branches of the bureaucracy and suffer frequent cuts. However the maximum benefit to the economy and nation accrues from the small spending on these social sectors.

Thus the overall scheme of the budget leads to further impoverishment of the largest number of Pakistanis while it steadily and speedily enriches a small group, perhaps five to ten percent of the top 20 percent of the population. If income disparities produce dangerous consequences, Pakistan is a likely candidate to suffer all of them.

M B Naqvi, Whose Budget is it Anyway? (Newsline, June 1996)

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1.Allusion to Dickens’ A Christmas Carol: ‘....for the wisdom of our ancestors is in the simile. And my unhallowed hands shall not disturb it, or the country’s done for’

2. 80% if surcharges (Rs. 26 b) are also added in indirect taxes, which are usually inflationary in character.