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Hard times ahead

Hard times ahead

Budget documents are curious concoctions. They please some people and disappoint others. Although they can be read and deciphered only by financial analysts and economic wizards, through their policy impact they affect the humblest households in the farthest corners of the country.

In the case of the federal budget for fiscal 2013-14, the general public had nursed special hopes and fears. The policies of the previous government had created serious economic distortions, and disparities in the economy.  With fiscal deficit widening beyond control, bank borrowing ballooned dangerously, severely squeezing credit for the private sector and retarding economic growth. On the other hand, unremitting gas and power shortages brought the wheels of industry in various parts of the country to a grinding halt, besides disrupting the daily life of the common people.

The fact of the matter is that the people had looked forward to the new budget in expectation of instant relief from load-shedding, price spiral and other economic miseries, little realizing that there is no magic wand to wave off deep-rooted economic ills. The result is that the new budget has come as a great climb-down for a majority of the people. The kind of relief they expected has not been provided. Prices, instead of coming down, will rise further because GST has been raised from 16 to 17 percent.  On the other hand, withholding tax on withdrawals from banks has been raised from 0.2 to 0.3 percent.

There is also no explanation why the government has imposed the Federal Excise Duty at the rate of 40 paisa per kg on imported seeds and Re1 per kg on locally produced oil.  Adjustments in customs duty and sales tax will further add to the general cost of living. Apart from the articles of daily use, building materials and housing will also become more expensive.

Whether by design or default, the government has spared the rich and the super-rich. Luxury cars and luxury houses have not attracted the kind of punitive tax one expected. Once again the tax net has not been widened to cover agricultural income. Similarly, while tax rates for salaried people and business individuals have been upped, the corporate sector has been left largely untouched. The government has also imposed 2 percent ‘further tax’ on supplies to unregistered persons and 16 percent Federal Excise Duty (FED) on all financial services whose effects will percolate down to lower levels. The opposition parties in the National Assembly have unanimously rejected the new budget. PTI has described it as a bureaucratic exercise, while MQM has called it a traditional budget.

The opposition leader in the National Assembly has raised the issue of increase in the salaries of government employees who are agitating in the streets. Industrial workers are also protesting against non-provision of any budgetary relief to them. In a feeble response, Federal Finance Minister Ishaq Dar has promised to look into the matter. It seems the PML-N government will have a hard time matching its political goals and objectives with the economic realities on the ground.