The mini budget presented by the finance minister Asad Umar is the reflection of the fact that PTI government finally realized the dipping business confidence in the country. The business community was not happy with the government policies or rather inaction to stop the fall of the economy. The government finally addressed some of the reservations expressed by the business community leaders.
The political rhetoric, gimmick and hostility directed towards by PTI leaders and government ministers might be helpful to appease and satisfy the PTI supporters but not helpful at all to boost the business confidence and economy. PTI ministers and leaders tried to give the impression that it will not compromise the accountability.The business community and both the local and foreign investors need political stability, certainty and clear policies to invest in new projects and to expand the already existing businesses and projects.
The aggressive tone and gestures from government ministers and some actions of NAB had shaken the confidence of business community. The local investors shelve the plan to start new projects. The uncertainty had dipped the business confidence. The political polarization is not good for economy.
Now the question is whether this mini budget will help to boost the economy and to restore the business confidence? It will be difficult to tell at the moment. But government has made a sincere effort to please the business community. It might encourage some sections of the business community to invest the money they are holding back. But we have to wait for a while to see the real impact of the measures suggested in the mini budget.
Let’s take a closer look at the measures proposed in the mini budget. In the mini budget, PTI government has made policy changes to excite the business community. Facing hostile opposition benches Finance Minister Asad Umar delivered a fiery speech full of polemics, rhetoric and dogma, which put the blame for Pakistan’s economic woes on the Sharif and Zardari governments.
At a time when austerity is the keyword of the day, the policies announced by Asad Umar are sure to reduce government revenue and increase the budget deficit. Taxes on corporate income and capital gains have been significantly reduced while the withholding tax on banking transactions has been removed for those who file their income tax returns.
The government has reduced the capital gain tax at the incomes from stock market to spur the activity in the stock exchange that is experiencing a decline since PTI government took power in August 2018. That may well be true but turning off another revenue source for the government may not be the wisest decision when we are facing a debt crisis. The government has not reduced its revenue projections for the year or revised the fiscal debt target.
It claims that removing the ban on purchase of 1300 cc cars and above by non-filers as well as increasing duties on imported luxury items will make up for any loss in revenue caused by the tax decreases. This is wishful thinking that assumes that demand for luxury items will be inelastic. More likely than not, revenue projections will once again have to be revised downward at a later date.
PTI has not done anything new in the mini budget as it follows the same neoliberal free market economic policies being implemented by previous governments. PTI’s economic ideology is not much different from PML-N. Its policies based on the myth that economic growth and job creation will come from private sector so give them incentives and facilitate them. The government is not yet ready to address the real issues of the economy and to bring real reforms in the economic structures.
This is essentially a continuation of the policies of previous governments. In fact, much of the policies that Umar announced reminded one of the now discredited consumer debt-led economic boom spurred by then finance minister Shaukat Aziz during the Musharraf era. We heard a lot about the double digit growth of that period that lost stream within two years.
These measures help the big business and investors to increase their profits. But it hardly increases the incomes of workers. These policies never helped to reduce the poverty and to increase the incomes of poor population. Whatever small increase tax breaks spur in the short run rarely end up being lasting.
It has also been shown time and again in every country where such policies have been implemented that the benefits are limited to the rich and rarely trickle down to the rest of the population. Already the government has slashed development budgets in the name of austerity and more cuts are likely to follow because of this mini-budget.
The speech made by finance minister has failed to give any vision to spur the growth that will create jobs and increases the incomes of ordinary people. If the government is still working on the economic reforms then why they present this mini budget. It was better for them to wait for a while and then present a comprehensive plan to reform the economy. What was most dispiriting about the budget speech is that it lacked any larger vision. No lasting reforms were announced, nor any plans to reduce Pakistan’s debt or any explanation for how the government plans on cracking down on tax dodging.
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23 August, 2019