Jun 212010
 

Mehmood-Ul-Hassan Khan

Finance Minister Dr Abdul Hafeez Shaikh presented the federal budget for 2010-2011. As usual, the government termed it business and investment friendly. The government also projected it as people friendly and growth oriented budget. Majority of the opponents labeled it anti-people, business and investments. Even ruling coalition registered its dissatisfaction on the budget 2010-2011. The business community reacted strongly on the increase of 1 percent of GST. The civil society strongly rejected the reduction in PSDP.

Main objectives

The federal minister outlined the objects of the budget which are given below as

The government will protect the growth by enforcing fiscal discipline/accountability, corporate control, eliminating waste and tightly controlling expenditure, successful managing of high ratios of inflation, reducing borrowing from the banking sector especially from the SBP and the last not the least, achieving a measure of self reliance through better domestic resource mobilisation.

In the budget 2010-11 the government has targeted 4.5 percent GDP growth rate. Trade deficit has been fixed at 11.7 billion dollars, or 6.1 percent of GDP. Exports for 2010-11 have been projected to grow marginally to 19.9 billion dollars against 19.2 billion dollars estimated for the ongoing fiscal year. Imports for 2010-11 are projected to increase by 6 percent to about 31.7 billion dollars from 29.9 billion dollars projected for the current fiscal year. Furthermore, remittances have been projected at around $9 billion in the next fiscal year against 8.4 billion dollars estimated for the ongoing fiscal year. The current account deficit is targeted at 6.5 billion dollars, or 3.4 percent of the GDP in 2010-11.

It has projected agriculture’s growth rate 3.8 percent, manufacturing 5.6 percent, and services sector 4.7 percent. Furthermore, it mentioned that the production targets of wheat and rice have been set at 25 million tons and 6.2 million tons, respectively, for 2010-11. Credit to farmers, is expected to increase. The production target for sugarcane in 2010-11 has been set at 53.7 million tons for kharif season. Agriculture sector has been projected to grow by 3.8 percent. This is to be contributed by major crops (3.7 percent), minor crops (3.0 percent), livestock (4.2 percent), fishery (2.0 percent) and forestry (2.5 percent).

In the budget it is assumed that energy shortages would decline and industry would be given priority for uninterrupted supply of electricity and gas. Improved cotton availability will also support the textile sector. The services sector is expected to grow by 4.7 percent with contribution of transport, storage and communication (4.6 percent) and wholesale and retail trade (5.1 percent).

Salient Features

a.Total outlay and expected collection of revenue

Total outlay of the budget for is projected to the Rs 2764 billion, 12.3 percent higher than the size of the budget estimates for outgoing fiscal 2009-10. The resource availability during 2010-11 has been estimated at Rs 2598 billion against Rs 2299 billion in the budget estimates of the outgoing fiscal year. Moreover, net revenue receipts for 2010-11 have been estimated at Rs 1377 billion indicating an increase of 1.9 percent over the budget estimates for current fiscal year 2009-10.

b.Provincial sharing

Since it is the first budget after the 7th NFC Award, the provincial share in federal revenue receipts is estimated at Rs 1034 billion during 2010-11 which is 57.9 per cent higher than the budget estimates for 2009-10.

c.Capital receipts

The federal budget says that the capital receipts (net) for 2010-11 have been estimated at Rs 325 billion against the budget estimates of Rs 191 billion in 2009-10 indicating an increase of 70.2 per cent.

d.External receipts

The budget 2011-2011 further elaborates that the external receipts in 2010-11 are estimated at Rs 387 billion. This shows a decrease of 24 per cent over the budget estimates for 2009-10.

e.Overall expenditure

In the budget the overall expenditure during 2010-11 has been estimated at Rs 2764 billion of which the current expenditure is Rs 1998 billion and development expenditure at Rs 787 billion. It shows decline of less than one per cent over the revised estimates of 2009-10, while development expenditure will increase by 25.3 per cent in 2010-11 over the revised estimates of 2009-10. Moreover, the share of current expenditure in total budgetary outlay for 2010-11 is 72 per cent as compared to 78 per cent in revised estimates for 2009-10. –

f.PSDP

The size of PSDPfor 2010-11 is Rs 663 billion. While for other development expenditure an amount of Rs 124 billion has been allocated. The PSDP shows an increase of 30 per cent over the revised estimates. The provinces have been allocated an amount of Rs 373 billion for budget estimates 2010-11 in their PSDP as against Rs 300 billion in 2009-10. Furthermore the budget 2010-2011 shares that an amount of Rs 10 billion has been allocation to Earthquake Reconstruction and Rehabilitation Authority (ERA) in the PSDP 2010-11.

g.Deferred VAT

The government deferred the imposition of VAT till October 1, 2010 instead of July 1, 2010, but increased the GST from existing 16 to 17 percent.

h.Salary, medical and pension

The salaried class thanked the government for the 50 percent increase in their salaries. But government of Punjab strong protested the increase in salaries which would be troublesome for Rs.50 billion to its kitty. The federal government also announced to double the medical allowance for employees working in BS-1 to 16 and increased the medical allowance by 15 percent of those above Grade 16. The pension of those who had retired after 2001 was increased by 15 percent and those who had retired before 2001 by 20 percent. The minimum monthly pension was proposed to be increased from Rs 2000 to Rs 3000 while the rate of family pension was enhanced from 50 to 75 percent. The government also announced a scheme for providing employment to the 200,000 unskilled in rural areas with an amount of Rs 5 billion.

Serious problems

The federal finance minister also mentioned some of the important macro-economy problems too.

the problems in resource mobilisation that is strongly reflected in an abysmal tax-to-GDP ratio; secondly, the abominable performance of most Public Sector Enterprises (PSEs) that are undoubtedly a profound cause of burden on the national kitty, draining off a hefty amount of Rs 235 billion from the budget whereas the total federal government expenditure in the head of salaries is Rs 165 billion.

For instance, Pepco alone claims as much as a whopping Rs 180 billion per annum while Pakistan Steel gets Rs 1 billion a month. The finance minister declared that unless the PSEs improve their performance they shall no longer get the money of the people of Pakistan. He has committed to restructuring eight PSEs with rigid timelines after due approval from the Cabinet

Conflicting realities

According to many economists, the 1 percent increase in budget 2010-2011would be harmful to common people. The rates of utility bills would also be increased. It is irony that we are facing severe energy crisis and still no substantial amount has been allocated for the development of Basha dam or coal reservoirs in the country. In an interesting move the government reduced the income tax collected along with the electricity monthly bill from the industrial and commercial consumers from 10 to five percent but surprisingly government has also doubled the federal excise duty (FED) on gas from five per cent to 10 per cent. It is estimated that this move would be going to hard to poor of this country. Moreover, the government also announced to increase income tax exemption limit for salaried taxpayers from Rs200,000 to Rs300,000 benefiting approximately 430,000 taxpayers. “The exemption limit for non-salary income has been raised from Rs 100,000 to Rs 300,000 per year, benefiting about 350,000 tax payers.

In the budget 2010-11 the government has allocated Rs 16.945 billion for health sector under the PDSP for the next fiscal. It is estimated around Rs 6 billion less than that of the allocation announced for the health sector under the PSDP for year 2009-10. It is feared that the health sector budget announced for 2010-11 would not be able to provide any significant relief to general public. The budgetary allocation for the family Planning and primary healthcare and the expanded programme on immunization has been slashed. In the budget education sector gained lower priority. An amount of Rs34,500 million has been allocated for the education affairs and services in the federal budget. Moreover, a sum of Rs3,174 million has been allocated for pre-primary and primary education against the amount of Rs2,887 million spent last year. The amount of Rs4,232 million have been allocated for the secondary education affairs and services against Rs3,828 million earmarked last year. The budgetary allocation to education sector has been decreased as compare to pervious year.

It is estimated that the proposal to impose a 0.3 percent withholding tax on banking transactions including withdrawal where such transaction exceeds rupees 25000 in a day would be discouraging and disturbing. Majority of the banking experts feel hampered with the tax on cash withdrawals and consider it as a damper on deposit growth.

It seems that the government has badly ignored agriculture and industries sectors, and announced no visible incentives in the federal budget 2010-11. It withdrew subsidies for the farming community on imported fertiliser, Benazir tractor scheme and tube-well in Balochistan. It is feared that due to which agriculture could also affect the sector’s production next year. The government has been keep on saying acute shortage of resources and still once again, the agriculture sector has been exempted from tax. From time to time we have been facing food security problems and no funds have been allocated in this regard.

Same is the case of industrial sector. R & D support for textile and clothing sector and motorcycle manufacturer, 3 per cent mark up for spinning sector and compensatory support to the users of the PTA have been deprived of subsides for the next financial year.

Concluding Remarks

The government should adopt all possible measures to increase tax-to-GDP ratio, high levels of inflation and managing the ongoing saga of energy crisis.

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