Budget objectives

FINANCE Minister Dr Abdul Hafeez Sheikh spelled out some key objectives of the budget 2010-11 which, according to him, were part of a 24-hour 365 days-a-year overall policy and economic management.

He said, introducing austerity culture, promoting fiscal discipline, keeping inflation under check, protecting the poor and the vulnerable, providing well-targeted subsidies and creating jobs were the objectives that would be met through the budgetary measures for the next fiscal year.

He announced freezing of all non-development expenses at FY10 levels and a 10 per cent cut in remunerations of the members of the federal cabinet as a first step towards an austerity drive. To remove hassles, funds allocated under the federal annual development plan would be released automatically on quarterly basis. from FY 11. He said that 80 per cent of the federally financed development projects would be the ones that were nearing completion. The twin measures would ensure full utilisation of development funds, timely delivery of development projects and accelerate job creation.

The federal government would finance development spending worth Rs280 billion next year while roughly 58 per cent of Rs663 billion PSDP would be handled by the provinces. Higher development spending by the provinces is expected to accelerate nation-building activity like health, education, infrastructure facilities and create jobs.

According to the Economic Survey of Pakistan-2010, unemployment increased 5.5 per cent in FY10 despite an estimated GDP growth of 4.1 per cent. In his budget speech, the finance minister mentioned lack of job creation and revenue mobilisation, revamping of public sector enterprises or PSEs and energy crisis as, “weak areas of macroeconomic recovery.”

Dr Sheikh said that the budget had been made under a framework of international commitments—an obvious reference to the performance criteria set in the IMF’s $10.66 billion loan programme. He announced that from October 1, the government would switch over from the present ‘distorted’ version of general sales tax to a reformed one—without naming it as value-added tax.

Introduction of reformed GST (or VAT) is aimed at doing away with exemptions currently being enjoyed by “powerful lobbies”. The finance minister also wants to contain the government’s inflationary borrowings from the banking system and do away with ill-targeted subsidies granted to Public Sector Enterprises (PSEs) to help achieve greater fiscal discipline. He reminded the parliamentarians that public debt to GDP ratio had reached a ‘dangerous level’ of 55 per cent and that under fiscal responsibility law, the government could not go beyond 60 per cent.

While lamenting subsidies being enjoyed by PIA and other PSEs he asked, “who from the poor people travel by air?” and went on to reveal that whereas the entire civilian government’s annual expenses came to roughly Rs165 billion, Pakistan Electric Supply Corporation (PEPCO) alone “wants an annual subsidy of Rs180 billion.” The finance minister also disclosed that subsidies granted to PSEs were making a dent of Rs235 billion in the national budget and warned that withdrawing such subsidies was not easy “as powerful people are involved in it.”

The minister who took oath of his office barely hours before announcing the new budget said that the reformed GST (or VAT) would not be levied on health, education services and on food items.

The new budget envisages some other measures as well to protect the poor and the vulnerable groups against possible increase in the cost of living due to withdrawal of subsidies and exemption or enhancement in their existing duty and pay rates.

These measures include increase in the minimum wages from Rs6000 to Rs7000, an increased allocation of Rs50 billion for Benazir Income Support Programme, inclusion of youth training and guaranteed payment of the equivalent of minimum wages of 100 days to those enrolled under such training, a big 50 per cent rise in the basic pay of the government employees of grade 1-16, enlargement of health insurance cover to government employees and increase in their pensions etc.—M.A.

Source: http://www.dawn.com/wps/wcm/connect/dawn-content-library/dawn/in-paper-magazine/economic-and-business/budget-objectives-760