Sharing national wealth By Afshan Subohi

THOUGH the budget proposals 2010-2011 have made the distribution of public resources comparatively fairer, these have failed to provide the much-needed impetus for augmenting national wealth. The people would be unable to realise their dream of a better life over the year ahead.

The share of provinces in the federal resource pool has been enhanced as envisaged in the Seventh National Finance Award, rising to 57.7 from 46 per cent earlier. This would translate into a steep 139 per cent increase in the share of Balochistan, 88 per cent for Khyber Pakhtunkhwa, 47 per cent for Punjab and 44 per cent for Sindh as compared to the outgoing fiscal year.

The NFC award has corrected a major fiscal anomaly in the quasi-federal system that was a persistent source of political tension. The devolution of financial power, it is believed, would lead to a more efficient and effective utilisation of funds as it does away with much of the Islamabad’s remote control mode. There would be automatic federal financial releases and without any hassle.

Besides, the government has pushed up the exemption limit of taxable income to Rs300,000 a year. The measure would provide some relief to the low rung of the salaried class.

To serve the dual purpose of increasing revenue generation and discouraging speculation in the capital market, capital gains tax has been introduced for trading on shares held for less than a year on a progressive rate. The government has increased the rate of sales tax by one per cent from 16 to 17 but exempted food, health and education from its ambit. It has slashed some subsidies on energy and food but their overall impact would only become clear over next few days and weeks.

Minister for Finance and Revenue Dr Hafeez Sheikh in his post-budget statement described tax measures as fair, just and equitable.

The minister, however, did not enlighten the nation on how the government intends to deal with the challenge of low propensity to invest in the real sectors of the economy. Despite a vast resource base, the country has one of the lowest rates of capital formation in the region. This threatens the very sustainability of even the current level of economic development as number of job aspirants keep swelling while the capacity to employ them stagnates.

The private sector is frustrated for being ignored. “It is the first budget that is devoid of any incentive to encourage investment or exports”, a businessman said while responding to a query through email.

“No matter how good a formula of redistribution, it cannot go far if there are no resources to distribute”, an analyst disappointed with the continued neglect of issues of growth and development under an elected government told Dawn.

“The outside help is not dependable. The government knows it better that the foreign funds are not easy to secure and often conditional. The local resources will have to be generated for sustainable development. However, more taxes in absence of expansion in the real economy would scare the financially resourceful class. It would ultimately lead to the outflow of capital in search of more secured investment options overseas,” argues an investment analyst.

Similarly, doleouts are symbolic gestures and not a solution to growing unemployment and poverty. The distribution of petty cash to a limited number of poor cannot create any significant dent in poverty when almost one-third of 170 million people subsist below the poverty line.

The move to absorb additional labour and unemployed youth without economic expansion would actually depress the already low labour productivity levels. It could even make an enterprise where manpower is adjusted, sick by increasing the wage bill without adding value. It is not a viable or a sustainable solution.

The country desperately needs new investment in agriculture, industry and trade to increase job opportunities.

As the government does not have the capacity and the resources to make major investment, it needs to prop up private sector to do the job. The budget proposals 2010-11 have failed to address this basic issue.

“Yes, there are problems but the country needs investment. The corporate sector has earnings and savings that can be invested. It is their national duty to plough back these resources in the economy by expanding their operations. But because of the privileges they enjoyed under military dictatorships they have become addicted to risk-free investments. Yes, the current government cannot afford and does not want to promote rent seeking”, said a leader of Pakistan Peoples Party defending the budget.

“They (private sector) just do not like the democratic government. The government went out of the way and accommodated their demand of deferring the introduction of value added tax despite the immense pressure from the donors. They are still complaining. I do not think it is possible to satisfy their greed and condone their irresponsible social behaviour”, said a seasoned bureaucrat who participated in the budget-making exercise responding to the criticism of the budget by the trade representatives.

“The Budget 2010-11 offers no policy package to encourage investment in the real sector that could boost the rate of capital formation. I see no future of even social sector initiatives such as Waseela-i-Sehat, Youth Internship Programme, etc. as the flow of resources is not guaranteed”, an analyst commented when reached in Islamabad.

The 10 per cent tax credit for balancing, modernisation and replacement and five per cent tax credit to a company for listing in a tax year is not seen enough of a stimulus for boosting investment.

“The government is trying to swim with both hands tied at its back. It would be naïve to expect robust performance under the difficult circumstances”, said another well-placed government sympathiser.

“I do not agree with the approach. The country needs fresh investment and the government should make it happen. Yes, it needs innovative initiatives. It needs confident economic leadership. Instead of taking the bull by the horn, the new budget shows that government is just trying to appease everyone. It is not laying the foundation for sustainable development”, an economist summed up on the condition of anonymity.

The writer is currently attending a conference on Innovation Journalism at Stanford University.

Source: http://www.dawn.com/wps/wcm/connect/dawn-content-library/dawn/in-paper-magazine/economic-and-business/sharing-national-wealth-460