CHI - Social Policy and Development Centre (SPDC) has issued proposals for upcoming budget of fiscal year 2008-09 and emphasised that the next budget should focus on reducing the deficits and bringing the economy back on track of stability.
However, during the process of adjustment, the poor are likely to be further burdened. Therefore along with achieving stabilisation, the budget will also have to strongly focus on a relief package for the poor. Strong social safety nets will have to be put in place to ensure that there is adjustment with a human face.
The real picture of the economy of the country at present and budget proposals/report of SPDC on "Fiscal Policy Choices in Budget 2008-09" were unveiled during joint press conference addressed by the Managing Director of SPDC Prof Dr Khalida Ghaus, a renowned economist Dr Abdul Hafeez Pasha, and Dr Aisha Ghaus Pasha at the office of SPDC on Saturday.
Dr Pasha made a presentation on the real facts of the economy, challenges and proposals for upcoming budget. Dr Pasha and Dr Khalida Ghaus said that the objective was to show a civil society's perspective on the policy choices involved in the preparation of the budget, while the copy of proposals had been sent to the federal government.
Highlighting the current economic situation of country, the report says that Pakistan is facing serious economic challenges in terms of higher inflation and unsustainable 'twin' deficits. Persistence of these imbalances over the last few years along with current external shocks has affected the pace of economic growth.
The growing stress due to rise in food prices and slow down in growth and employment opportunities has adversely affected the vulnerable segments of society. Poverty is on the rise again, and one third of the country's population has living below the poverty line. Twelve million more people have become poor, report says.
The report advises that containment in budget deficit could be achieved by the higher level fiscal efforts in form of tax-broadening and through restricting the growth of current expenditures. Accordingly, growth of current expenditure must be restricted to a maximum of 6 percent in 2008-09 with the following actions. POL prices are adjusted upwards to higher international prices in a timeframe of two years, the Defence budget is brought down by Rs 50 billion following a process of normalisation in the North and non-salary expenditure of all government departments is kept constant in nominal terms at the 2007-08 level.
On the taxation side, the report concludes that the tax-to-GDP ratio has remained largely stagnant during the current decade because the gains due to the expanding tax bases were almost neutralised by the decline in effective tax rates. Factors contributing to greater regressively of the tax system include: abolition of wealth tax, continued reduction in corporate income tax rates, further reduction in import tariffs (especially on luxury goods), extension of GST to fertilisers, and a number of exemptions and tax relief provided. The report estimates that these concessions and exemptions have resulted in a revenue loss of Rs 300 billion in 2006-07.
Suggesting the imposition of some taxes in upcoming budget SPDC says the introduction of capital gains tax on real estate by the provincial governments, imposition of a regulatory duty on import of luxury goods and introduction of a tax on services catering primarily to the demand of upper income groups and of corporate entities.
In addition, the report suggests a number of fiscal incentives and reliefs including enhancement in income tax exemption limit by Rs 50,000; extension of the R&D allowance to emerging exports; withdrawal of GST on fertilisers and tax credit for investment in power generation and energy-saving equipment.
Report recommended that the elimination of the oil subsidy should be phased over a period of two years and be implemented in small steps periodically.