Burden or Budget 2024-25?

Aurangzeb Nadir/ Meherullah Jameel

Turbat: The fiscal year 2024-25 budget, presented by Finance Minister Aurangzeb on June 12, totals a historic Rs18.877 trillion.

This budget aims to satisfy political allies and secure a bailout from the International Monetary Fund (IMF).

It represents a significant 30 percent increase of Rs 4.4 trillion from the previous year and includes record-high allocations for interest payments, defense, and development.

The government has set a tax collection target of Rs13 trillion, reflecting a 38 percent increase from last year, with the goal of achieving 3.6 percent economic growth and a budget deficit projected at 6.9 percent of GDP.

Additionally, the government aims to transition from a state-driven to a market-driven economy.

A substantial Rs17,203 billion has been proposed for current expenditure, marking a 29 percent increase from the previous year.

Interest payments, or debt servicing, have increased by 34 percent to Rs9,775 billion, becoming the government’s largest expense.

A significant allocation of Rs2,122 billion has been made for defense expenditure, a 17 percent increase from the previous year, while Rs1,400 billion has been allocated for the Public Sector Development Program (PSDP).

In contrast, the budget allocation for education and healthcare remains disproportionately low, with Rs92 billion and Rs27 billion respectively, neglecting these crucial sectors.

The budget allocates only 1.5 percent of the GDP for education, raising concerns about the government’s lack of emphasis on education.

Consequently, the literacy rate stands at just 62.8 percent, with 26 million children out of school. The healthcare sector faces similar neglect, with an infant mortality rate of 52.8 per thousand.

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Moreover, Rs30 billion in sales tax exemptions have been revoked from the health sector.

There is a pressing need to focus on the Information Technology(IT) sector, which is crucial for the country’s prosperity. However, it is concerning that in the 21st century, the country still heavily relies on agriculture.

The budget is burdensome for the low-income group, with the Federal Board of Revenue (FBR) setting a tax collection target of Rs 12,970 billion, a 38 percent increase from the previous year.

This heavy reliance on tax increases primarily impacts low-income groups. The tax target has seen a significant rise, with a 48 percent increase in direct taxes, a 35 percent hike in indirect taxes, and a massive 64 percent increase in non-tax revenue, including petroleum levies.

Although the government has increased salaries with a 25 percent raise for employees in grades 1 to 16, a 20 percent increase for grades 17 to 22, and a 15 percent rise in pensions, taxes on the salaried class have also increased.

Those earning over Rs50,000 a month will face higher taxation, with the government hoping to generate an additional Rs70 billion from this group.

The heavy taxation might lead to a preference for cash salaries over using banking channels, potentially resulting in a black economy and undocumented transactions.

Additionally, the laymen are hurt by a 10 percent sales tax increase on various items such as personal computers, laptops, notebooks, stationery, vermicelli, sheermal, burn and rusk, poultry and cattle feed, newsprint, and books.

Electricity prices have also risen by 20 percent, with the average national tariff expected to exceed Rs70 per unit after including surcharges, taxes, and duties.

Ultimately, the rise in taxes could exacerbate inflation and further impact the general population.

While the government claims the state is responsible for elite capture and that the market is egalitarian, in reality, both the state and the market are under elite control. Privatization is leading to monopolies, furthering elite capture.

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Recent reports indicate that the elite consume $17.4 billion of Pakistan’s economy. The government has failed to tax the industrial and real estate sectors effectively, focusing instead on taxing individuals earning over Rs50,000, while the elite class remains largely unscrutinized.

This budget benefits the army, with private banks receiving more in debt repayment, higher salaries, and budgets for bureaucrats, and no reduction in capacity payments to Independent Power Producers (IPPs).

Meanwhile, the salaried class faces increased taxes, all consumers will encounter higher indirect taxes, retailers will pay more in customs duties and sales taxes, and privatization will widen the gap between the rich and poor.

In conclusion, heavy taxation fosters the growth of an informal economy. Significant reform is needed to broaden the tax base and achieve sustainable growth.

The budget highlights the government’s prioritization of non-development expenditure over development expenditure. Primarily focused on securing an IMF bailout and supporting political allies, the government must pay more attention to the education sector to improve human skills and focus on essential sectors.

Simply increasing the budget is not enough to achieve economic goals; proactive measures and significant reforms are necessary to address these challenges.

Aurangzeb Nadir and Meherullah Jameel are students of Economics at the University of Turbat, Balochistan.