It will be difficult to say whether the economic team of the PML-N is itself confused or is inadvertently up to a zero-sum game. What is clearer is that the finance bill 2013 was a disappointment to the public, the IMF and economists alike. Yet the finance minister is intent upon hoodwinking IMF in the name of public and public in the name of the IMF.
The public was given the message that preparations for an IMF programme made the budget difficult. IMF team, now visiting Pakistan, was told that their conditions – of imposing ‘harsh’ policies, including ‘more’ taxes – were not acceptable to the government in wider interest of the public. So the excuse-narrative travels from the IMF to the public and all the way back, missing the budget-architects altogether.
First, it needs to be appreciated that the budget was not IMF-oriented at all. While the IMF had been pressing for widening the tax base for more than a decade now, the steps taken in the budget were modest. The group that has come to be known as the ‘tax captives’, was crushed further under additional levies. While the IMF was, and remains, against imposing more and more taxes on those who are already paying it and favours instead to bring the non-tax paying classes in the tax net, the public is conveyed a draconic image of the IMF.
Predictably, some other measures like salary raises, rise in federal development expenditure, and later a lowering of interest rate were not to go well with the IMF. Thus, the budget might have had a tinge of austerity, but not every austere budget is an IMF-budget.
Second, contrary to the compassionate image the government tried to create, the budget was not public-friendly either. The increase in the rate of sales tax and decrease in corporate tax rate were not social measures by any measure. Moreover, squandering money over populist policies such as laptop distribution (research culture absent), roads rebuilding and other ‘bridge-to-nowhere’-kind projects will divert tax-payers’ money from socially optimal to politically advantageous projects.
The budget could have been an austere one focusing on correcting chronic fiscal imbalances through restraint in spending and an efficient and equitable tax regime. Or it could have had a greater Keynesian flavour to it, focusing on funnelling money into people’s pockets through greater government expenditure and expecting economic activity to pay its fiscal dividends. Unfortunately, it was none of the above.
The government seems to be torn between its desires. It does not want to be profligate but at the same time believes spending is a good way to revive the economy. Hence we have austerity on one side, and hike in development expenditure (and Aashiana-like schemes) on the other. Perhaps, the economic wizards in office are in a hurry to fix the economy and have compromised sequencing the policies. Wearing an optimist’s hat, one can only wait and see if this double-barrelled policy for eliminating the economic ills proves any useful.
But until then it would be great if Mr Ishaq Dar can blow sense into his economic plan through proper articulation of what he intends to achieve with his policy mix rather than blaming IMF and the public for what are essentially his plans to fix the economy.