Economists analyze the strengths and weaknesses of the federal budget

• Jagra finds 12% inflation “absurd” after new tax measures.
• Sohail praises the government’s intention for a “gradual, moderate” economic recovery.
• Shabbar says the government needs to give a long-term plan to expand the tax net.
  
• Rahman welcomes the government’s firm commitment to widen the tax net.

Economists have pinpointed the “strengths, weaknesses” of the Rs18.9 trillion federal budget 2024-25 unveiled by the Pakistan Muslim League-Nawaz (PML-N) government aimed at bringing the country out of fiscal crisis.

Former Khyber Pakhtunkhwa (KP) Finance Minister Taimur Salim Jhagra, while talking to Geo News on Wednesday, he said he did not feel “an appetite for reform” in the federal budget.

He added that the current government took some difficult steps because of “pressure from the International Monetary Fund (IMF)”. He also pointed out that the federal government made some announcements in the recent budget which “lacked logic”.

Commenting on the government’s decision to end GST exemptions, Jhagra questioned how inflation can be maintained at 12% when over 40% of the revenue targets will be met through tax and non-tax measures and the removal of tax exemptions.

Jagra added that he was not criticizing the current government’s steps to end tax exemptions but the “lack of logic”.

The former KP finance czar added that the hike in the salaries of government employees from 20% to 25% of Grade 1-22 workers would have an impact of around Rs 1 to 1.5 trillion on the national exchequer amid a dire fiscal situation.

He criticized that if the country is paying about 10 billion rupees as interest, then how did the PML-N administration justify its step to increase the salaries of government employees, which would increase huge financial burden on the State government apart from spurring the expenditure of the provinces ;

However, he lauded the federal government’s pension reform agenda announced in the federal budget, which covered new employees under the contributory pension scheme as they would not be granted pensions for 40 years.

Jhagra clarified that the federal government alone will have to spend Rs 1,000 million in terms of pensions which will jump to over Rs 2,000 million at the national level after provincial government employees are included.

The Chief Executive Officer (CEO) of Topline Security, Mohammed Sohail, commenting on the federal budget, said Geo News that the budget appears to be similar to the previous one as the current government is pushing for fiscal consolidation without too much “tight or expansionary” steps.

According to IMF guidelines, the federal government targeted a primary surplus of 1% and a “moderate” GDP growth of 3.6%, unlike previous governments that saw growth of 5-6% and later failed to achieve it . Sohail praised the government’s intention for a “gradual and moderate” recovery of the national economy in line with IMF aspirations.

However, he questioned the achievement of the government’s revenue target of Rs 12.9 trillion despite the announcement of several tax measures, including petrol-diesel levy, hike in taxes on cement, mobile phones, non-filers, retailers and others .

Sohail said that the federal government could easily collect Rs 800 to 1,000 million through its new tax measures, however, it needed to be precisely calculated to achieve the remaining Rs 700 to 800 million.

He said that the revenue targets set by the government were seemingly on the “higher side”, however, the incumbent government would manage to meet the IMF target of 1% surplus for Pakistan — which is around Rs 1,100 to 1,200 million excluding the 9 .7% interest — after curbing PSDP and other spending like the previous govt.

The CEO of Topline Security expressed hope that the government’s steps revealed in the 2024-25 federal budget increased the country’s chances of paving the way for a long-term IMF plan to help stabilize the currency and control inflation.

Former Federal Board of Revenue (FBR) chairman Shabbar Zaidi, commenting on the federal budget in the same programme, gave remarks against the federal budget in terms of the government’s tax measures.

He predicted that the levies — from 40 to 45 percent on sales revenue — would hardly hit the country’s exports after all exemptions were removed. Shabbar also maintained that the federal government will have no choice but to withdraw its decision on exporters in the coming days.

The former FBR chairman also questioned the legality of imposing Federal Excise Duty (FED) on the actual state to tax the land trade as no constitutional provision allows the government to adopt such a decision.

Shabbar was of the view that the federal government should have unveiled a long-term plan to gradually expand the tax net.

said economist Maha Rahman Geo.tv: “Despite some shortcomings, my initial reaction to this budget is that it has brought a fresh perspective to some aspects of economic policy. First and foremost is the firm commitment that the tax net will be widened by taxing the non-taxable population and not by burdening the already burdened.”

“Taxes for non-filers have clearly increased. The revised property tax menu is very welcome. One change I was hoping to see was an increased incentive for service sectors to apply and that has yet to be seen. I personally hoped for a more aggressive tax policy, but this is still a good start,” he said.

“The budget has also made provision for digitization and automation to improve efficiency and save costs. This is a welcome step as is the focus on IT. But parks alone will not increase IT productivity and exports.

We need to build the right human capital and solid infrastructure across the country to promote this. Also welcome is the increase in BISP budget by 27%, focus on strengthening climate resilience, climate finance, increase in budget credits for SMEs, allocation of 206 billion for water construction and focus on limitation of circular debt. Rahman said.

“On the other hand, the increase in the development budget remains unexplained and unexplained. We were hoping to hear about more concrete measures to boost productivity. But we can hope for revised policies at the federal level to complement this budget that will push the industry forward,” he concluded.