Thursday, March 28, 2024

The budget relies on indirect taxes to widen the gap between rich and poor

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Islamabad: Over-reliance on indirect taxes in the 2021-22 budget, including withholding tax as part of indirect taxes, will further widen the gap between the rich and the poor. In addition, economists warn that sustainable and inclusive growth will still be a pipe dream without a shift in the paradigm for initiating structural reforms.

Economic experts speak at a webinar entitled “The Federal Budget 2021-22: A Review” organized by the Islamabad Policy Institute (IPS).

Panelists include Dr. Mahmood Khalid, Senior Research Economist at the Pakistan Institute of Development Economics (PIDE), Dr. Shahida Wizarat, Dean of the School of Economic and Social Development, School of Business Administration, Dr. Pervez Tahir, former Chief Economist of the Planning Commission, and Abdul Abdul Saboor, Dean of the Department of Social Sciences, PMAS Arid Agriculture University. IPS Vice Chairman Ambassador (r) Syed Abrar Hussain presided over the meeting. IPS Research Officer M Wali Farooqi was the moderator. Senior practitioners included former Federal Secretary of the Ministry of Water and Electricity Mirza Hamid Hassan and expert consultant Zaigham M. Rizvi Housing and Housing Finance. Participated in the discussion.

The spokesperson said that given the economic fundamentals, the government’s 4.8% growth target set in the budget is unlikely to be maintained for a long time. The proposed growth target may be short-term, but it will pose a challenge to the government in the future, because the Sustainable Development Goals (SDG), renewable energy, climate change, and public sector capacity building are not the focus.

Speakers observed that better departmental performance and fiscal discipline during the pandemic increased the growth rate. However, they believe that the revenue target of 5.8 trillion rupees is to appease the International Monetary Fund. Although the government has failed to achieve the tax target for this fiscal year, this target is still unrealistic.

They say that incentivizing the stock market is a way to benefit the privileged at the expense of the poor and the middle class, and the poor and the middle class constitute a major part of society. They warned that because the government entertains industry leaders in the budget but ignores ordinary people, this may further exacerbate food inflation.

The discussants believe that if the government fulfills its promise to provide affordable housing, it will promote dozens of industries within the construction industry. However, the government’s move to distribute funds through legislators has been criticized, and the spokesperson said that this will only serve vested interests and lead to corruption.

Speakers felt that the priorities in the budget were misplaced, and that the main focus of the Public Sector Development Plan (PSDP) was on physical projects such as roads, while the human development plan that could actually promote growth and development has been ignored.

During the webinar, it was also discussed that the budget is not very helpful to ordinary people, because debt service and defense expenditures consume most of the budget allocation, resulting in the development fund allocation of only 11% that year.

Speakers also insisted that due to government borrowing, the financial sector has been crowded out on a large scale, preventing the private sector from obtaining credit for investment in the country. In addition, there is a trust deficit between the government and the private sector that needs to be resolved.


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