It seems that SBP put on its cap of wisdom this time around, quite a turnaround from the previous statement, if one may consider thankfully so. While inflation may always be monetary phenomenon, in the case of Pakistan, the last two years show that growth is not. The time now demands, a knock on Keynes’ grave and a plea of invocation. Very little would be possible otherwise.
The Keynesian school of thought lays it simply; budget deficits are acceptable if the economy seeks revival. This implies that if the economy is trapped in a low growth slump, then the onus lies on the government to take broad leaps of “investment”. The irony of this proclamation has somehow made it binding on all governments across the global to run huge deficits and subsequently take on massive levels of debt without fulfilling the impending remaining condition; creation of capital. In the case of Pakistan, all fully realize that PSDP, synonymous with capital expenditure, is a residual variable. If it were not, then it would not be so conveniently revised down each year. For instance, expenditure to be incurred under the pretext of PSDP by the federal government initially amounted to Rs446 billion in FY10 to be subsequently revised down to Rs310 billion. Similarly, the designated amount for FY11 stood at an even lower Rs290 billion to finally arrive at Rs196 billion only. Adding to this predicament is the lack of transparency; who knows what ‘human’ road, bridge and hospital this amount is feeding.
The SBP, in most monetary policy statements has gravely stressed upon the need to increase the tax to GDP ratio to reduce the need to borrow. What it does not list is that the government needs to thank its lucky stars that most of the money that it spends does not come from the average person’s pocket. Else no one would spare whips and blows on the government’s oversized pot belly for spending their money on adding more layers of unwanted fat. Today, out of a population of more than 170 million, only 1.7 million people pay taxes. Of this pinch of salt, more than 1.6 million belong to the lowest tax bracket, an insignificant lot especially in terms of demanding any sort of accountability from the government.
Doing some basic calculations can build an interesting hypothesis; if there are about 168 million people who do not pay tax and about 111 million people (60 per cent of the population) who live below the poverty line, then there are about 57 million people who are evading taxes in some form or enjoy some sort of illegal privileges which somehow exempt them from contributing anything to the national exchequer. The tax to GDP ratio, has hovered in the around nine per cent since the last decade, implying that non-tax payers continue to enjoy impunity come what may.
Narrowing the analysis to take into account demographics, labor force surveys indicate that the workforce numbers in Pakistan lie somewhere in between 5-6 million people. If 45 per cent of these people are employed in the undocumented agriculture sector, then about 3.3 million people are employed in the industrial and services sector. And half of them pay taxes! This could primarily mean that others earn so little that they do not even fall in the taxable category!
One can only hope that this consumptive government realises that it would be able to extort, only if the people have something to offer. Thus the major incentive and a fun twist to corruption would be to give people something to start with.
In all this, one can only empathise with SBP, the government’s most rebellious pawn, for trying to play its bit fairly, at times.
The writer is an economic researcher and freelance financial journalist. She can be reached at [email protected]