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FROM the strategy paper we already know one thing: this budget is going to be a ‘populist’ one.
Everybody said that last year, but they turned out to be wrong. Last year’s was a ‘growth-oriented budget’, with most of the incremental resources being poured into the development programme. This is the year we know all that changes.
All the expenditure increases this year are planned to go into current expenditures, especially defence and debt servicing. Last year, these heads were kept steady, with defence getting a smaller increase than what was asked for. Development spending saw an increase of 25 per cent last year, while current expenditures, adjusted for inflation, actually went down.
Everybody thought that in its last year, the PML-N would bring out the goody bag and pack the budget with schemes and handouts designed to increase discretionary spending by political players. That expectation was dashed. The political vision behind that budget was in fact bigger: pump up growth, and expand jobs and opportunities in the last year.
This is the year of the goody bag, since the effects of these goodies are short-lived and more effectively put a smile on people’s faces, even if the smile will not last long. It doesn’t need to. The budget kicks in on July 1, and the elections are due a month or so after that date.
This is the year of the goody bag, since the effects of these goodies are short-lived and more effectively put a short-term smile on people’s faces.
This year the thinking is very astute, and very short term: put money directly into people’s pockets. This is being done by a large cut in the income tax rates, as well as raising the minimum tax exemption limit, and through a large increase in government salaries which according to the strategy paper is slated to be 15pc, though that can change by the time of the budget announcement.
The private sector is usually expected to follow suit with salary increments given to government servants, so salaried people can expect to see a large jump in the pay cheques they will receive on August 1 (this, of course, applies only to those who get paid promptly on the first of the month).
In addition to this, the paper proposes a large increase in pensions and a 24pc increase in subsidies. It’s not clear yet where the increased subsidies are supposed to go, so it is hard to say if this is also intended to put a smile on people’s faces or just to have more realistic targets given the ground realities in the power sector. In any event, the thrust of the previous budgets has been to bring subsidy expenditure down.
For perspective, consider that in the first budget presented by this government in June 2013, subsidies were Rs240 billion, down from Rs367bn in the preceding year. This was 8pc of total current expenditure.
In last year’s budget, subsidies were budgeted at Rs139bn, representing 3.7pc of total current expenditure, meaning they had been halved.
This will be the first budgeted increase under this head since then. Of course, in every year actual subsidy payments have far exceeded their budgetary targets, so in reality last year’s expense under this head has come in closer to Rs164bn. Nevertheless a budgeted increase is noteworthy.
Defence has been the bugbear of this government all along. The preceding government did not get in the way of the military establishment’s desire for access to the material resources of the state, whether fiscal, foreign exchange or natural resources (gas, land etc).
But this government has tried to claim its prerogative over the allocations of the states resources with more vigour, and found itself at loggerheads with the military on this question on a few occasions. Last year, for example, defence allocations saw the smallest increase in many years, at 7pc (where the norm had been 10pc annual increases). But they entertained some of the extra budgetary requests for resources, most notably the Rs90bn annual allocation from the development budget for ‘security enhancement’.
This year the defence allocations are up by 20pc as per the strategy paper (going from Rs920bn budgeted last budget to Rs1.1 trillion this time), and another Rs100bn on top under the Armed Forces Development Programme, which presumably represents the extraordinary allocation of Rs90bn that went from the development programme in the past three years as ‘security enhancement’.
Defence allocations also tend to overshoot their budgetary allocation, though this year that overshoot is larger than it has been in recent years. At Rs80bn it was 9pc beyond what was budgeted. For comparison, last year defence spending was actually below target, and in fiscal year ended June 2015 it was 3pc above allocation.
This year’s large overshoot is one demonstration of the government’s relative retreat before the demand for more resources emanating from Rawalpindi, and the large increase for next year is an indication that they are going the extra mile to accommodate the military establishment.
By contrast, the development budget is being cut for the first time since this government came to power. In its first year, it allocated Rs762bn for federal development spending (excluding provincial development plans) which was 21pc of total expenditures. Last year this figure leapt to Rs1,276bn representing 27pc of total expenditures.
It is important to point out though, that actual disbursements had to be slashed by Rs251bn in order to accommodate overruns elsewhere. But if we take the budget allocation as the stated intent, it is easy to see that this is where the emphasis of the PML-N government has been all along, mainly because of the role that development spending plays in producing high-visibility markers of success as well as priming the growth engine.
This is the first year that development spending is budgeted to come down — by almost 20pc. In the waning days of its rule, the PML-N now seeks to put smiles on the faces of as many key constituents as it possibly can, and that is the priority around which the budget seems to have been formed.
The writer is a member of staff.
Twitter: @khurramhusain
Published in Dawn, April 19th, 2018
