THE recently passed budget reveals three aspects about the present ruling regime. The first one is the external constraint of getting an IMF deal. It is clear that securing a new agreement, by any means necessary, is the primary motivation of decision-makers. The entire budget exercise seems to be working backwards from whatever targets have been communicated by the lender.

The second aspect is a hard domestic constraint. The ruling parties at the centre, especially PML-N, are fully aware of their nearly non-existent electoral legitimacy. Their uncertain position in power is thus far more reliant on the civil bureaucracy and the military establishment.

The third and final aspect is that the PML-N has made a decision that there is no need or urgency in the current moment to seek greater support among different groups in society, such as salaried individuals. Therefore, its primary impulse for whatever little space is left in the budget after the first two constraints is to reward the few narrow segments that may still be supporting them in some way. This primarily includes businesses working in the wholesale retail and other undocumented sectors.

It is worth exploring these three aspects turn by turn. While some of the economic mess is self-inflicted by the present regime, a large part of it is down to structural deficiencies in Pakistan’s economy. A lack of productivity and the consequent inability to earn enough dollars means every government has a forex borrowing requirement, one which makes the IMF more or less indispensable in the current framework. Any government in this situation, at least one unwilling to take any radical steps, would have had to appease the external lender.

It is no wonder that every other conversation within the white-collar salaried class is about foreign migration.

The external lender, in turn, makes a set of demands in terms of raising domestic revenue. In recent programmes, the demands have been specific when it comes to removing electricity price distortions and various forms of tax exemptions. This budget is mostly an outcome of these revenue-related demands.

If that external constraint informs the overall thrust of the budget, some of its internal workings reflect domestic realities. An increase in pensions and government officer salaries shows the entrenched control of the civil and military bureaucracy on financial decision-making. It is clear that the ‘overdeveloped state’, theorised by Hamza Alavi nearly 50 years ago, is still a valid way to describe the country. The ‘permanent’ state bequeathed by colonial rule is first and foremost interested in feeding itself rather than catering to any group in society.

The same reality is visible in the exemption offered in advance taxes on the sale of immovable property by civil and military officers, as well as in the numerous regulations showing government officers sanctioning perks and privileges for themselves. I am sure there are a few state officials who are doing their jobs for a range of pro-social and service-oriented objectives. But it is hard to ignore the fact that the vast majority now see the state as a means of securing upward mobility, greater social status, and generational wealth, even when it comes at the cost of greater immiseration for the rest.

This insatiable appetite is being catered to by a hybrid regime that is sustained by the (coercive) actions of state officials, rather than by the votes of citizens. Even if the regime politicians wanted to resist, and it is far from clear that they want to, they barely have any legs to stand on.

Finally, after the IMF’s conditions and the state officials’ own self-serving appetite, there is very little space left in the budget for anyone else’s concerns. The first to be sacrificed is the white-collar salaried class in the formal sector. Recent estimates place the total number of this group, to which I too belong, at around two million individuals. Our unfortunate status as fully documented taxpayers serves as a convenient way to squeeze out more revenue, whenever required. This budget has taken full advantage of this, and will further contribute to downward mobility and decreasing living standards that have been the norm for the past few years. It is no wonder that every other conversation within this demographic is about foreign migration.

On the other hand, there are those who continue to operate in the informal sector, such as large swathes of the wholesale and retail sector and others engaged in real estate. Initial claims that the noose is being tightened around these groups as well turn out to be fairly hollow. All that was done is a further segmentation between filer, non-filer categories. Most businesses can get away with this by filing nil/null sales and income tax returns, or by turning to even more cash-based transactions.

The number of wholesale-retail businesses is around 2.5m. Among these, a couple of hundred thousand are the larger ones, who hide turnovers and earn large returns. As former finance minister Miftah Ismail attempted, and a recent piece by economist Ammar Khan argued, it would have been relatively efficient to implement a fixed income tax regime through commercial electricity connections. That could have then been used as the first step towards greater documentation. Instead, the ruling party has made an explicit choice to protect its core support base, while subjecting every other group to greater taxation.

The budget has since passed and is now in force. An IMF deal will likely go through, which means more ‘stabilisation’ in the coming years, with anaemic growth. Barring some great challenge from the judiciary, the political landscape is expected to stay the same, with a regime held in place by force of the state rather than through popular support. It is then likely that the next few budgets will look the same as this one. No respite for the weary, with both economic death and taxes for the salaried class.

The writer teaches sociology at Lums.

X: @umairjav

Published in Dawn, July 8th, 2024