The decision and the subsequent effort to deliberate on the budget require superhuman effort every time, simply because of the realisation that it would not make an iota of difference anywhere. And, to answer the rather logical question: why do it? Well, mostly to frazzle the supporters of democratic norms who continue to strangely believe that their system will someday alleviate the common man’s quality of life, in spite of evidence to the contrary; as the Godfather might retort, “And that day may never come.”
Before getting to where the money went, it would be appropriate to figure out where it comes from and how much is actually there. The net total amount of taxes that the federal government collected and retained in 2013 to 2014 was Rs 1.28 trillion and almost all of it was paid out in debt servicing, which amounted to Rs 1.18 trillion, leaving the government with a paltry Rs 100 billion to do everything else. The good news is that these results are definitely better than last year when the collection and retention of taxes amounted to Rs 841 billion and debt servicing was a whooping Rs 1.03 trillion.
To clarify, before the economists start screaming foul, this is indeed a radical view of looking at the budget, albeit it surely takes cognizance of the on ground reality. Net taxes retained, as calculated above, is the amount leftover at the disposal of the federal government after the paying of the provincial share in taxes. The analysis should not leave any doubts about the debt trap.The better news, however, is that the government for next year has budgeted taxes retained at Rs 1.7 trillion against which an amount of Rs 1.32 trillion is envisaged to be paid against debt obligations. It would be pertinent to point out that taxes collected and retained by the federal government in 2013 to 2014 included an amount of Rs 235 billion collected under the head of Development Cess, surcharge and levy on gas and petroleum. In 2012 to 2013 these collections amounted to Rs 166.2 billion and for 2014 to 2015 these are envisaged at Rs 314.4 billion. The common man might be wondering that with this kind of collection on hydrocarbons, is there really a subsidy on power? Well, keep on wondering.
After taxes, this year the government had other receipts of Rs 1.08 trillion, which broadly included money received from the sale of 3G and 4G licenses amounting to Rs 89 billion, central bank profits of Rs 260 billion, other profits probably from the USF fund of Rs 67 billion and foreign grants, which presumably include the gift of $ 1.5 billion, or Rs 204 billion. From an accountant’s perspective, it is debatable whether these are actually revenue receipts or not, since selling spectrum constitutes disposal of an asset and, technically, the State Bank of Pakistan’s (SBP) profit is hardly other income, although kudos to the SBP for a 30 percent increase in last year’s profit of Rs 200 billion.
Last year, the government could only generate Rs 748 billion on account of other receipts since there were no gifts, other profits or selling of assets. The bad news is that, inspite of further sale of 3G and 4G licenses envisaged at Rs 56 billion and assuming that the SBP can make a profit of Rs 270 billion next year, the total other receipts for 2014-2015 are envisaged at only Rs 816 billion. Once again, other receipts for 2013-14 included royalty and windfall levy on gas and petroleum of Rs 109 billion, which were also the exact amount received under these heads in 2012-13. In respect of 2014-15, such receipts are envisaged at Rs 118 billion. These are in addition to the levies included in taxes above, which should give an idea of the total amount collected by the government on account of these natural resources. The budget for 2014-15 envisages proceeds from privatisation of Rs 198 billion, which, while appearing to be a tall order, suggests that a lot more of Pakistan will be on sale next year.
Nonetheless, after paying off debt obligations, in 2013-14, the federal government had a total of Rs 1.18 trillion at its disposal and promptly paid Rs 630 billion for defence affairs and services. In 2014-15, the comparable surplus is expected to be around Rs 1 trillion and cost of national defence is estimated at Rs 700 billion. Before everyone gets the wrong idea, defence expenditure is a necessary cost and there can be no two ways about it. In fact, to go a step further, it is not how much the nation currently spends on defence, it is how much it should spend to ensure sovereignty and freedom.
Dear reader, hopefully the drift of the argument is clear. The federal government, before it even begins to spend money, is looking at almost nothing in its purse. So, where does the government get money to spend on general running of the government, which is a few Rs 100 billion, the small amount it spends on health and education and the billions it pays in subsidies? By the way, there are also certain grants that the government pays, which include something categorised as contingent liabilities that amounted to Rs 150 billion in 2013-14. In respect of 2014-15, contingent liabilities are estimated at Rs 165 billion; I have no idea what these are. And, finally, there is development expenditure, which the government plans to maintain at Rs 800 billion.
So, who is paying for all that? Ultimately it is the masses but, in the interim, the million dollar answer is: more borrowing! Based on a non-conventional analysis, the government incurred liabilities and borrowings of around Rs 1.5 trillion in 2013-14. The good news is that this was an improvement from last year when the government borrowed around Rs 2.0 trillion and even better news is that the government hopes to reduce the borrowing and liabilities down to Rs 1.2 trillion next year. There is this question mark on circular debt of which Rs 326 billion was paid last year and probably contributed to the excessive borrowing that year, and the fact that nothing is budgeted for the next year. Rumour has it that circular debt stands at over Rs 300 billion today and it is unclear how it will be paid.
The bad news is, more or less, borrowing will only add to the national debt and will therefore increase the annual debt servicing obligation. The finance minister holds the unenviable job of balancing the budget in such difficult circumstances, which in essence requires an uncanny ability to borrow more. Without getting into the debate on whether foreign debt is better than domestic debt, some day this mountain of debt may have to be paid back. A colleague, unwittingly mimicking the Godfather, utters this profound insight on the nation ever paying off its debt, “And that day may never come.” Let us all pray and hope he is right!
A good friend and an acute observer of the political scene asked me an interesting question: is it ...