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The Government has unbudgeted the poor, says Sherry Rehman

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Islamabad, June 4, 2016: There are no policy measures to be heard from the government specific to poverty alleviation, apart from tangential references to the BISP and the Pakistan Poverty Alleviation Fund, Senator Sherry Rehman said here after the Finance Bill was presented by the Minister for Finance. “While the Benazir Income Support Programme, founded under the previous government of the Pakistan Peoples Party, has received widespread recognition and has seen incremental budgetary allocations over the years, there is little else that the current government has done to tackle poverty. In fact, successive budgets presented by the ruling party reflect a worrying trend of ignoring human development.“The speech made by the finance minister has practically unbudgeted the poor and those at the bottom of the pyramid,” said Rehman.

Despite an appreciable revision in poverty estimates, the federal government seems to show little interest in addressing poverty in a systemic way. Rehman said that human development is clearly off the ruling government’s policy radar. “Much like the announcement of an annual increase in funding for the BISP, sectors like education and health receive scant attention, limited to a number reflecting budgetary allocation for the next fiscal year. There is no recognition of the fact that Pakistan’s human development indicators are among the lowest in the world, with the state of education widely recognized as a national emergency requiring urgent policy attention,” she added. 

The Senator also noted that the federal government has deliberately ignored a much needed revision in the formula of the National Finance Commission under which provincial budgetary allocations are made. She said that the federal government continues to ignore the provinces key economic matters. “Given the significant electoral mandate with which it came to power, the least the federal government could do was convene the Council of Common Interests more frequently – a perfect institutional mechanism to discuss and collectively work out solutions to common challenges. Just as importantly, the National Finance Commission has been in need of a revision since the last one expired on June 30, 2015. On both counts, the federal government has done the exact opposite. Meetings of the CCI are few and sporadic, convened perhaps solely to counter the criticism that the federal government receives on its high handed behavior towards the provinces, while provincial calls for a revision of the NFC have been routinely ignored. It is ironic that while the government boasts of having revised poverty estimates, it remains reluctant to revise the NFC based on the new poverty headcount,” Rehman stressed.

Regressive taxation
The senator said that the federal government has resorted to a policy of regressive taxation that is likely to continue in the absence of meaningful reforms to expand the tax base. “This is the fourth elitist budget by the ruling party. The government’s fiscal policies have centered on raising revenues to meet deficit conditionalities imposed by the IMF, with complete disregard to how these policies affect the poor.” She noted thatthe increase in the tax-GDP ratio that the finance minister claims was achieved during the current government has largely resulted from indirect taxes that burden those at the bottom of the pyramid. “Clearly, that the economic growth claimed by the federal government has been non-inclusive, failing to catch worrying trends in poverty and income inequality,” she added.

The federal government is expected to expand the Withholding Tax (WHT) regime in the budget for FY2016-17. In earlier budgets by the current government, tax liabilities were increased for non-filers on utility bills, banking transactions, and purchases of properties and vehicles as measures to document the economy and track tax evaders. The measures have mostly failed to meet the documentation objective, while the imposition of WHT has stymied the growth of key productive sectors of the economy.
The government is also expected to continue with the WHT on banking transactions, a measure that was specifically meant to document traders’ incomes but did little in meeting its objectives. Instead, the revenues raised through the imposition of the said tax have led to concerns that the government’s dependence on it as an easy income generating measure will intensify. “The government fails to understand that the transactions tax can be highly regressive, further burdening the lower and lower middle income sections of the society as an obvious byproduct, given that the measure has failed in documenting the incomes of traders. Such taxes have been discontinued in many countries precisely because of their regressive nature,” said the senator.
Despite the imposition of various taxes aimed at helping in the documentation of informal sectors, the tax base decreased by 15 percent during the outgoing fiscal year, reports indicate. From 1.199 million in 2014, the number of income tax filers declined to 980,155 this year. Meanwhile, failing to meet its revenue targets, the federal government has frequently introduced ‘mini-budgets’, with additional indirect taxes that hurt the low income groups most.
Terming “mini-budgets” a “regrettably regressive practice”, Senator Rehman had earlier said that the federal government remains least interested in expanding the tax net, as it continues to impose indirect taxes that choke the middle income and salaried classes. “How do they expect to spur growth by increasing tax burden on those who are already in the tax net?” Rehman questioned.
“The government seems to have no understanding of the obvious externalities of its own policies. More worryingly, economic policy making of the federal government remains arbitrary and completely ignores public input. No wonder provinces feel alienated, and there is little relief for the common man despite the government’s claims of improvement in macroeconomic indicators,” she concluded.

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