Mohammad Zubair
It’s budget making season once again and the nation awaits with hope and expectations for possible relief from the federal government. It’s not just the numbers that are announced in the budget but more important is the integrity of those numbers.
This will be the 3rd budget of this government since it took over in August 2018 and the experience of the last 2 budgets does not provide much hope for the upcoming budget. Presenting the budget is easy but it’s the actual achievement of targets against those Budget numbers which is the real challenge. That is why most governments have struggled to meet their budget targets in any given year. Missing targets is possible given the many fiscal constraints that governments face which could be attributed to internal or external factors. What is exceptional regarding the last two years is the scale or the degree by which the targets were missed.
As everyone understands, there are 3 main components of any budget – tax revenue, expenditure and the resultant fiscal deficit. The most important of course is the tax revenue. It is the central focal point of our economy. The amount of taxes that we collect will determine our ability to spend on the welfare of the people – education, healthcare, housing, public transportation, water systems, road management etc etc. In addition, tax revenue is also an important benchmark on our ability to spend on defence, debt servicing and running of the government. Exactly for the reasons mentioned, forecasting tax revenue is so vital to the entire budgeting process. Any shortfall in tax revenue directly increases the fiscal deficit. The increase in fiscal deficit then contributes to higher debt borrowing.
PTI has performed poorly as the economic indicators of the last 2 years will reflect. Strange as it may look, it has blamed the previous government for its poor performance. But about the planning process ? Who to blame when you set your own targets but then miserably fail to achieve those targets by miles – something never seen in recent history.
Let’s look at its record in the planning and budgeting area which will demonstrate the level of incompetence of its top ministers.
The present government presented its first budget in September 2018. PML-N had earlier presented the budget for the fiscal year starting July 2018 setting a revenue target of Rs 4435 billion. This was a reasonable target considering PML-N had doubled tax revenue from Rs 1946 billion to Rs 3850 billion over 5 year period. Pti in its election commitments had promised to increase the tax revenue to Rs 8000 billion within 1-2 years after coming into power. As such it was expected that the original target set by Pmln would be significantly increased. So it was a complete surprise when the then Finance Minister announced a revenue target of Rs 4398 billion- reducing the original PML-N target. The flawed planning was exposed within few months when the revenue target was reduced from 4398 billion to 4150 billion. This revision was done in January 2019 – just 4 months after the original target setting. No cut in expenditure was announced with the revenue shortfall resulting in exposing the fiscal deficit. Gone was the drumbeat about controlling expenditures. In fact as it turned out, the Pti government posted the highest ever expenditure in fiscal year 2018-19 than in any previous year in our history.
Back to the revenue numbers. As each month passed, it was becoming clear that the government will fail to reach even revised target of Rs 4150 billion. Just a month before the end of the fiscal year, tax revenue target was maintained at 4150. That it finally ended at only Rs 3820 billion was not just extremely poor from any standpoint but also reflected pathetic planning process under the Pti government. Against its own set target of Rs 4398 billion, it missed the target by a whopping Rs 578 billion.
This was the first time in more than 20 years that federal tax collection actually declined compared to previous year. And that too in an environment with extremely high inflation and massive devaluation- factors that automatically allow increase in tax revenue collection without any extra effort.
However tax revenue is not the only number which was missed by huge margin. Fiscal deficit, which according to Pti senior leadership remains one of the most important pillars of economic management, was also missed by a huge margin. Set to achieve 6.1% of GDP in budget presented in September 2018, it was later revised upwards to 7.1%. The government maintained its fiscal deficit target of 7.1% until the new budget was announced on June 10, 2019. By June 30th, the actual fiscal deficit posted by the government was 8.9%. Several serious issues in that. First what really happened between June 10th and June 30th that such an escalation took place. Expenditure jumped by a staggering 800 billion which was not known or identified just 20 days earlier. Never in our history such a massive miscalculation would have taken place. More important the deficit of 8.9% was the highest in last 40 years. 852
This fiscal year has been no different from the last one. Tax revenue target was initially set at Rs 5500 billion. This figure had no basis except perhaps reflected the wish or aspiration of the Pti leadership. As was expected, it was revised downwards to Rs 5250 billion within months. Much before the covid impact, it was further revised downwards to around Rs 4800. Based on actual achievement of Rs 3 trillion by March end, we would at best ended up around Rs 4200 – short by a staggering Rs 1300 billion. This would have been without covid impact. After covid impact tax revenue will only be Rs 3900 billion.
Governments in the past have missed targets but in most cases, there were valid reasons and the gap was reasonable unlike what we have been witnessing in the last 2 years. Nothing can explain this except sheer incompetence, lack of basic economic understanding and poor planning on the part of the economic team. Based on last two years budgets, why would anyone trust the numbers to be presented in the upcoming budget.
The writer is former Governor of Sindh and has served as Chairman of privatisation Commission with status of State Minister from 2013 to 2017 .
