Finance Minister Miftah Ismail said on Saturday that the aim of next year’s budget was fiscal consolidation and relief for the masses, a day after the government presented an inflationary budget of 9 .5 trillion rupees to achieve ambitious goals.
The new budget for the 2022-23 financial year brings comfort to the working class whose tax burden has been significantly eased in addition to a 15% increase in salaries for inflation-hit government employees.
The finance minister said the country was going through “very difficult” and unprecedented times. The minister, speaking to the media alongside State Minister Ayesha Ghous Pasha and Information Minister Marriyum Aurangzeb, said the government understands that these are difficult times and “we have tried to reduce the burden of the poor and take more from the rich”.
Referring to the budget presented a day earlier, Miftah argued that the government has tried to tighten fiscal policy and reduce the overall deficit. He said taxes have been increased for Pakistani citizens who own overseas assets as well as new property taxes.
Continuing his developments, he said that the budget of the Benazir Income Support Program (BISP) had been increased by 35-40%. He added that flour, sugar and ghee will be supplied at discounted rates from utility shops throughout the year. The finance minister also said that the government has taken tough decisions with the country’s interest in mind.
The finance minister added that the International Monetary Fund (IMF) wanted higher tax rates, but the government tried to reduce the tax.
Referring to the tax collection target, he said that more than Rs 700 billion had been set for the next fiscal year, while the non-tax revenue target was set at Rs 2 trillion and that debt service was estimated at 3,950 billion rupees.
Referring to soaring palm oil prices in the international market, Miftah said a Rs 20 billion package had been granted to promote the cultivation of oil seeds and added that special emphasis was on boosting exports, expressing confidence that exports will hit $35. billion dollars in the next fiscal year.
In response to a question regarding the feasibility of inflation and growth targets, Miftah said “we have growth and inflation targets, but our first priority is fiscal consolidation and reducing the burden on the masses.”
Responding to another question regarding a revised price by the National Finance Commission (NFC), Miftah said the commission needs to sit and discuss a new price. “KP’s population has grown since FATA’s incorporation and their allocation should reflect that.”
State Minister Ayesha Ghous Pasha told the press conference that the incumbent government had inherited a “difficult situation”, but the country needed to focus on growth.
She added that the government has regulated and subsidized the prices of wheat, sugar and ghee and the government has also relieved the farmers.
Budget for FY23
The government has proposed Rs740 billion in new taxes, including Rs440 billion in tax measures proposed by the Federal Board of Revenue. Some of the major relief measures will be offset by increased oil price rates due to a levy of Rs 50 per liter as well as a 17% sales tax.
While unveiling the coalition government’s first budget in an unusually calm atmosphere, Miftah attempted to tax the sacred cows – the real estate sector, the wealthiest people while making it easier for commercial banks to cough up the money earned.
The tax burden on the registration of luxury cars over 1,600 cc has been doubled while the rates on sales, purchases and gains made on properties have been significantly increased.
No measures have been announced to reduce the current account deficit or imports while the Minister of Finance sets the current account deficit target at only 2.2% of gross domestic product (GDP).
The coalition government gave in to the IMF’s demand to post a primary fiscal surplus, setting it at 152 billion rupees by planning fiscal consolidation of almost 1.8 trillion rupees or 2.2% of GDP over the course of the year. next exercise. This is the steepest consolidation proposed in an election year amid growing political uncertainty and difficult negotiations with the IMF.
Talks with the IMF have so far remained inconclusive and it could take some time after the finance minister announced some moves against the global lender’s wishes.
While setting the inflation target at 11.5%, Miftah said the total size of the 2022-2023 budget will be 9.5 trillion rupees, an increase of only 4.6%, making the forecast unrealistic expenses from day one. It will be very difficult for the government to virtually freeze spending in the next fiscal year when there will be a significant increase in the cost of living.
Rising prices for electricity, gas and petroleum products would also increase the cost of the military and civilian government, which was not really reflected in the budget figures offered by the Minister of Finance.
The gross revenue target has been set at 9 trillion rupees, 23% more than the government wants to achieve through a combination of tax and non-tax measures, including the oil tax on petrol and diesel at great speed.
A major challenge the finance minister has set himself is to deliver a primary budget surplus of Rs152 billion, especially as provincial governments have announced big development budgets that leave little room for cash surpluses of Rs800 billion. of four federated units, as he budgeted. .
The finance minister said the government will focus on agriculture, improving productivity and promoting exports in the next budget.
Much of the new budget – the 5.45 trillion rupees, or almost 58% of the budget – will be spent on just two heads – debt servicing and defence. There is an alarming increase of more than 806 billion rupees, a 26% increase in the cost of servicing debt in just one year. During the outgoing budget year, the share of these two components represented half of the total budget. The share of defense services remained constant but debt service got out of control.
Domestic debt service will consume nearly 3.5 trillion rupees while another 511 billion rupees will be spent on external debt service. The average interest rate over the next fiscal year is estimated at 14%, which would take away what the government will earn in additional revenue.
Although the government is aiming for a primary budget surplus target of 152 trillion rupees, the Ministry of Finance will still borrow 4.6 trillion rupees to run its operations, thanks to the debt service cost of nearly 3.95 trillion rupees in the financial year 2022-23. This will be the highest debt service cost ever recorded in Pakistan’s history.
The steeper adjustment of 1.75 trillion rupees or equal to 2.2% of GDP will be difficult in an election year and the risks of slippages will remain high.
The size of the Rs 9.5 trillion budget is nearly Rs 418 billion or 4.6% larger than this year’s revised budget of over Rs 9 trillion. There was an 11% increase in expenditure from the initial budget of Rs 8.5 trillion, which has now become redundant.
Current spending is expected to increase by just 3% to Rs 8.7 trillion from revised estimates.
The government has drastically cut subsidies estimated at Rs 699 billion in the next fiscal year.
These are down 815 billion rupees or 54% from this year’s revised estimates. The cost of pensions is Rs530 billion and the functioning of the civil government will consume only Rs550 billion. The cost of Rs 550 billion seems low due to the increased cost of utilities under the IMF program.
The government has proposed 727 billion rupees for the public sector development program for the next fiscal year, although Planning Minister Ahsan Iqbal unveiled the 800 billion rupees draft PSDP. The government has set the budget deficit target at 4.9% of the total size of the economy, or 3.8 trillion rupees.
But the main challenge for the finance minister will be arranging a record $41 billion in foreign loans over the next fiscal year to stay afloat. “Pakistan will have to repay $21 billion in foreign loans, it will need another $12 billion for financing the current account deficit and another $8 billion to increase foreign exchange reserves to $18 billion,” said the Minister of Finance.
Gross receipts are estimated at 9 trillion rupees for the next financial year, an increase of almost a quarter or 1.7 trillion rupees. The provinces will receive 4.1 trillion rupees as their share, leaving the federal government net revenue of 4.9 trillion rupees. Federal government net income is expected to be 600 billion rupees less than defense spending and debt servicing.