Tuesday, 19 June 2007

The National Budget

I've been browsing through some elements of the Pakistani government's proposed budget. Unfortunately I don't have either the time, or the expertise to give it a thorough going over, but I thought I would post some of my reflections on some of the features that caught my eye. At a later date I hope to pursue some of the debates about the budget more carefully. In the meantime there is a good, short overview of what's in the budget here. There is also an interesting article in the Gulf News under Benazir Bhutto's name (though it reads as if it was written by someone on her economic policy team) which mixes some good analysis of Pakistan's economic needs with plugs for the former PPP government.

So, the budget. Firstly, its huge - almost 22% bigger than last year's budget. Military spending once again increases, as does the allocation for educational spending. Interestingly, education spending is still 1/12th of the official military budget (its a widely known secret that actual spending on the military is much higher).

As an aside, I tend to be a little cynical about increased education spending. While I'm for it in principle, there tend to be far too many cash cow pet projects and a severe lack of overall strategy in educational development. Education is not going to have a major social impact just by having more money thrown at it. Remember how the Education Ministry spent millions of rupees on buying computers for government schools after a presentation by Intel's marketing team? No wonder the country manager for Intel sounds the warning that Pakistan is being left behind in the "world IT scene" while simultaneously being "very optimistic about increasing our future market share" in the country. There's big money in education.

Okay, back to the budget:

There's a great deal of talk about poverty alleviation through fighting inflation. Which is odd, because if people are currently poor, fighting inflation, at best, keeps them where they are instead of improving their situation. The Bhutto article has some good bits on why the budget does not present a sound strategy to fight inflation.

Pension allocations have increased, which is to the good. Minimum wage has now increased to Rs. 4600. Interesting. I never even knew that Pakistan had a minimum wage and I don't think many other people do either. But at least if the government sticks to the minimum wage this should have a knock on effect on salaries elsewhere.

There's still a strong emphasis on sales tax, which is a flat tax that effects poor and rich equally, and once again more chipping away at more progressive taxes - to the benefit of the rich. For example, there is a proposal to drop the Capital Value Tax on imported cars. Poor people, who are not buying many imported cars, don't benefit much from this. But on the "upside" we'll be seeing more Mercedes' and Porsches on the streets in coming years.

This raises an interesting point about "development" spending priorities. Due to Pakistan's booming economy over the last few years, the Musharraf government has been able to spend huge amounts on infrastructure projects. Local governments, Karachi most notably, also launched a large number of infrastructure projects in Karachi. Many of these have taken the form of roads, bridges, underpasses, highways etc.

It brings to mind the two different models of infrastructure spending by the USA and UK in the fifties. The USA opted to go for massive infrastructure spending on roads, the highway system, etc. which acted as a massive subsidy for the automobile sector. The UK on the other hand opted for massive spending on public transport thereby building a train, tube and bus network that was one of the best in the world at the time. The US government was inviting Americans to buy cars. The UK was dissuading them from doing so. The social and environmental impact of these decisions are with us today. I should also say political impact, since the USA is such a huge consumer of petroleum that much of its foreign policy is focused on ensuring that it has cheap and steady supplies of oil.

Which brings me back to the massive infrastructure projects in Pakistan's cities, and the attempt to promote automobile ownership. Most Pakistanis seem to take it as a sign of modernisation and economic development that car ownership has boomed in the last few years. But despite the multi-million rupee projects to improve Karachi's road, congestion remains a major problem, as does pollution. Interestingly proposals for a monorail and revamping for the circular railway and other public transportation schemes have been rejected, halted or severely watered down. One suspects that its not the best way to plan for the country's future.

One last thing. The sales tax on paper and paper products has been ramped up to 20%. Why? Its not as if the country needs any more disincentives to printing and publishing.


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