Govt unveils Rs 9.5 trillion federal budget for 2022-23
With one eye on the International Monetary Fund and the other on voters, Finance Minister Miftah Ismail on Friday proposed an inflationary budget of 9.5 trillion rupees as part of a daunting challenge to achieve ambitious targets.
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.
But his one measure – the proposal to impose an oil tax of 50 rupees per liter for additional revenue of 300 billion rupees – has not only overshadowed some good measures, but may also make it difficult for coalition partners to defend the budget.
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 tax of Rs 50 per liter as well as a sales tax of 17%.
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.
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Retailers have been taxed at the flat rate through electricity bills while the wealthiest Pakistanis with offshore assets will pay 1% of the value of their foreign assets in taxes annually.
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 has made tough decisions and the process of taking those tough steps is not yet complete,” Miftah said in his budget speech.
“These are tough times brought to us by the past few years of economic mismanagement. Through this budget, my government will get us out of these challenges by making tough decisions while minimizing the impact on vulnerable segments.
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.
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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.
Unlike in the past, the budget speech had gone quietly, thanks to the absence of any real opposition from the house – Pakistan Tehreek-e-Insaf.
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.
The fiscal framework projects a primary fiscal surplus of around 0.2% of GDP, showing that its net income will exceed expenditure, excluding the cost of debt servicing. Previously, during the Doha round of negotiations, the government presented a primary budget deficit framework, which the IMF did not accept.
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 almost 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 defense budget is estimated at around Rs 1,523 billion, up Rs 43 billion or 3% from the revised budget of the outgoing fiscal year. The Ministry of Defense has already taken a supplementary budget of 110 billion rupees for the outgoing fiscal year.
The government has drastically cut subsidies estimated at Rs 699 billion in the next fiscal year.
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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.
The government estimated to receive $16 billion in foreign loans in the next fiscal year for fiscal purposes. The Federal Board of Revenue’s tax target was set at 7 trillion rupees, 17% higher than revised estimates. Non-tax revenue is projected at 2 trillion rupees, which will require 52% growth, indicating that the government will restore oil levy rates.
The oil royalty collection target has been set at 750 billion rupees in addition to the royalty of 50 rupees per litre. This is the second unrealistic objective after the primary budget surplus. For the outgoing fiscal year, the previous government had set a levy collection target of 610 billion rupees, but the revised collection figure is now 135 billion rupees.
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Imports from commercial importers have also been taxed at the rate of 4%, which can fuel inflation.
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.
With additional contribution from APP and Radio Pakistan