The Fed. budget has plenty of incentives for industrialists and little relief for the common man, the federal government on Tuesday unveiled a budget of Rs3.936 trillion for fiscal year 2014-15 with deficit standing at Rs1.711 trillion that will be bridged through fresh borrowing.
Reading his 74-page budget speech in the National Assembly, Finance Minister Ishaq Dar clearly had two very important audiences in mind 1. The International Monetary Fund (IMF) and 2. The business community.
For the IMF, the message was that the government would stick to fiscal consolidation for the second year running.
Against net income of Rs2.225 trillion, the finance minister claimed that the expenditure of Rs3.936 trillion was only 2% higher than this year’s revised outlay of Rs3.844 trillion. However, the expenses were 9.6% or Rs345 billion more than the current year’s original figure of Rs3.591 trillion.
The budget deficit – difference between income and expenditure – would be Rs1.711 trillion or 5.9% of gross domestic product (GDP), Dar said. To fill this gap, the government will borrow Rs914 billion from domestic sources, Rs508 billion from external sources and Rs289 billion will be saved by four provinces from their budgets.
He announced 10% increase in salaries as ad hoc allowance as well as 10% rise in pensions. He did not announce creation of new public sector jobs. “The private sector has to create jobs,” he said.
Dar vowed that reduction in budget deficit and increase in tax revenues would be the top-most priorities of the government. “Deficit will be reduced through better tax collection and restricted expenditures.”
Efforts to control expenditures will be entirely focused on subsidies, which have been brought down to Rs203 billion for the next fiscal year compared to revised Rs323 billion in the outgoing year.
A major subsidy cut will come in the shape of lower allocation for the power sector as par IMF dictats.
Dar announced that Rs231 billion worth of new taxes in an effort to increase tax collection to Rs2.81 trillion, a rise of over Rs535 billion over the previous year’s target.
Most of the new taxes were slapped on existing taxpayers with no new sector coming into the net. The government is heavily banking on withholding tax to step up revenue collection next year.
With the new taxes, hundreds of items will become expensive, particularly cars, cigarettes and imported goods including leather and garments.
Dar said corporate income tax would be slashed from 33% to 20% for bringing investment in manufacturing, construction and housing sectors. Effectively ensuring that the industrialist class is very very happy indeed!
For stock investors, capital gains tax was kept at a reduced level at 12.5% for short-term sales, which was supposed to be 17.5%.
On the expenditure side, the single biggest chunk, estimated at Rs1.325 trillion, or a third of the budget will once again be swallowed by interest payment on national debt.
Overall defence spending will constitute 28.2% of the budget and may well cross Rs1.1 trillion for the first time in the country’s history.
