Daily Times

Punjab Finance Minister Mujtaba Shujaur Rehman presented the 2014-15 provincial budget in the Punjab Assembly on Friday amidst loud protests by the opposition. The Rs 1,045 billion expenditure is considerably larger than the Rs 897.57 billion budget for the previous year. The government says it will not incur a deficit after receiving Rs 804.19 billion from the federal divisible pool and expected provincial tax and non-tax revenues of Rs 228.87 billion. The budget proposals are in line with the ruling party’s ‘pro-business’ stance, with nominally increased allocations for education and health and a sizeable development budget for southern Punjab. Lawmakers from the south recently voiced their discontent over the region’s neglect and this budget seeks to alleviate that criticism by allocating 36 percent of overall development funds for the south. The proposed Annual Development Programme (ADP) of Rs 345 billion has the lion’s share set aside for infrastructure development at Rs 137.5 billion. Social services receive Rs 96 billion, with allocations of Rs 18.5 billion for primary education, Rs 11.5 billion for higher education, and Rs 24.57 billion for the health and family planning sectors. The overall education outlay stands at Rs 273 billion and the overall health sector outlay at Rs 121.8 billion. The government announced a 10 percent increase in the salaries and pensions of government workers in line with federal increases, though no reference was made to its pre-election promise to raise the minimum salary of lower-scale workers to Rs 15,000. The increase was criticised by government workers who demanded a 25 percent raise.

The most notable feature of the budget was the levying of a range of new taxes or increases in taxes. The proposals include imposing sales tax between five and 19 percent on services such as car washes, laundry shops, call centres, workshops and cable operators among others, commercial services that have so far remained outside the indirect taxation net. Stamp duty was increased from two to three percent. The burden will undoubtedly fall on consumers, particularly middle-income groups, and one questions the economic wisdom of further taxes on relatively low-cost services that will not generate significant revenue. This also does not make economic sense since higher costs translate into lower disposable incomes that drive down demand. Trying to balance the market by stimulants to the industrial sector may increase productivity in the short term. However, long-term growth has to be driven by internal demand and rising incomes. This does not square with the government’s proposed 5.5 percent growth target for the fiscal year. Also missing were specific proposals for stimulating the province’s flagging manufacturing sector, the allocation of Rs 20.7 billion for the production sector notwithstanding. Similarly, the government proposed increasing taxes on luxury items in an attempt to further tax the wealthy, though analysts say the new levies will not substantially increase revenue. The proposals include 16 percent sales tax on hotels while removing the hotel ‘bed tax’, and a Luxury Token tax on vehicles of 1.6 litres and above. A tax ranging from Rs 0.15 million to Rs 0.25 million on ‘luxury’ houses of up to eight kanals, and tax of Rs 0.2 million to Rs 0.3 million on houses built on more than eight kanals was proposed. A similar, more limited proposal from last year is currently under challenge in the courts on the grounds of being discriminatory, and it is difficult to see how the government will make this tax stick given the failure of its previous attempt. There were also allotments of Rs 25 billion and Rs 5 billion respectively for the government’s yellow cab and youth laptop schemes. Crucially, with provincial debt standing at Rs 425 billion, can the government afford populist schemes? No proposals were forthcoming for reducing massive government expenditure and running costs, which stood at Rs 700 billion. Like the federal budget then, the Punjab provincial budget showed a lot of tinkering to meet revenue targets in attempts to stay ‘balanced’ while increasing taxes on an already overtaxed middle-class, wasting money on pet projects with no discernible economic impact, with no proposals for cutting costs. It looks like business as usual in this ‘business-friendly’ budget. *