The Ministry of Finance has recently unveiled the government strategy to create 10 million new jobs in different sectors during its five year tenure. According to the media reports, these new jobs will be created after the implementation of various government projects. For instance, the ministry foresees the creation of two million new jobs, once the Naya Pakistan Housing Scheme is fully implemented. Full implementation of National Financial Inclusion Strategy, according to the State Bank of Pakistan, may create one million jobs from digital financial services. Another half a million jobs will be created through the green economy on account of the 10 billion tree project. Two million jobs may result from enhanced credit access through social sector programs alongside creating three million micro entrepreneurs during the government’s five year tenure. In this regard, the government’s priority is human capital development. The ministry has also reportedly noted that economic growth without creating new jobs is not good for the people of Pakistan. The creation and sustainability of new jobs, however, requires a deeper understanding of the endogenous and exogenous dynamics of the economy. Looking at the government’s strategy to create new jobs in different sectors, it may be noted that there is an intertwined relationship among economic growth, taxes and creation of new jobs. It is a kind of three-tier process in which one component is to ensure a reasonable rate of economic growth by crafting intelligent tax policies. It is because the quantum of taxes depends on the economic growth rate. Therefore the policymakers suggesting higher tax rates may seriously be mistaken because the amount of collected taxes is directly proportional to the rate with which economy grows. The acknowledgement of this relationship at the policy level may be treated as second component. At this stage, a rational and business friendly tax policy needs to be devised that could generate maximum profits for the private sector. Once the government is able to make businesses and entrepreneurial adventures attractive, it will create jobs both in the public and private sectors. It can be marked as the third component. In order to make the businesses attractive to the private sector, the government may need to offer incentives to the taxpayers so as to encourage the growth of businesses and profits. It may be argued that the tax incentives, thus offered, may result in a kind of private sector led economic growth. Transforming the government’s ambition to create 10 million jobs into reality, therefore, also needs an understanding of the impacts of tax incentives on economic growth. This approach will not only be helpful in creating new jobs, both in public and private sectors, but also make them sustainable in the long run. Creation of new jobs largely depends on the businesses growth, their location, expansion, alongside frequent fresh starts with lower rate of business failures. Different countries of the world generally offer tax incentives to influence these factors. The literature shows that tax policies are made on the basis of national and international business and trade situations. Tax incentives may, therefore, not only aim at rescuing businesses from failures but also safeguarding them from competition at the international level. In Pakistan, making profits in business and amassing wealth is unfortunately seen as a negative phenomenon. The Prime Minister also underlined this culture arguing that collecting wealth through legal means is not a bad thing. The countries with respectable economic growth rates generally encourage the private sector to grow and make profits. It is because more profits for businesses means more taxes for the government. Therefore, various governments in the world provide tax incentives to the businesses particularly run by the private sector. Professor Terry Buss at Suffolk University in Boston observes that the practice of offering tax incentives to businesses, for the aforesaid purposes, is so pervasive that states find themselves at war with each other. Some analysts, although, argue that tax incentives are sometimes ineffective but the governments are compelled to offer them because of international competition. A long term policy on tax incentives for the private sector also merits attention. This is a kind of business cycle in which economic growth, tax incentives and creation of new jobs are mutually dependent Many researchers argue that tax incentives inherently involve politics. It is because various political parties may exploit tax incentives to support favored projects or sectors. Therefore, there needs to be a robust criterion for offering tax incentives. Noll and Zimbalist in their 1997 book titled “Sports, jobs and taxes” suggest various criteria for offering tax incentives and creating new jobs. Firstly, an economy may have unemployed resources that can benefit businesses and create more jobs through tax incentives. Secondly, in case the society is fully employed, it may be spending very little on current consumption. That means more investment may cause more consumption in future. Thirdly, the tax incentives based productivity exceeds the productivity of all other investments. In order to create new jobs and augment economic growth, in the above three cases, the tax incentives should increase future consumption. Before offering tax incentives, it is also pivotal to deeply understand Pakistan’s hybrid economic system so that its capacity to generate new jobs could be thoroughly gauged. The Economist observes four types of economic systems in the world. The first one can be titled as ‘traditional economic system’. It is characterized by old business traditions, ancient trade culture, and outdated economic practices. Pakistan’s rural and backward areas still operate their businesses in the traditional economic system. Under this system, many businessmen and traders in Pakistan still prefer cash transactions rather than using the banking channels. The practical dynamics of creating new jobs in this system is very different from other economic systems. The second system may be termed as the ‘command economic system’ where the government has the decision-making power to distribute resources to the masses. The countries like China and Russia follow this system. The third one is the ‘market economic system’ where the private firms and households make decisions and determine resource allocation in their own interest. Pakistan’s health and education sectors are specifically experiencing the ‘market economic system’. Since private sector under this system attempts to maximize their profits, generally the public considers itself at the losing end. They may file cases in higher courts against the power exercised by the private sector for determining resource allocation in their interests. The current judicial activism by the Supreme Court against the exorbitantly high fees at the private schools and hospitals is an example in this regard. There are generally more job opportunities in market economic system because it creates more profits for the private sector. The fourth type is the ‘mixed economic system’ that inherently combines the ‘command system’ and the ‘market system’. In this system the government has the opportunity to run specific business while handing over the others to the private sector. Under this system, generally, the governments run sensitive businesses such as defense, transportation, and rail road. Within Pakistan’s hybrid economic system, the government needs to clearly demarcate the businesses which would be run by the government and the private sector. This demarcation will indeed create two broad categories of new jobs. The first category will primarily comprise of the jobs in government and semi-government organizations. Most governments in the world generally follow the mixed economic system by identifying the businesses they want to run. In case of Pakistan, for example, the government will definitely keep sensitive businesses with it such as defense and infrastructure development. Other areas concerning human capital development, such as education and health, may also be handled by the government. This category should not encourage creating traditional office jobs. It should rather create a kind of technological spill-over effect from the defense sector to the regular industries. For example, Pakistan is manufacturing high quality defense equipment both indigenously and with the help of China. The technological spill over from China to Pakistan should further penetrate into our local industry and businesses. For instance, the research carried out for the manufacturing of state-of-the-art war planes and submarines can be replicated in advancing the manufacturing of many items of everyday use. This policy will increase economic activity, innovation, and entrepreneurship cobbled with the creation of new jobs. Similarly, the education and health sectors always keep growing. There is always greater room for creating new jobs in these sectors. In the second category, the government must encourage the private sector to earn reasonable profits. There is a need to systematically discourage the prevalent culture in the government sector that treats wealth generation as a negative phenomenon. Even if the private sector does not create desired government revenues for the time being, their business growth should not stop so as to minimize the rate of business failures in Pakistan. This policy approach means offering intelligent tax incentives to the private sector with a view to creating new sustainable jobs and augmenting Pakistan’s long run economic growth. Instead of just focusing on short term measures, aimed at meeting the revenue targets, a long term policy on tax incentives for the private sector also merits attention. This is a kind of business cycle in which economic growth, tax incentives and creation of new jobs are mutually dependent. Rational and intelligent policy interplay among these three factors can not only generate millions of new jobs but also make them sustainable in the long run alongside ensuring a respectable economic growth rate. The writer is Additional Commissioner, FBR, holding PhD in Economic Planning from Massey University, New Zealand. The views expressed are his own. E-mail: babarchohan21@gmail.com Published in Daily Times, December 21st 2018.